Crystallex recently awarded SNC-Lavalin (SNC-T) a contract to build an open-pit mine capable of producing 266,000 oz. gold annually over the 34-year mine life, starting with 311,000 oz. in each of the first five years. Crystallex plans to operate the mine under the terms of a 2002 mine operating agreement with Corporacion Venezolana de Guayana (CVG), a state-owned entity with interests in various hydroelectric and resource projects. The company also plans to raise $100 million to fund predevelopment costs at Las Cristinas, and capital costs at other operations.
Vannessa countered by applying for an injunction to prevent Las Cristinas from being “further encumbered financially or contractually” while it continues various court actions to defend its contractual rights to the project.
While both companies continue to assert their respective rights to Las Cristinas, an estimated 10,000 illegal miners have flocked to the site to extract thousands of ounces of gold monthly from near-surface deposits. The influx of miners was triggered by a spike in gold prices, higher-than-official currency exchange rates, and a perhaps too-literal interpretation of Venezuela’s mining laws (adopted in 1999), which state that all mineral deposits belong to the Republic of Venezuela, and are “assets of public domain.”
Richard Marshall, vice-president of corporate development for Crystallex, says robust gold prices have lured local miners to most known surface gold deposits in Venezuela and in neighbouring Brazil. “We’re not the only ones experiencing the problem,” he says.
Vannessa Chairman Manfred Peschke says the situation at Las Cristinas has grown tense in recent months, with miners vowing not to abandon the lucrative site. “It will take a small civil war to remove them,” he states.
Marshall points out that the government has no choice but to intervene, as many of the garimpeiros are bringing their families to toil for gold under unsafe conditions. He says the National Guard has already dispatched forces to the region to restore order.
Marshall adds that Crystallex is taking part in various social programs to diffuse local tensions. As part of its agreement with CVG, the company committed to provide technical assistance to groups of small miners (previously identified in the agreement) within limited areas of the project. The company must also contract special programs to create employment for the region, provide training programs, improve community health-care facilities, and make infrastructure improvements to water and sewage systems.
“We’ve already started many of these programs,” Marshall says.
Crystallex expects it will soon be able to obtain the necessary permits to begin mine construction. The company has secured CVG’s approval for its recent feasibility study (T.N.M., March 12-18/04).
Vannessa maintains CVG has no statutory rights to grant permits or approve feasibility studies, and seems determined to pursue its legal case all the way to international arbitration. If the dispute escalates further, Vannessa could become a thorn in Crystallex’s side, just as Crystallex was to CVG and its first partner,
Project history
CVG’s involvement with Las Cristinas began in 1991, when it obtained rights to administer various gold and diamond concessions in the Guayana region. These rights were obtained through a presidential decree that forced the Ministry of Mines (MEM) to cede its usual control over resource development (at least for the Guayana region) to CVG.
Placer Dome, through a subsidiary called MINCA, entered into a 1991 contract to develop and acquire a 70% stake in Las Cristinas. The gold company outlined a sizable gold resource, but its efforts to construct a mine were complicated by various factors, including convoluted and often murky disputes over property ownership.
In 1997, and with great fanfare, Crystallex announced it had acquired “rights” to Las Cristinas, and that those rights were confirmed by a decision from the Venezuelan Supreme Court. Through various subsidiaries, Crystallex purchased those “rights” for $30 million, and sought to assert them in the courts. But the company’s costly legal battle proved fruitless, and in the summer of 1998, the Venezuelan Supreme Court ruled in favour of CVG and MINCA (Placer Dome). The court found that Crystallex’s subsidiary had neither ownership rights to Las Cristinas nor the status to assert those purported rights.
That same year, former paratrooper Hugo Chavez was elected president and began steering the nation toward a Cuba-style leftist state. New mining laws came into force, stating that all mineral deposits belong to the republic, while all mining-related activities are controlled by the state, through MEM. By this point, many of the mining contracts issued by CVG in the Kilometre 88 district had reverted (or were converted) to MEM control.
