Chavez gov’t denies Crystallex key permit at Las Cristinas

VANCOUVER — Crystallex International (KRY-T, KRY-X) had been jumping through every hoop in its path at the Las Cristinas gold project in eastern Venezuela.

The company had spent the last four years and more applying for permits, paying taxes and consulting with government officials in the hopes of finally landing permission to develop the 16.9-million oz. Las Cristinas gold deposit.

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 have called for a 20,000-tonne-per-day, open-pit mine producing about 250,000 oz. gold annually during the first five years, at a total cash cost of US$258 per oz.

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 that are 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 stresses that it would, in effect, be a contractor that would mine the ore and pay a 3% royalty to CVG, another 3% royalty to the government, and 23% in corporate taxes.

In June 2007, MinAmb announced that Crystallex and CVG had fulfilled all of the mine permit requirements, crucial among which was the Las Cristinas environmental impact statement (EIS). Min- Amb specifically approved the EIS and then requested a construction compliance bond of roughly $450,000 and certain environmental taxes, which CVG paid.

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

Weeks passed and the permit did not appear. But in October 2007 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.

But still nothing.

In early 2008 Crystallex representatives met with the newly-appointed Canadian Ambassador to Venezuela, Perry Calderwood, who promised to work to advance Las Cristinas. Around the same time, Venezuelan government officials confirmed that the company was in good standing for issuance of the permit.

This latest denial notice to CVG has hit Crystallex hard. On the day of the news, April 30, the company’s share price lost 63 or 39% to close at 98 on 7.7 million trades. The shares traded at 75 at presstime.

But many investors had already been scared away by the long delay. Last June, when it seemed the permit was days away, Crystallex was trading around $4.75. Since then its share price has declined steadily and has now lost roughly 84%.

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.

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

On the social front, the company has been building a new medical centre and sewage treatment plant for communities in the project area. These developments, which together cost some $5.3 million, had been expected to be completed this year.