Crystallex shareholders cry over end of legal battle

The shorts laughed all the way to the bank and the longs cried over their losses.

So sums up the range of emotions felt by fans and critics of Crystallex International (KRY-T) after a Venezuelan court ruling put an end to the company’s efforts to assert “ownership rights” over the bulk of the Las Cristinas gold deposit in Venezuela.

The ruling, which cannot be appealed, was a victory for Placer Dome (PDG-T), which had put its 70% owned gold project on hold pending the outcome of the legal challenge by Crystallex’s Venezuelan unit, Inversora Mael. The Venezuelan court ruled that Mael “did not have status” to assert ownership rights over the Cristinas 4 and 6 concessions, and refused to proceed with a lawsuit commenced by Mael to enforce those “rights.”

The legal dispute between Crystallex and Venezuela’s Ministry of Mines was a roller-coaster ride for shareholders, who saw the value of their shares plunge to below US$1 from a high of over $11. Many had difficulty understanding the complex and convoluted dispute — which involved a series of sometimes contradictory Supreme Court rulings and an underlying jurisdictional dispute between government and quasi-government agencies — or the chronology of events, which date back to 1964, when alluvial mining rights were awarded to a woman named Dot Lemon.

Many shareholders believed that Crystallex’s claims were validated in 1997 when the Ministry of Mines “gazetted” a notice of transfer of the concessions to Mael from a Venezuelan individual, Ramon Torres. However, Placer Dome and others insist the notice included a statement that the gazetting was done “for the sole purpose” of complying with a court order (based on an ex parte application by Mael) and that the concessions in question either expired, or were forfeited, in 1989, and consequently reverted to the state.

Placer Dome and others also pointed out that the purported 1986 transfer from the original owner, Dot Lemon, to Ramon Torres was challenged by the administrator of Lemon’s estate because the transfer was executed under a revoked power of attorney. In 1991, a court ruled that these transfers were indeed void and, consequently, the subsequent transfers between Torres and Mael were void. Mael appealed, and a settlement was reached later that year.

The legal battle was revived in late 1996, when Crystallex agreed to acquire Mael for US$30 million. The junior’s stock price rose dramatically over the ensuing months, but fell markedly this spring when a short-seller challenged Crystallex’s claims to have “rights” to Cristinas 4 and 6. At the same time, a Venezuelan congressman asserted that Crystallex’s legal efforts would not result in it acquiring rights to Las Cristinas. He also pointed out that the company was claiming to own several other concessions in Venezuela, when those transactions had been revoked by the government years earlier because it is illegal to acquire properties from native mining cooperatives.

While a few diehards are holding the faith and blaming “corruption” for the negative ruling, some disgruntled shareholders are calling for investigations into the matter, and warning that lawsuits might be launched against Crystallex and some of its promoters.

Most of this grumbling and rumbling is taking place on the Internet, where Crystallex cheerleaders touted the stock, “flaming” (shooting down) anyone offering a dissenting view. Most now appear to accept the finality of the ruling.

“Don’t turn this into another Bre-X [damage control] thread,” one person posted on an Internet discussion group. “The party is over for KRY, and that’s it. [Crystallex’s] attorney even said it’s over.” Another poster noted the irony in the words of diehard investors who clung to the hope that the problems would be solved, compensation would be forthcoming, and that Crystallex would be shown to have title. “If you are having these thoughts, take your money to Las Vegas; it will be more fun and you’ll have better odds of a return on investment,” the poster quipped.

Crystallex still owns surface rights at the Albino concession, adjacent to Las Cristinas, on which it operates a small, money-losing gold mine. The junior has not been able to secure deep mining rights at Albino.