About the same time, gold prices weakened, prompting Placer to suspend plans for mine development. The major was given until the summer of 2001 to find a buyer, or a new partner, for Las Cristinas. Two days before the deadline, and after considerable difficulty trying to deal with, and find solutions acceptable to, CVG, Placer assigned its rights to Vannessa, which now owns 95% of MINCA.
Vannessa had no better luck pushing any of its proposals forward with CVG, particularly after General Francisco Rangel Gomez assumed CVG’s presidency. Vannessa maintains that its efforts to bring forward proposals, or even to open a dialogue, were rebuffed by the general, who seemed to favour a proposal put forward by Crystallex.
Arbitration mechanism
MINCA reminded the general that their contract contained a mechanism for arbitration in the event of disputes, only to be told by the general that this provision “does not apply” to his corporation.
In November 2001, CVG unilaterally terminated its contract with MINCA. A week or so later, CVG and various government representatives took possession of the concessions “as assets for the Republic of Venezuela.”
In the first half of 2002, MEM issued two resolutions to extinguish Minca’s copper rights and reassume ownership rights over the relinquished gold concessions. Vannessa filed appeals to nullify both these resolutions. These cases are still before the courts.
Vannessa also filed an appeal to the Supreme Court of Justice to nullify Chavez’s Presidential Decree 1757, which reserved the assets for the state, and also “authorized” MEM to contract the area to CVG.
Citing the authority of that presidential decree, CVG then entered into an agreement with Crystallex, granting the company “exclusive rights to develop and exploit gold deposits” on the Las Cristinas concessions. This agreement does not transfer property rights, which remain with the state. The agreement also did not grant copper rights, which at first glance seems problematic, as the gold at Las Cristinas is associated with copper. The project has proven and probable reserves of 245 million tonnes at 1.29 grams gold, or about 10.1 million contained oz. Copper grades were not provided, but Placer Dome’s past studies show an average of 0.14%.
Crystallex maintains this will not be a problem, and is proposing a “gold-only mine,” using a conventional carbon-in-leach circuit. Estimated recoveries are expected to average 89% overall for blended saprolite and bedrock ores. Capital costs are estimated at US$242.8 million.
As part of its agreement with CVG, Crystallex was required to make an initial US$15-million payment for delivery of reports, data and existing infrastructure. This came as a surprise to Vannessa, which points out that these items belong to MINCA and are subject to “confidentiality agreements” with CVG.
“It’s another ‘unresolved legal issue’ to add to the long list,” sighs Peschke.
Crystallex must also pay a royalty calculated against the value of gross monthly production, ranging from 1% to 3%, depending on gold prices. It must also pay an exploitation tax of 3%.
Vannessa has numerous legal actions in front of Venezuelan courts, including a motion to have the presidential decree annulled. “In addition to being unconstitutional,” Vannessa states, “the decree violates the right to legitimate defence and due process with respect to ongoing Supreme Court actions, and so violates the bilateral treaty for the protection of investments between Venezuela and Canada.”
The company also notes that if the process is frustrated because of delays and other issues, it will exercise its rights to international arbitration to seek compensation for damages. Vannessa adds that MEM is “fully aware of the international arbitration case.”
Complicating matters is the ongoing political turmoil in Venezuela. In a recall referendum, opposition forces sought to collect signatures from 20% of the electorate as part of an effort to remove Chavez from power. They claimed to have collected 3.4 million signatures (a million more than needed), only to have the national electoral agency rule it needed to double-check some of these signatures. That process is ongoing.
Given the volatility of Venezuelan politics and the vagaries of its justice system, what happens next at Las Cristinas is anyone’s guess. But if possession is nine-tenths of the law, the ball seems to be in CVG’s court. The company has been involved with the project for more than a decade and seems determined to have Crystallex, not Vannessa, as its “partner of choice” at Las Cristinas.
For its part, Vannessa says Venezuelan courts have confirmed its contractual rights to arbitration, as well as its legal standings with respect to Las Cristinas. Vannessa therefore expects the court to reverse the CVG action, order the arbitration process, and restore CVG’s contract with MINCA.
And so begins another chapter in the saga of Las Cristinas.
Be the first to comment on "Las Cristinas legal fight intensifies"