LATIN AMERICA — Crystallex aims to expand Venezuelan mining and exploration activities

Kilometre 88, venezuela — The exploration boom that took place in this gold camp a few years ago has cooled down, leaving only a handful of juniors exploring and developing projects near the huge Las Cristinas gold project being placed into production by Placer Dome (PDG-T).

Among these is Crystallex International (KRY-T), a Vancouver-based junior which recently surprised the mining industry by claiming to have acquired ownership rights to the Las Cristinas 4 and 6 concessions, currently held under a joint-venture agreement between Placer Dome and Corporacion Venezolana de Guayana (CVG) in the Kilometre 88 region of Venezuela’s Bolivar state.

In early March, Vancouver-based Crystallex announced that its directors had acquired the privately owned Venezuelan company Inversora Mael, whose ownership rights to the concessions were said by Crystallex to have been reaffirmed by decisions of the Supreme Court of Venezuela in 1991 and again in October 1996.

Crystallex has the exclusive right to buy all the shares of Inversora Mael at cost. Luca Riccio, Crystallex’s vice-president of exploration, estimates that between 80% and 90% of the Las Cristinas deposit is contained in the Cristinas 4 concession.

Placer Dome and CVG were quick to refute Crystallex’s claim, and confirmed that their right of tenure over Las Cristinas was secure and legally valid.

Indeed, according to Placer spokesman Hugh Leggatt, “We don’t see it as an issue at all.”

Crystallex is no stranger to Venezuela. The junior holds a 100% interest in the Albino open-pit gold mine, which adjoins Las Cristinas to the east. Its portfolio also includes the Carabobo property, south of Albino, and the Santa Elena 7 and 8 concessions, in the district known as El Dorado.

During a visit to the Albino property, The Northern Miner was briefed on the history of the Cristinas 4 and 6 concessions by Ricardo Cottin Aristeguieta of the Venezuelan law firm Cottin Tejera-Paris & Asociados, which is representing Crystallex. What follows, is Crystallex’s interpretation of the chronological order of events.

Title to the concessions was originally issued by the Ministry of Energy and Mines to Dot Culver de Lemon in 1964 for a renewable period of 25 years.

On April 16, 1986, Culver de Lemon transferred title to the concessions to Ramon Torres, who, in turn, transferred the title over to Inversora Mael on May 16, 1986.

In order for a notice of transfer to be valid, as required under the mining law, the Ministry of Energy and Mines must publish the notice in the Official Gazette.

The Ministry denied Inversora Mael’s request for publication of the notice of transfer on July 30, 1987, on the basis that the transfer between Culver de Lemon and Torres was made in an improper manner. The Ministry had been notified of the transfer by a court and not by either Culver de Lemon or her attorney as required, based on the Ministry’s interpretation of the mining law.

After several of the company’s appeals were denied by the Ministry, Inversora Mael filed a lawsuit in the Supreme Court on Nov. 8, 1988, seeking to overturn the Ministry’s Resolution 29, which dismissed the company’s appeal.

In the meantime, Inversora Mael filed petitions with the Ministry on Jan. 24 and Feb. 3, 1989, for the renewal of the Cristinas 4 concession, which was set to expire on Feb. 6, 1989. The petitions were denied because the taxes had not been paid and the company was not considered the owner.

On Feb. 7, 1989, the Ministry declared that the Cristinas 4 and 5 concessions had lapsed, and later revoked the Cristinas 6 and 7 concessions on March 9, 1989.

In January 1991, by order of a presidential decree, all the gold and diamond mining rights in the Guayana region, comprising the states of Bolivar, Amazonas and Delta Amacuro, were assigned to CVG by the Ministry of Mines and Energy.

CVG, a state-owned regional development corporation, was authorized to grant mining contracts in the Guayana region. Upwards of 450 contracts were awarded by CVG in the Kilometre 88 district until that authority was revoked, in July 1996.

Transfer confirmed

On May 9, 1991, the Supreme Court made its first ruling. It is said by Crystallex to have confirmed the transfer from Culver de Lemon to Torres and the subsequent transfer from Torres to Inversora Mael, effectively turning back the clock to May 16, 1986.

Crystallex says the Supreme Court declared Resolution 29 illegal and ordered the Ministry of Mines and Energy to publish the notice of transfer in the Official Gazette.

The Ministry never carried out the terms of the ruling. Instead, in July 1991, Inversora Mael acquired four gold and diamond mining contracts in the Guayana region from CVG in exchange for agreeing not to seek any compensation for damages suffered as a result of the Ministry’s actions. Crystallex stresses the renouncement agreement did not prejudice Inversora Mael’s rights to the publication of the notice of transfer or its rights to renew the concessions.

