Vancouver – For over a decade, the long and winding road toward developing the Las Cristinas gold property in southeastern Venezuela has proved treacherous for foreign mining firms trying to advance the large, low-grade deposit. Now, after coming off a nearly fatal court ruling in 1998,
CVG chose Crystallex as a potential partner based on its operating interests in the region and the belief that the junior is in the best position to rapidly develop the long-stalled project.
“In the operation contract, the commitments will be defined and responsibilities will be very strict at the time of guaranteeing its fulfilment,” says CVG President, Francisco Rangel Gomez. Adding a key point, “The Venezuelan state will conserve intact, the mining rights on the gold and copper concessions of Cristinas 4, 5, 6 and 7.”
A frustrated Manfred Peschke, President of
Negotiations between CVG and Crystallex are expected to begin immediately but to maximize the local economy, CVG envisions a 40,000-tonne-per-day operation requiring a total investment of some US$500 million.
Crystallex has been claiming a right to concessions 4 and 6 of the Las Cristinas property since 1996, when the junior purchased a Venezuelan company, Inversora Mael, which claimed to hold those claims in Bolivar state. A series of legal challenges to the ground title appeared to come to an end in 1998, when the Venezuelan Supreme Court refused to hear claims brought by Mael and Crystallex. Despite the ruling, Crystallex continued to take legal action against the Venezuelan government to enforce its rights over the claims but based on CVG’s latest decision, the company has finally elected to drop the issue.
“We are pleased to have been selected and look forward to beginning work on the project,” says Crystallex’s Chief Executive Officer, Marc Oppenheimer.
The junior gold producer has been operating in the Las Cristinas area since 1994 and currently has two prospects at the development stage. To date, the company has poured some US$120 million into the state and at the end of last year carried Las Cristinas on its books for some $42 million, although as far as Peschke knows “they have never set foot on the property.”
Crystallex is portraying CVG’s decision as a vindication of years of perseverance and high-quality work in Venezuela.
“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 an upbeat 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 95% stake in Minera Las Cristinas (Minca), the company that held the rights to the property, from
Placer can back in if a bankable feasibility study shows that a 250,000-oz.-per-year gold mine can be profitable. The right can be exercised for Vannessa’s capital costs and “preproduction soft costs,” plus 10%. Vannessa would then be entitled to 2% of Placer Dome’s NSR on gold and copper production, provided it had spent at least US$2 million in capital costs on the project and maintained the mining rights for more than a year.
Minca’s partner in the project, CVG, refuses to recognize the sale, 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 just days before Placer’s rights to the Venezuelan deposit were scheduled to expire.
“For some reason they (CVG) are favouring Crystallex,” says Peschke. “I think initially, CVG was not happy with Placer and since they (Placer) still have a back-in-right, the deal was opposed.”
Venezuela’s mines ministry entered the dispute in March by announcing two resolutions that gave the government control over the property, dealing a blow to Vannessa.
“The Republic resumes its full rights over the expired gold concessions Cristina 4, Cristina 5, Cristina 6 and Cristina 7,” states one of the ministry’s resolutions. “Mining activities will revert back to full ownership by the Republic.”
Minca is appealing the cancellation of the copper rights to the concessions and Vannessa also reaffirmed what it called Minca’s “sole legal right to the gold concession titles under current Venezuelan law.”
According to Vannessa, the 1999 Venezuelan mining law places Minca in priority position for the Las Cristinas gold concession titles. But CVG described this interpretation as “absolutely irrational,” saying the decision to return the Las Cristinas concession to the state had been agreed to by the state holding firm and the mines ministry.
Crystallex believes that the awarding of an operating 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 an operating contract. The company states that — as the holder of both the mining and environmental permits for the project — it would continue its three legal challenges, including one to reverse a presidential decree that overturned Minca’s title to Las Cristinas and “nationalized” the property. Hearings are slated to resume on Sept. 15, after the summer recess. 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 Luis Felipe Cottin, president of Crystallex’s Venezuelan subsidiary.
Vannessa believes that all or any of the court decisions will definitely affect title.
“CVG is well aware that it cannot award any new contract for the Las Cristinas concessions until rulings in all of these actions have been made,” says Vannessa. “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.”
Project Economics
Underlying the years of legal wrangling is the economics of the highly touted but as yet unproven gold project.
“A US$500 million development is out of the question,” says Peschke, “I don’t think Crystallex has the data to evaluate the property and is already backing off by talking about a staged development.”
CVG has made no secret that it wants Las Cristinas to move forward as a large-scale operation but Placer became a casualty of Las Cristinas in 1999 when it shelved construction and subsequently took a US$116-million writedown. The major, which had previously inked a deal to earn a 70% stake in the property in 1991, originally planned a US$600-million operation, producing 470,000 oz. gold and 16,000 tonnes copper annually, based on reserves of 323 million tonnes grading 1.1 grams gold per tonne with 0.14% copper. The proposed daily milling rate of 48,000 tonnes set mine life at 20 years, with cash operating costs coming in at around US$150 per oz.
Using data obtained from Placer, Vannessa found the best econom
ic projection was to start with a 100,000-oz.-per-year mine, much smaller than Placer had planned, to exploit near-surface mineralization. The junior estimates it would take US$35-50 million to put such a project into production.
“Since then, the price of gold has risen somewhat, but far from being economical to go for the full development,” continues Peschke. “To give you an idea, Placer was talking about a US$400-per-oz. gold price before spending US$500 million.”
Earlier this year, CVG considered amalgamating U.S.-based
“I don’t think they’ll (CVG) get more than the US$50 million we’re proposing, even from Crystallex,” says Peschke, adding, “Barrick and AngloGold have supposedly looked at it, but nobody has an interest to do anything under the current economic and political climate.”
Despite plans to do further drilling and table its own feasibility study, Crystallex initially envisioned a $400 million 3-stage approach that had the first gold pour occurring in 18-24 months. Stage one comprised a 10,000-tonne-per-day operation, cranking out 250,000 oz. per year; that would have gradually ramped up to a 40,000-tonne-per-day facility producing 500,000 oz. per year. Cash costs were then estimated at US$155 per oz., including copper credits. The company aims to start work on the project within two weeks. At this stage, the plan is to move the project forward internally with production coming as early as 2004-05.
“It took Placer seven years to get all the data and permits,” Peschke says “with Crystallex starting from square one, the financial burden will be enormous and I cannot see how a company can recreate that data, plus spend even US$150 million on development within 3 years.”
In the second quarter of 2002, Crystallex produced 23,532 oz. of gold, down from the 27,358 oz. tallied a year earlier. Production included 16,841 oz. from the San Gregorio operation in Uruguay and 6,691 oz. from the Revemin mill in Venezuela. The company posted a loss of $3.2 million in the quarter.
“If you lose money on properties much richer than Las Cristinas, how are you going to make it work?” continues Peschke, “I don’t think the state will give them a licence to mine.”
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