Placer ices Las Cristinas as Crystallex plans mine

‘Thou shalt not covet thy neighbour’s mine’ is the poorest kept commandment in the mining business, though few companies are as brazen as Crystallex International (KRY-T) in breaking it. The junior recently trumpeted plans to spend $400 million to develop a mine deemed uneconomic by Placer Dome (PDG-T), even after losing a court battle to assert its “rights” to concessions covering the bulk of the deposit.

Placer Dome holds a 70% interest in Las Cristinas, which, at the end of 1999, was estimated to host 10.6 million oz. gold and 859 million lbs. copper. The remainder is held by Corporacion Venezolana de Guyana (CVG), a quasi-state-owned development company.

Placer Dome halted mine construction last summer, citing low gold prices. A review conducted this year came to the same conclusion, leading to a US$116-million writedown in the carrying value of the investments, as well as a downgrading of reserves to resources. The suspension defers capital expenditure of about US$500 million and postpones gold production of 530,000 oz. per year.

Crystallex, meanwhile, unveiled plans to mine Las Cristinas in stages, starting at a rate of about 250,000 oz. annually, at a lower capital cost than Placer Dome. For years, the company has maintained it bought “rights” to the project from a Venezuelan company, Inversora Mael, which, in turn, bought them from Ramon Torres, who, in turn, claimed to have received the concessions from their original owner, Dot Lemon for payment of debt. (Lemon was the widow of the co-pilot who in 1935 discovered the famous Angel Falls, south of Las Cristinas.)

The original sale document from Lemon to Torres was signed by a lawyer acting on a power of attorney. Shortly after, Lemon sued to have the transaction annulled, claiming she had not authorized the sale and that the power of attorney had been revoked prior to the transaction date. Her suit was successful, and the courts ruled the transaction null and void.

Lemon died leaving no heirs, and the state inherited the concession, as per Venezuelan mining law. An appeal by Mael was settled soon after, under which Mael agreed to give up any “rights” it claimed to the concessions.

In 1996, Mael (after having been acquired by Crystallex in a deal then valued at $30 million) revived the case by filing an application to the courts in which it sought the right to appeal certain resolutions and actions of the Ministry of Mines resulting in the forfeiture of the two concessions. The court refused to allow the key parts of the appeal, citing expiry of time allowed by the statute of limitations.

In 1998, a Venezuelan court found that Mael had no right or legal standing to sue the Venezuelan Ministry of Mines over the granting of mineral rights to the current owners, Placer Dome and CVG. The court also found that even if Mael had standing, it had no grounds because it never held title to anything in the first place. The ruling confirmed that the concessions had expired and reverted to the state before they were granted to CVG and Placer Dome.

In mid-June of this year, Crystallex reported that a Venezuelan court had agreed to hear certain claims related to the case. Attempts to obtain translated copies of the decision were not successful, though it is believed to allow Crystallex the opportunity to appeal certain aspects of the case because the statute of limitations had not expired. It does not overturn the court’s 1998 findings.

Mael’s purported “rights” apply only to the alluvial (surface) resources at Las Cristinas, most of which have already been removed by local miners. While Venezuelan law gives the owner of a concession a preferential right to obtain hard-rock (underground) rights, it must first apply for them to the Ministry of Mines, the entity that has so far denied the validity of Mael’s rights in the past.

During the exploration boom of the late 1980s, many foreign companies obtained rights to Venezuelan concessions from CVG, rather than from the Ministry of Mines. The government has agreed to recognize these concessions as legitimate, assuming conditions related to the contracts were met.

Crystallex says Las Cristinas “can be developed on an economic basis” and that it has discussed, with the Venezuelan government, “a credible plan for development if the dispute is resolved in our favour.”