The plot then thickens, for on Aug. 14, 1991, a former lawyer for Inversora Mael, motioned the Supreme Court to renounce its previous (May 16th) judgment.

Crystallex President Marc Oppenheimer compared the attempt to renounce the Supreme Court’s decision to that of a married couple getting a divorce and on the next day deciding they are still married. The divorce is final, he said, as is the Supreme Court’s decision.

Presidential decree

In March 1992, CVG, operating under presidential decree, contracted the rights to the Cristinas property, including concessions 4 and 6, to Minera Las Cristinas, a company owned 70% by Placer and 30% by CVG.

On May 16, 1996, new lawyers working on behalf of Inversora Mael, filed a petition before the Supreme Court, requesting the court dismiss the renouncement filed by the company’s former lawyer. And on July 2, 1996, a second petition was filed, asking the court to issue a communication to the Ministry of Mines and Energy requesting the voluntary compliance of the court’s original ruling of May 9, 1991.

On Oct. 16, 1996, Crystallex says, the Supreme Court ruled in favor of both petitions. Crystallex argues that the decision validates the transfer of the concessions to Inversora Mael, and, as a result, the company is entitled to challenge those rulings passed by the Ministry after May 16, 1986, which denied the renewal of Cristinas 4 and extinguished both the Cristinas 4 and 6 concessions.

Placer responded to Crystallex’s claim, stating the Supreme Court’s decisions do not deal with the substantive question of title to the Cristinas 4 and 6 alluvial concessions, but instead deal solely with technical procedural issues relating to interim assignments of prior concessions in 1987.

Placer said, “Because the facts that occurred subsequent to 1987 were not relevant to its decision, and because the substantive issue of title to the concessions was not being litigated, those facts were not before the Supreme Court. Thus, the Supreme Court decisions on which claims against Minera Las Cristinas’ title are purported to be based are wholly irrelevant to the right of tenure of CVG. Hence the rights of Minera Las Cristinas derived from CVG over the Las Cristinas gold deposits are secure and valid in law.” Rafael Rodriguez Acosta, president of the special mining commission of Venezuela’s House of Representatives, and Evanan Romero, Venezuelan vice-minister of Energy and Mines, were both quoted in Reuters news articles to have backed Placer’s and CVG’s rights to Las Cristinas.

Open-pit methods

Placer has spent US$80 million on exploration and development at Las Cristinas proving up reserves within the Conductora and Mesones zones. These are potentially minable by open-pit methods and total 233 million tonnes grading 1.21 grams gold per tonne and 0.16% copper, equivalent to 9 million ounces gold and 803 million pounds copper. The stripping ratio averages 1.14-to-1.

The total resource at Las Cristinas is estimated at 14.7 million ounces of contained gold.

A positive feasibility study indicates that a combined 40,000-tonne-per-day flotati
on and carbon-in-leach processing plant could produce an annual 450,000 oz. gold and 36 million lb. copper over a life of at least 16 years.

Cash costs are estimated at US$205 per oz. gold, including copper credits.

Production in the early years is forecast to average 530,000 oz. at a cash cost below US$200 per oz.

Recoveries are projected at 82% for gold and 72% for copper. Gold production will be split 60% in the form of a copper concentrate and 40% as dore.

Placer hopes to begin constructing the US$576-million project as early as May. Leggatt said the company is in the midst of raising US$250 million, of which US$50 million has been committed by the Andean Development Bank, with the balance being raised through multi-lateral lenders. “We see no problem with raising that [US$250 million],” said Leggatt, adding that the lenders were not raising any questions regarding their tenure at Las Cristinas.

Leggatt said the Venezuelan minister of mines and energy, Erwin Jose Arrieta, announced during the annual convention of the Prospectors & Developers Association of Canada, held recently in Toronto, that the government had passed a law exonerating companies from wholesale tax on consumables used in project construction. This will enable Placer to save about US$80 million.

With financing and wholesale tax in the bag, environmental permitting remains the only outstanding issue. Leggatt regards the permitting as essentially a done deal, with only a few outstanding permits remaining.

Adjacent to Placer’s Las Cristinas is the 500-ha Albino 1 concession, acquired by Crystallex in 1992 at the height of the short-lived exploration boom in the Kilometre 88 district. The purchase price was US$10 million, US$6 million of which has already been paid. The final US$4 million is due at the end of this year. The concession’s western and northern boundaries adjoin the Cristinas property.

