Crystallex International Corporation -
Board still fighting for Las Cristinas
Crystallex International Corporation KRY
Shares issued 34,000,000 1998-12-21 close $0.79
Monday Dec 21 1998
PARTING WITH LAS CRISTINAS IS HARD TO DO
In spite of the six months that have passed since the Venezuelan Supreme Court's June 11 decision -- in which Crystallex International suffered an apparently final, irrevocable and unappealable setback in its quest to win mining rights to the coveted Las Cristinas 4 & 6 concessions -- Crystallex's board of directors still refuses to concede defeat to Placer Dome.
"We have determined not to write off our investment and we are continuing to evaluate our course of action regarding the Las Cristinas 4 & 6 concessions," president Marc Oppenheimer told a sparsely attended special shareholder meeting at a hotel in suburban Richmond, south of Vancouver.
Asked what recourse was available to the company, Mr. Oppenheimer hinted vaguely that hope may lie with the incoming government of President Hugo Chavez, elected earlier this month. "I think we have to wait and see what happens with the government," Mr. Oppenheimer told about a dozen shareholders and members of the media on Monday morning. "Let's see how the next little while plays out."
While snow fell outside and the company's share price drifted to 79 cents, shareholders approved resolutions relating to the acquisition of the San Gregorio mine in Uruguay and the repricing of options to $1 and $1.50 from depressingly out-of-the-money prices that ranged from $2.13 to $7.20. Mr. Oppenheimer and chairman Robert Fung were the only members of the company's much-heralded blue-chip board to attend the meeting.
Mr. Fung noted with similar optimism that the supreme court has never ruled on the actual ownership of the properties, asserting that title resides with Crystallex subsidiary Inversora Mael. The court in fact noted on June 11 that title resides with the government.
The June 11 decision grappled with whether Mael had the legal standing to challenge the government over how it came to grant the mineral rights. It ruled that not only did Mael not have legal standing, but that even if it did, the company did not have a case to bring forward.
That ruling almost overnight sparked a breathtaking drop in its share price, from the $6 level, to around $1, effectively ending the best promotional device Crystallex has ever had.
The binding decision meant that giant gold miner Placer Dome was free to continue construction of its $575-million (U.S.) Las Cristinas mine. In an interview, Placer spokesman Hugh Leggatt says financing should be in place by the second week of January and construction will resume immediately afterwards, noting that the lengthy Christmas season in Venezuela prevents work from beginning any earlier.
Mr. Oppenheimer refused to elaborate on the company's Las Cristinas strategy. "At this point in time I don't think it would be prudent to lay out a strategy because it's something that is being refined and developed, and you don't want to telescope your strategy in an adversarial mode," he intoned. "Suffice to say the supreme court's June 11 decision stands, but so to do their previous decisions," alluding to decisions Crystallex maintains has confirmed title on Mael.
Surprisingly, Mr. Oppenheimer refers to Crystallex's legal position regarding Las Cristinas as secure. "I think we are very comfortable with our position," he said. "I believe our position is secure, and waiting will in no way, shape or form degrade our legal position."
Placer's Mr. Leggatt says the only thing secure about Las Cristinas and Crystallex is that Crystallex will never mine an ounce of gold from the 12-million-ounce deposit. "Their unfounded claims on our mining rights were shown to be invalid by the supreme court, and that's the end of it," he says. "We don't know of any means that they could employ" to mount another challenge -- either legally or politically. Mr. Leggatt contends Placer has not been in contact with Crystallex since June 11, and even if it had been, a "go-away" payment to Crystallex would not be on the agenda.
Mr. Leggatt says Crystallex appears to be clinging to the hope that it has had some pre-June 11 court decisions in its favour. "We don't regard those as having been in their favour in the first place," he says, adding that Crystallex's challenge -- which led Placer to suspend construction of the mine in January 1998 -- provides Placer employees with a source of humour.
"I think these people should get on with their lives," Mr. Leggatt says, giving Crystallex a Christmas message to publically give up Las Cristinas.
Most of the meeting dealt with the happier matter of October's $29-million (U.S.) San Gregorio acquisition, including Mr. Fung's and fellow board member Robert Nihon's controversial $800,000 (U.S.) investment-banking fee relating to the deal. Mr. Fung defended their bonus, saying had the acquisition not been successful for Crystallex, the two would not have been paid.
Shrewd Mr. Fung told the meeting that the company's executive, presumably Mr. Oppenheimer, was willing to pay more for the mine, but that Mr. Fung said it "makes no sense" at the unspecified higher price -- especially since the price of gold is not on an uptrend. That may have allowed Mr. Oppenheimer to state that the two directors "actually saved the company millions of dollars by lowering the price of the acquisition, financing structure, etcetera."
The mine, which produces 70,000 ounces gold per year, became available during the summer through receiver Standard Bank of London after Rea Gold Corp. declared bankruptcy in December 1997. The company's total production for 2000, including Albino and San Gregorio, is estimated at 110,000 ounces.
