Chavez’s government denies Crystallex permit to develop Las Cristinas

Vancouver – Crystallex International (KRY-T, KRY-X) has jumped through every hoop in its path. It has spent the last four years applying for permits, paying taxes, and consulting with government officials in the hopes of finally landing permission to develop its 16.86-million oz. Las Cristinas gold deposit in Venezuela.

It now seems those hopes have been dashed.

The Director General of the Administrative Office of Permits at the Ministry of Environmental and Natural Resources of Venezuela (MinAmb) notified the Corporacion Venezolana de Guayana (CVG), owner of the Las Cristinas concessions and Crystallex’s partner, that it is denying authorization to develop the mine.

In exact terms, the notice denies “authorization to affect natural resources to carry out exploration activities in the mining area of Las Cristinas in Sifontes, Bolivar state.” Crystallex has already defined proven and probable reserves of 465 million tonnes grading 1.13 grams gold per tonne at Las Cristinas and was simply waiting for permission to start development. Plans call for a 20,000-tonne per day open pit mine with a 1.38 to 1 strip ratio.

In explaining the denial the Director General cited sensitivities surrounding indigenous peoples, small miners in the area, and the environment. The project is situated the Imataca Forest Reserve, an area home to several mining projects all awaiting permission to continue development and exploitation.

The denial is a surprise, even compared to the long waits and drawn-out permitting processes Crystallex has endured to date. In fact, it seemed that things were falling into place for Crystallex and CVG. CVG, a branch of the central government, owns the Las Cristinas land and mineral rights. Crystallex is like a contractor who would mine the ore and pay a 3% royalty to CVG, another 3% royalty to the government, and 23% in corporate taxes.

In June MinAmb announced that Crystallex-CVG had fulfilled all of the mine permit requirements, crucial among which was the Las Cristinas environmental impact statement (EIS). MinAmb specifically approved the EIS and then requested a construction compliance bond of roughly $450,000 and certain environmental taxes, which CVG paid.

In an interview with The Northern Miner a few days later Crystallex president and CEO Gordon Thompson said, “I think we’re talking days, but it could be weeks.”

Weeks passed and the permit did not appear. But in October another hopeful sign the Venezuelan Nation Assembly’s commission of economic development published a report following hearings on Las Cristinas that called for prompt issuance of the permit.

Still nothing. In early 2008 Crystallex representatives met with the newly-appointed Canadian Ambassador to Venezuela, who promised to work to advance Las Cristinas. Around the same time government officials confirmed that the company was in good standing for issuance of the permit.

The denial notice to CVG hit Crystallex hard. The company’s share price lost 63 or 39% over the day to close at 98 on 7.7 million trades. But investors had already been scared away by the long delay in June, when it seemed the permits was “days” away, Crystallex was trading around $4.75. Since then its share price has declined steadily and has now lost roughly 80%.

Crystallex plans to apply for reconsideration and is working with various levels of the CVG to craft its response. Years of exploration and a significant gold deposit aside, Crystallex has invested heavily in Las Cristinas. First off, since the first estimate in 2005 costs have increased from $7.66 per tonne of ore to $9.80 per tonne, so if it can ever develop the mine it will be a more costly operation.

Secondly, the company has already spent US$112 million on equipment and engineering services in preparation for development. Crystallex already has the initial mining fleet and all long lead-time equipment ready in storage.

In addition the company is in the midst of building a new medical centre and sewage treatment plant for communities in project area. The developments, which together cost some $5.3 million, should be completed this year.

And Crystallex diluted its shares in February, selling 32.9 million units at $2.10 apiece, to raise $69 million to have development cash ready when the permit arrived.