Title to the concession includes the exploration and exploitation rights to mine surficial deposits. Crystallex has yet to receive the hard-rock rights.

Owing to intense tropical weathering, the original bedrock is saprotilized to depths of about 45 metres. Riccio explained that, under the current mining law, there is no clearcut geological definition of surficial and hard-rock rights. Surficial rights allow mining from surface by mechanized ripping without the aid of blasting.

New mining legislation, which is before the Venezuelan Congress, will eliminate the distinction between surface and hard-rock rights, and automatically award all mining rights to a concession. However, approval of the proposed Mining Code had been expected last year.

In early 1994, Crystallex bought Cameco’s carbon-in-pulp mill from the Star Lake mine in Saskatchewan. It was shipped to Venezuela and installed on the Albino property. During its first year of operation in 1995, the plant operated at an average rate of 200 tonnes per day and produced 16,931 oz.

from saprolite material mined from the Conductora pit. Cash costs came in at US$123 per oz.

Flushed by the success of its operation, Crystallex modified the mill during 1996 to expand throughput to 400 tonnes per day. The expansion hampered production for most of the year. Richard Marshall, vice-president of corporate development, said production in 1996 fell to somewhere in the range of 5,000 to 6,000 oz. No cash costs were available.

Sadek El-Alfy, vice-president of operations, is currently ironing out some of the wrinkles that continue to plague the Albino operation. The major bottleneck is the loading bin, which feeds the ore to a conveyor belt leading directly to the ball mills.

The ore bin is being plugged because of the wet, sticky nature of the saprolite ore. Mill throughput during the first few months of 1997 has been erratic, varying from 100 to 300 tonnes per day. Gold recoveries have also been erratic, ranging from 75% to 92%.

El-Alfy hopes to alleviate the loading bin problem by installing a high-pressure water-monitoring system, which will keep the saprolite wet, with the material being sluiced directly to the ball mills. He anticipates throughput will be increased to beyond 400 tonnes per day.

El-Alfy is targeting a production of 20,000 oz. in 1997 at a projected cash cost in the neighborhood of US$150 per oz. By continuing to fine-tune the mill, he expects to be able to keep the gold recovery at a consistent level above 90%.

Two zones

Reserves at Albino are defined in the Conductora and Aguao 2 zones. La Conductora is estimated to contain 1.1 million tonnes grading 7.1 grams gold, equivalent to 244,000 oz., while Aguao 2 hosts 214,500 tonnes grading 4.9 grams for 34,000 contained ounces.

Tailings account for an additional 307,000 tonnes grading 3.1 grams.

Mining is currently being carried out under contract at a rate of 2,500 tonnes per day from the newly developed Aguao 2 open-pit. The Conductora pit has been allowed to flood for the time being.

As currently outlined, Crystallex has sufficient saprolite reserves to take it into next year, though the hard-rock rights are crucial in extending the mine’s life.

The Albino concession is underlain by rocks of a lower Proterozoic greenstone belt and dominated by a northeasterly-trending shear structure.

The Aguao 2 zone is defined over a strike length of 200 metres and to a vertical depth of 100 metres. Mineralization remains open to depth. The mineralized structure is a brittle-ductile shear, consisting of discontinuous quartz veins, up to 2 metres thick, and mineralized, sheared wall rock containing quartz stringers.

The sub-parallel Conductora 2 zone occurs in a ductile shear and is defined over a strike length of 250 metres and a vertical depth of 250 metres, with mineralization open at depth.

Within the saprolite, the Conductora and Aguao 2 zones are recognizable, both texturally and by color alteration.

Last year, an exploration drill hole, completed 200 metres southwest of Aguao 2, encountered a near-surface 4.35 metres grading 3.13 grams within a 1-km-long soil anomaly. Crystallex intends to complete 6,000 metres of trenching in the area with the objective of extending the saprolite mineralization beyond the pits.

Of the US$2 million budgeted for exploration in 1997, US$750,000 is earmarked for Albino.

Delpet deal

In related news, Crystallex has completed its agreement to acquire a 65% interest from Delpet Resources (DPT-V) in the 9,600-ha Mineiro gold concession in northern Brazil.

Previous drilling on the property identified a potential resource of 2.9 million tonnes grading 3.57 grams gold amenable to open-pit methods.

Crystallex is required to spend US$500,000 in exploration and pay US$250,000.

A geological exploration program of data compilation, mapping and sampling is under way in preparation of drilling.

Crystallex has 25 million shares outstanding, or 33 million fully diluted, and about US$15 million in working capital.