CANADIAN MINING PERSPECTIVES: Hopes fades for Crystallex's Las Cristinas gold project

The history of the Las Cristinas gold project that CRYSTALLEX INTERNATIONAL of Toronto has tried to lay claim to is steeped in controversy and delay. But the squabbling may soon come to an end if Venezuelan president Hugo Chavez gets his way. He wants to nationalize the Las Cristinas project along with several other industries.

Placer Dome was one of the first companies to drill the Las Cristinas deposit in the early 1990s. The Canadian company formed a joint venture with Corporacion Venezolana de Guayana (CVG), and CVG remains the owner to this day. Crystallex was drilling the adjacent Albino concession at the time.

The entire Kilometre 88 area of Venezuela became one of the hottest gold plays in Latin America during the early 1990s. But the Las Cristinas deposit with 16.9 million contained oz of gold is the richest.

In 1997 Crystallex bought up a privately owned Venezuelan company said to own the rights to part of the Las Cristinas property. Placer Dome called the claim groundless, but it decided to suspend construction at Las Cristinas until the ownership question could be settled. In June 1998 the Venezuelan court dismissed Crystallex's claim, clearing the way for Placer Dome and CVG to move forward. The next year low gold prices forced Placer Dome put the project on hold.

The persistently low gold price forced Placer Dome to sell the Las Cristinas project to VANESSA VENTURES in July 2001 just days before its ownership rights were scheduled to expire. CVG claimed it had not approved the sale.

Crystallex renewed its fight for ownership, and three years later the Venezuelan government confirmed Crystallex's land occupation permit for the Las Cristinas project. Vanessa withdrew its right to develop Las Cristinas as a prerequisite for international arbitration under the Canada-Venezuela bilateral investment treaty. The fight continued as Crystallex conducted an infill drilling program at the disputed project.

Crystallex next announced that construction was about to start with production planned for 2006. Unfortunately, recently elected Chavez announced that he intended the state to take over and run Las Cristinas.

In March 2006, the government cancelled all mining concessions. Crystallex could do nothing but wait and assert that all its contracts with the government were binding, and it was in possession of all necessary permits except the final one to begin mining. Chavez sent chills down investors' spines again in January 2007 when he swore "socialism or death."** Earlier this year his government again denied Crystallex a permit to develop Las Cristinas. **(How thick does one have to be NOT to understand what he is talking about here. It was only a matter of time; however, you will recall I discussed this with you and you went off on some rant about how great he was and you were going to move down there.)

"This mine [Las Cristinas] will be recovered and will be operated under state administration," the Venezuelan mining ministry said in a statement earlier this month.

With that assertion it would seem the battle over Las Cristinas is lost. But giving up a its share of a 500,000-oz/year operation with a mine life of 65 years wont be easy for Crystallex. But the truth is the Venezuelan government has upheld its ownership through CVG.

Crystallex has numerous times asserted that it had not been notified by the government that the Canadian company's rights would be removed. As recently as last Thursday, the company again said it "has not been advised by MiBaM or any other government agency of any changes to the control of the Las Cristinas Project or to the MOC [mine operating contract]."

The same day word leaked out that Venezuela would indeed take over Las Cristinas and develop it with Russian help. The memorandum of understanding was to have been signed with RUSORO last Friday.

At this point it looks like Crystallex has lost any chance of operating the Las Cristinas gold mine. It won't do much for the share price, but maybe it's time for Crystallex to put this project behind it and concentrate on finding more realistic opportunities.