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The latest descent came after the company said that it had amended the terms of its previously announced financing deal with Azimuth Opportunity — originally designed to provide “backstop” financing until it could secure the final permit for the Las Cristinas gold project from the Venezuelan government.
The deal, originally struck in mid-September, saw Crystallex issue $10 million worth of units comprising $10 million of notes maturing next March, 200,000 shares, and 450,000 1-year warrants, each good for one share at $3.19 apiece. The second part of the agreement allowed Crystallex to require Azimuth to buy up to $60 million worth of its shares in a series of up to 20 drawdowns over two years, beginning Sept. 14.
The new deal slashes the minimum price at which Crystallex will sell its shares to $1.00, rather than the previous floor price of $2.50. Likewise, the maximum drawdown amount has been scaled back.
Crystallex has already delivered a drawdown notice to Azimuth.
Shares in Crystallex plunged down the first big hill late on Sept. 20, after a slew of media reports quoted Venezuelan President Hugo Chavez as saying during a televised speech that “Las Cristinas belongs to Venezuela, and we are going to create a national mining company there.”
Crystallex shares immediately responded by falling to $1.65, down $1.51 on the Toronto Stock Exchange. That set into motion a wild ride that has since seen the company’s stock drop as much as 62%, and recover in fits and starts to sit at $1.60 at presstime, down $1.56, or around 51% from where it all started.
The ride has been powered by a daily dose of media reports quoting Chavez, followed by company press releases aimed at damage control.
After rebounding on Sept. 21, the shares took another nosedive on Sept. 22, after Chavez said that his government would revoke inactive gold and diamond mining concessions and would not issue new ones to foreign companies. Instead, the concessions would be handed over to smaller co-operatives that would be supported by the government.
Chavez’s announcement is part of a broader campaign aimed at reviewing the country’s resource contracts, which he says are robbing Venezuelans of their natural resources. The populist leader also said he is guiding Venezuela away from capitalism and toward a new “socialism of the 21st century” that will increasingly involve co-operatives and emphasize “collective property.”
Crystallex maintains that it is unaware of any change in the status of Las Cristinas, or its contract to operate the mine, adding that the government’s review is aimed at dormant projects only. The company says Chavez’s comments have been taken out of context and the idea of a state mining company has been around for years.
Crystallex CEO Todd Bruce said in a prepared statement that Las Cristinas is indeed owned by the Venezuelan government and administered by state-owned Corporacin Venezolana de Guyana (CVG). CVG has in turn contracted Crystallex to develop the project.
Bruce says that his company’s development contract with CVG would persist even if Las Cristinas did become part of the country’s proposed national mining company.
“Nowhere has it been said that Venezuela does not intend to honour valid and subsisting contracts with reputable and performing international companies,” he said. “The creation of the new national mining company would therefore have no practical impact on Crystallex as it is the mine operating contract that governs our role.”
Speaking at the recent Denver Gold Forum, Bruce explained that the government is not nationalizing the mining industry or terminating valid contracts. Instead, all titles will now be issued as operating contracts, instead of concessions, and granted through one national Venezuelan company, which will be based on the core assets already held by CVG, including Las Cristinas.
He says that the government intends to change the regulatory title system of the mining industry to that of the oil industry where all titles are issued in the form of an operating contract.
“The new regime that they are implementing is identical to what we have at Las Cristinas,” explained Bruce. “In some respects, we are the poster child, the blueprint, for the entire mining industry who are now going to be operating under the exact same title that we are at Las Cristinas.”
Bruce says Crystallex’s contract will also “roll through” the process.
While Bruce would not speculate on when the final permit would be granted, he did say the permitting process was in a “very advanced stage” and that the government wanted to see it concluded “very much sooner rather than later.”
Meanwhile, the company is forging ahead in business-as-usual mode at Las Cristinas, despite the cloud of uncertainty Chavez’s comments have kicked up over ownership of mining assets in Venezuela.
Most recently, Crystallex tabled a “substantially completed” study by
The proposed expansion builds on the originally planned 20,000-tonne-per-day operation, which sports a price tag of US$293 million. That price includes a recent 10% increase owing mostly to pricier building materials, costs associated with delays in receiving the environmental permit, and inflation.
Engineering work for the expansion would begin around six months after completion of the 20,000-tonne processing plant; a 2-year construction phase would follow another six months later.
Operating costs for the bigger operation are estimated at US$6.91 per tonne of ore over its 23-year life span. By comparison, operating costs for the 20,000-tonne facility are expected to average US$7.63 per tonne over 41 years. Likewise, total cash costs for the expanded plan run around US$208 per oz. gold, down from US$221 per oz.
Thanks to the lower operating costs under the proposed expansion, Mine Development Associates has increased the reserve estimate at Las Cristinas to 316.5 million tonnes grading 1.27 grams gold per tonne, for 12.9 million contained ounces. Reserves under the original plan had recently been trimmed by 2% to 294.8 million tonnes grading 1.32 grams gold, owing to the higher costs. Both estimates are based on a gold price of US$350 per oz.
Las Cristinas was originally expected to produce an average of 270,000 oz. gold per year over 41 years, with the first pour slated for early 2007, pending permitting. Under the new scheme, production would average around 500,000 oz. annually.
Permitting delays and legal disputes have long dogged Las Cristinas. The project is currently the subject of arbitration between CVG and Vancouver-based junior
Last year, Vannessa withdrew its lawsuit in favour of trying its luck with arbitration at the World Bank’s International Centre for Settlement of Investment Disputes.
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