by Guy Bennett

Predictably, Crystallex sunk 14% on the news. They have been developing the Las Cristinas Mine in the environmentally sensitive Imataca Forest. The property holds an estimated 17 million ounces of gold. Every time Chavez opens his mouth, Crystallex shareholders get kicked in the gut. Fourteen months ago, Crystallex was trading at $4.89. You can pick up a share of the $212 million market cap company today for 71 cents – an 85% discount.

Two other companies with Venezuelan mining interests, Gold Reserve and Rusoro have been similarly pummeled in recent months. Gold Reserve is trading at $1.40 – down from a 52 week high of $6.00. Rusoro is trading at $1.00 - down from a 52 week high of $2.70.

If you are a shareholder in Crystallex, Gold Reserve or Rusoro, you probably feel like an abused spouse. At this point the most emotionally appealing thing to do is to eject your tormentor from house (sell your stock). But has Chavez’ big mouth obscured the inherent value in these companies? I think so.

My reasoning comes from examining Chavez’ track record in the oil industry (which is 30 times bigger). He made loud noises about “nationalizing” the sector, which depressed stock prices and softened up the CEOs, and then he started negotiating. “I don’t want the oil companies to leave,” Chavez admitted, “I want them to be minority partners.”

Exxon Mobil buys oil in 35 different markets. They’ve made $100 billion profit in three years. They can afford to tell Chavez, “Thanks, but no thanks.”

But very few of the CEOs who have done business with Chavez have bad things to say about him. Why? Because he’s playing the same game they are. Trying to create an environment in which he can make money. In that sense Chavez is completely predictable. The only twist is that his shareholders are the Venezuelan peasants.

After Chavez paid a 20% premium ($740 million) for an 82% stake in the country's largest private electrical utility, the CEO commented that it was “a good deal for investors.” Crystallex, Gold Reserve and Rusoro control an estimated $36 billion of gold assets in Venezuela. Chavez will need their help to get it out of the ground. He is going to offer them a deal. Whether or not they take it, and whether the shareholders will see stock prices break previous highs, I do not know. But it is worth noting that in his nine years as President of Venezuela Chavez has yet to forcibly shut down a single project.

Chavez is a much straighter businessman than he is a politician.

Foreign mining companies will succeed in Venezuela if they can adapt to the rules of the new game. On this score I would have to give Rusoro the edge. On July 10th, 2008, Rusoro formally agreed to establish a 50-50 partnership with the state-owned Empresa de Produccion Social Minera Nacional. Rusoro CEO Andre Agapov stated: "We are delighted to be selected as the partner of choice for gold mining opportunities in Venezuela.”

Chavez makes so many hostile statements that it is sometimes difficult to think straight about Venezuela. If we drift 1,200 miles south-west to Ecuador there is a useful external yard stick by which we can measure the value of Crystallex, Gold Reserve and Rusoro.