Crystallex crashes on Chavez comment

Shares in Crystallex International (KRY-T) were nearly halved in late trading on Sept. 20, after media repots quoted Venezuelan President Hugo Chavez as saying during a televised speech that “Las Cristinas belongs to Venezuela, and we are going to create a national mining company there.”

Crystallex shares fell $1.51 to $1.65 on the Toronto Stock Exchange before being halted.

Chavez’s announcement is part of a broader campaign aimed at reviewing the country’s resource contracts, which Chavez says are robbing Venezuelans of their natural resources. The government recently warned that it would revoke inactive gold and diamond mining concessions and would not issue new ones. Instead, the concessions would be handed over to smaller cooperatives that would be supported by the government.

Chavez also said he is leading Venezuela away from capitalism and toward a new “socialism of the 21st century” that will increasingly involve cooperatives and emphasize “collective property.”

Crystallex has said it is unaware of any change in the status of Las Cristinas, adding that the government’s review is aimed at dormant projects only. Crystallex spokesman Richard Marshall told Reuters that he thought Chavez’s comments were taken out of context and the idea of a state mining company had been around for years.

Crystallex CEO Todd Bruce recently said in a prepared statement that his company had been advised that a “rational and thorough" permitting process for Las Cristinas was "in its final stage."

Permitting delays and legal disputes have long dogged Las Cristinas. The project is currently the subject of arbitration between government-owned Corporacin Venezolana de Guyana (CVG) and Vannessa Ventures (VVV-V). Vannessa contends that the government expropriated Las Cristinas from its 95%-owned subsidiary, MINCA, without compensation.

Last year, Vannessa withdrew its lawsuit in favour of trying its luck with arbitration at the World Bank’s International Centre for Settlement of Investment Disputes

A recent review of the project’s feasibility study saw capital costs increase by 10% to US$293 million owing mostly to pricier building materials, costs associated with delays in receiving the environmental permit, and inflation.

The large, low-grade gold-copper project also saw its proven and probable reserves trimmed by 2% to 294.8 million tonnes grading 1.32 grams gold, for an estimated 12.5 million contained ounces. The estimate is based on a strip ratio of 1.57-to-1 and a gold price of US$350 per oz.

Las Cristinas is expected to produce an annual average of 270,000 oz. gold over 41 years, with the first pour slated for early 2007, pending permitting.