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Business West
Crystallex not for the queasy
Monday, March 9, 1998
By Mathew Ingram
CALGARY
CALGARY -- AS stockbrokerage wags like to put it, shares of Crystallex International of Vancouver ought to come with free motion-sickness pills. This particular stock's "beta" -- a measure of trading volatility -- is right off the scale, and has been for the past six months or more. And that roller-coaster ride is only likely to get wilder.
In fact, Crystallex's share price isn't going to settle down until there is a definitive statement, preferably in words of one syllable, about who owns the rights to a couple of chunks of Venezuelan jungle containing an estimated 11 million ounces of gold -- Crystallex or industry giant Placer Dome. The market has now been waiting for a ruling from the Supreme Court of Venezuela for four months.
Waiting for that length of time for a crucial piece of information causes a lot of investors -- especially the high-risk, momentum-driven kind -- to tear their hair out, and makes a stock about as jittery as a junior gold company can be in a post-Bre-X world. Crystallex has traded extremely large volumes, with much of that activity driven by retail investors.
From the $3 range last April, the stock climbed as high as $8 in July. On July 16 -- a day that lives in infamy as far as members of various Internet investment chat groups are concerned -- Crystallex dropped more than 50 per cent to below $4. It see-sawed back to $8 by September, then wandered lower before starting to climb strongly in mid-January. It got to $11.40 in February, but has since crumpled to close Friday at $7.25.
The latest drop was caused by a negative report issued last week by a New York-based short-seller, