Nationalization call hammers Crystallex
WENDY STUECK
00:00 EDT Wednesday, September 21, 2005
VANCOUVER -- The fate of Venezuela's massive Las Cristinas gold project was thrown into question yesterday after reports that President Hugo Chavez is reclaiming national mining assets, and the Canadian company that plans to mine the site watched its stock fall almost by half.
"Las Cristinas belongs to Venezuela. We will build a national mining company there," Mr. Chavez said, according to a Dow Jones report of a televised speech.
Las Cristinas, which has been dogged for years by delays and ownership disputes, is a flagship project for Toronto-based Crystallex International Corp. The company has been saying for months that it is close to obtaining the final permits it needs to start production at the mine.
Crystallex shares plunged $1.51 or 48 per cent to $1.65 yesterday before being halted on the Toronto Stock Exchange pending a statement from the company.
Spokesman Richard Marshall said Crystallex would issue a formal statement today.
He said, however, it has always been clear that Venezuela controls the project, and Crystallex was not aware of any changes to government policy that would affect its standing.
"We haven't seen anything, we are not aware of anything, that has changed our position," Mr. Marshall said.
Market reaction appeared to indicate worries that Mr. Chavez planned to nationalize mining assets, Mr. Marshall added.
But under the terms of Crystallex's agreement with Venezuela for the Las Cristinas property, Venezuela already owns the deposit, he said.
Crystallex has rights to develop the project but does not have a mining concession, he said.
"This asset has always been owned by Venezuela and will always will be owned by Venezuela," Mr. Marshall said. "It says that in the first paragraph of our mine operating agreement that this is a national asset."
During his speech, Mr. Chavez slammed foreign investors and said the government will do away with some mining concessions and will no longer extend new ones, Dow Jones said.
And Bloomberg News reported that Mr. Chavez said he will stop granting mining concessions to foreign companies and plans to create a state-owned company to exploit Venezuela's minerals reserves.
Mr. Chavez was fresh off a tour of the United States during which he promised to deliver cut-rate fuel from his oil-rich country to poor American neighbourhoods.
Analysts yesterday said it's unclear what the President's comments may mean for Crystallex.
But first impressions suggest Venezuela wants a greater return from the project and could use the permitting process to get it, said Barry Allan, an analyst with Research Capital Corp.
Under the company's agreement with the government, Crystallex is to pay royalties on production.
"It gives me a real sinking feeling and I have seen this kind of thing happen before," Mr. Allan said.
Mr. Allan downgraded Crystallex earlier this month, cutting the stock from "accumulate" to "hold" because of political risk concerns.
The Chavez government has become increasingly difficult to deal with as fuel prices move higher, Mr. Allan said in his report.
In its second-quarter report, released in August, Crystallex said engineering work on the project was 97 per cent complete and that about $150-million worth of purchases had already been made for the project.
Las Cristinas has been in the wings since the early 1990s. Vancouver-based Placer Dome Inc. was developing the site but sold its interest in the project in 2001.
Mine games
The Chavez quote: "Las Cristinas belongs to Venezuela. We will build a national mining company there."
The Asset: Las Cristinas - one of the biggest undeveloped gold deposits in the world. Estimated gold reserves are 12.5 million ounces. Measured and indicated resources (lower confidence estimates based on limited drilling) of 17.1 million ounces.
The Stock Reaction: KRY (TSX) down 47.8 per cent yesterday to $1.65, |