Mr. Fung says the job he and Mr. Nihon faced as negotiating directors on the deal were threefold: to ascertain the value of the property, to emerge as the only contender from a short list of prospective buyers, and then to negotiate with the receiver. Part of their fees were to pay for negotiating a financing structure that included $7-million in cash, $6-million through the liquidation of San Gregorio assets, and $16-million in project financing for up to five years. The $6-million was realized from liquidating the mine's hedging position.
The chairman appeared to take exception to suggestions that his and Mr. Nihon's services were perfunctory and a matter of course, saying it was not a "slam-dunk" deal. Mr. Fung noted the original asking price was "in the forties," meaning the bank was asking between $40-million and $49.99-million." He added that at $29-million, the price would provide Crystallex with positive cash flow for 1999 and, with production costs nearing $220 an ounce, it provides the company with a cushion should the price of gold drop significantly below its present position in the high $200 range.
Mr. Oppenheimer told the meeting that the directors's fee was "actually lower than other houses," although he did not elaborate on what appeared to be a statement that there was a competitive bid process in place and that Mr. Fung and Mr. Nihon were the winners. "I'd be very happy if they would do a hundred of these transactions for us," he gushed. Mr. Nihon and Mr. Fung are the only two directors who make recommendations concerning Mr. Oppenheimer's salary, bonus and options structure.
Politically, Mr. Oppenheimer says Crystallex remains in a good position in Venezuela, and that the Uruguay move in no way is an admission of defeat in Venezuela. He disagreed with analyst Dorothy Atkinson's comment in Stockwatch that Crystallex had bombed politically in Venezuela -- "they had their ass handed them in Venezuela" were her words -- and so would need to find fresh fields in a new country, and that next-door Uruguay would suffice. San Gregorio has a mine life of around six years but the deal includes 150,000 hectares of exploration properties, possibly giving Crystallex a long working life in the country.
"The very people that we sued in the Ministry of Energy and Mines in the Las Cristinas case were the very people who just granted us our deep-rock mining rights (for the Albino concession)," Mr. Oppenheimer argues. "So I don't think that characterization was necessarily a fair one." He says a more realistic appraisal is that Venezuela is tough for all mining companies and that as a result Venezuela faces a discount from the international investment community. "Venezuela is not the flavour of the month" for mining companies. Placer's Mr. Leggatt, however, says Placer's experience in Venezuela has been without difficulties, except for those brought by Crystallex.
Mr. Oppenheimer added that remarks made at the outset of the meeting that Uruguay was friendly toward the mining industry were not meant as a slight on Venezuela. Instead, he says he was referring principally to Uruguay's more gentle topography, that it has excellent transportation infrastructure and liberal laws concerning foreign ownership and the repatriation of profits.
The meeting was also told that Crystallex and SouthernEra Resources Ltd. were negotiating to form a joint venture to cooperate in diamond exploration on both companies' properties. No further details were provided.
In addition, Crystallex hopes to begin exploration work on the so-called Carabobo concessions. Work has been slowed significantly by a declaration of absolute nullification by the mines ministry in 1995 after a congressional investigation into how the concessions were transferred to Crystallex. The company has a petition before the courts, although legal experts say there is little chance of the status quo changing on the matter.
None of that dampened Mr. Oppenheimer's enthusiasm for the concessions his company does not own. "We plan to begin systematic exploration of this area once title is confirmed by the Venezuelan authorities," he told the meeting.
The directors also dealt briefly with the matter of comments circulating on Internet discussion sites concerning Crystallex. In an about-face from his previous attitude about these forums, Mr. Fung says he would be "very happy if the Internet did not exist because of course we are not on the Internet and take no responsibility for what's said on the Internet or who is on it -- and there is no one on the Internet who speaks for the company."
In the past, however, Mr. Fung appeared happy enough to be quoted by Crystallex super-tout Avalon, who claims to be the Toronto-based bank employee Clive DeSousa. In November 1997, Mr. Fung had a discussion with Avalon, who promptly relayed some aspects of the discussion. Avalon went on to post around 3,500 pro-Crystallex comments on a variety of discussion sites.
In addition, Mr. Oppenheimer has been interviewed by Crystallex's No. 2 tout Roy Carson, an Irish-British transplant who operates a Venezuelan news website on the Internet and who is best known for his over-the-top support for the company and his caps-locked diatribes against Placer Dome. It was Mr. Carson who broke the news of Mr. Fung's ascension to board chairman in February 1998, five days ahead of the official announcement.
All corporate matters and controversies addressed, Mr. Fung bade farewell to the hardy shareholders and media reps. "It's been a terrible day," he said, adding quickly that he was referring to the weather.
(c) Copyright 1998 Canjex Publishing Ltd. canada-stockwatch.com
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