Lots of gold, no rush: a multi-billion dollar gold mine in Venezuela sits and waits for someone, anyone, to dig it up

by Mike Ceaser

Take three Canadian mining corporations, give them the continent's richest gold-mining concession, throw in a bit of bush pilot history and a few lawyers, and what do you get? In Venezuela, not one ounce of marketable gold.

In 1991, Vancouver's Placer Dome Corporation won the concession to mine a remote, jungle-covered corner of northeastern Venezuela. Placer believed it had hit the mother lode. After all, the Las Cristinas mine contained between 10 million and 12 million ounces of gold, as well as large amounts of copper. Great riches would finally be pulled from the land where Renaissance-era English explorer Sir Walter Raleigh sought the fabled city of gold, El Dorado, and came away empty handed.

But Placer didn't count on dropping gold prices, a tireless rival and the legacy of legendary bush pilot Jimmy Angel.

Today, more than a dozen years and innumerable court filings later, Placer is out of the deal. Its nemesis Crystallex, in Toronto, now holds the concession and promises to begin mining early next year, predicting US$1.2 billion in pre-tax profits from the project. But a third Canadian miner, Vannessa Ventures, claims to be the real concession-holder and vows to stop Crystallex. Meanwhile, thousands of wildcats miners, many Brazilian and Guyanese, have invaded and occupied the concession.

Along the way, the battle for Las Cristinas has enriched a generation of attorneys, left mining stockholders scratching their heads and sullied the reputation of the Venezuelan government, which managed to sell or give away the mining rights no less than three times. "If that project were in Bolivia, Peru or any of the other big mining countries, it would have been going by now" says Douglas Silver, president of Balfour Holdings, a Colorado mineral appraisal company. "The problem is the country."

The drama dates back to 1935, when Jimmy Angel and his co-pilot sought a mythical river of gold and spotted instead the world's highest waterfall, Angel Falls. In gratitude for a gold mine of a tourist attraction, the Venezuelan government gave each of the men a mining concession. The co-pilot got Las Cristinas.

The claim passed through the co-pilot's widow, several lawyers and an Italian miner, none of whom worked the mine, and finally was purchased by the Venezuelan company Inversora Mael. In 1997 Crystallex bought Mael and promptly announced that it owned the rights to Las Cristinas, even though at that time Placer was developing the mine in conjunction with its partner, state-owned Corporacion Venezolana de Guayana, through their jointly-owned subsidiary Mineria Las Cristinas.

"In fact, there was no ongoing legal proceeding or pending decision in any Venezuelan court which could possibly have resulted in Crystallex having an interest in Las Cristinas," wrote Manuel P. Asensio in his 2001 book Sold Short. Placer Dome President and CEO John Willson, now retired, once called Crystallex "claim jumpers." Crystallex charged that the writer, Asensio, had a financial interest in pushing down Crystallex's stock price.

Crystallex got nowhere in court, but its claims were enough to dry up financing for the project, say those involved. Meanwhile, the price of gold, which had been at $400 per ounce in 1996, dropped to $250, and in July 1999 Placer suspended work on the mine. After offering to sell out to Corporacion Venezolana and receiving no response, in July 2001 Placer sold its interest in the continent's richest mine to Vannessa Ventures for $50, although Placer retained rights to a share of potential future revenues.

Venezuelan authorities, who had been salivating over royalties from a huge mine, charged that Mineria Las Cristinas and Placer had violated their contract by not developing the mine faster and called the transfer to Vannessa a contract violation. In November 2001 the National Guard moved in and evicted Mineria Las Cristinas employees. The government put the concession out for tender again; this time the winner was Crystallex, even though Crystallex already claimed the mine.

Mineria Las Cristinas claims it had invested $172 million in the mine and alleges that its rights were taken away illegally and that the bidding process was improper. If not for the legal troubles, says Mineria Las Cristinas President Erich Rauguth, the mine would be going "full bore" today and the company would have invested an additional $58 million, earning about $5 million dollars. "Do you have any idea what that would mean to us?" he asks. "It's 50 cents a share. The loss to Vannessa is enormous, and the loss to the country is even worse."

Mineria Las Cristinas is not alone in questioning the transaction. Venezulan Congressman Edgar Mora headed a subcommission of the National Assembly's Permanent Oversight Commission which investigated the Las Cristinas contract. Mora says that the 2001 bidding process was not properly done. With interest from "six of the world's largest mining companies, they gave [the concession] to a company with no importance," he says. "It makes one think."

Crystallex counters that it won the contract fair and square, and backs its case with numerous other parliamentary investigations of the Las Cristinas saga which found that Placer had violated its obligations. "It is a serious contract, which conforms to the law," says Luis Felipe Cottin, president of Crystallex of Venezuela, also pointing out that the Las Cristinas lawsuits are against the Corporacion Venezolana, which is the government, not Crystallex. "It is a contract which we consider armored," against legal challenges, Cottin says.

Corporacion Venezolana did not respond to requests for comment. Image problem. Today, it is Crystallex which is pushing ahead with Las Cristinas, while Vannessa has filed more than a dozen lawsuits to try to stop it. Crystallex's feasibility study projects proven and probable reserves of 10.2 million ounces of gold. The gold price has since recovered to close to $400 per ounce, making Cristinas potentially a $4.08 billion venture.

"With the challenge of developing this mine, (Crystallex) is moving to a completely new level," says Cottin. "We are sure that we'll be able to do it, and go beyond it."

Crystallex has the support of the Venezuelan Mining Chamber of Commerce. "Let's hope that Crystallex can develop the project as soon as possible," says Gilberto Sanchez, president of the Mining Chamber of Commerce. Sanchez fears that continued delays at Las Cristinas will tarnish the country's image as a place where industrial-scale mining can be done. "The mining industry is concerned that this be carried out," he says.

But Crystallex may face more challenges than just lawsuits. The thousands of illegal miners now working the concession area will be loath to leave, and environmentalists are fighting to prohibit all mining in the biologically diverse region, which is a forest reserve. Cottin says Crystallex will develop all of the 2,400-hectare concession and leave the three-square-kilometer open pit mine as a water reservoir, a plan which doesn't sit well with environmentalists concerned about deforestation.

"I want to know where in the world mining and forestry are compatible, especially in such a fragile area," asks activist Anna Ponte.

Vannessa, meanwhile, vows to continue fighting in Venezuelan courts and to take the fight to international trade courts if necessary. "We won't go away," says Rauguth. "We are going to be in this until this thing is resolved."