CVG gives Crystallex the green light

Vancouver — Since the early 1990s, the advancement of the historical Kilometre 88 mining district in southeastern Venezuela has been plagued by protracted legal challenges to land titles. Some 12 years later, the saga continues, with Vannessa Ventures (VVV-V) laying claim to the mining permit for the Las Cristinas gold project, but Venezuelan state-owned Corporacion Venezolana de Guayana (CVG) awarding Crystallex International (KRY-T) the operating contract for the disputed ground in Bolivar state.

Crystallex was chosen because it has operating interest in the region and CVG believes that the junior is in the best position to rapidly develop the long-stalled project. CVG envisions a 40,000 tonne per day operation needing a total investment of some US$500 million.

“We are pleased to have been selected and look forward to beginning work on the project,” says Crystallex’s Chief Executive Officer, Marc Oppenheimer. “We also salute our shareholders who have steadfastly stood by our Company as we patiently sought to obtain possession of this property in a legitimate and lasting way.”

Crystallex has been operating in the area since 1994 and currently has two prospects at the development stage. To date, the junior has poured some US$120 million into the state.

“The selection of Crystallex to develop Las Cristinas acknowledges that the company has the experience, capability and the long-term commitment to Venezuela to build a sustainable project that will benefit the Venezuelan economy,” adds Oppenheimer.

Over the last year, the Las Cristinas project has been the object of a bitter dispute between CVG and Vancouver-based Vannessa, which purchased a controlling stake in the project from the original owner Placer Dome (PDG-T).

However, CVG has failed to recognize the deal accusing Placer of selling its interest in Las Cristinas without its written approval. Placer claims no such approval was required. The proposed sale was made in mid-July, just days before Placer’s rights to the Venezuelan deposit were scheduled to expire. Placer sold off its interest in Minera Las Cristinas (Minca), the operating company formed by Placer and CVG.

CVG has made no secret that it wants Las Cristinas to move forward. Placer shelved construction in the summer of 1999, citing low gold prices, and subsequently took a US$116-million writedown.

An open-pit project, Las Cristinas hosts a reserve of 323 million tonnes grading 1.1 grams gold per tonne. An updated feasibility study, unveiled in the fall of 1998, recommended annual production averaging 470,000 oz. gold and 16,000 tonnes copper over a mine life of 20 years. The proposed daily milling rate was 48,000 tonnes, and production during the first 10 years was expected to average 530,000 oz.

According to Crystallex, the awarding of the contract paves the way for all the legal requirements including title, possession, and mining rights to be brought together so that the project can move forward.

However, Vannessa has another interpretation of the latest development and is playing down the awarding of the operating permit. The company states that as the holder of both the mining and environmental permits for the project, it would continue its legal challenges, including the Venezuelan government’s decision to resume state control of the mine. The junior is also taking its claim to international arbitration under an investment protection agreement existing between Canada and Venezuela.

“We don’t fear any claim before the Venezuelan courts, because these can’t affect the titles to the deposit,” says the President of Crystallex’s Venezuelan subsidiary, Luis Felipe Cottin.

Vannessa claims that all or any of the court decisions will definitely affect title and further states:

“The current announcement can only be viewed as a desperate attempt to complete some form of arrangement prior to the start-up of court proceedings after the summer recess. The rush of the announcement is obvious when looking back at previous CVG declarations that “a number of large mining companies have shown interest and will be considered for the project” and “only companies with 2 Million ounces of production levels will be considered”. Suddenly, those conditions appear to no longer apply and the CVG, who takes weeks to answer simple requests, seems to have reviewed a number of bids and made a major decision on the country’s largest gold deposit in just a few days.”

Despite announcing that Crystallex was awarded the operating contract, the mining rights to the project will remain in the hands of the state.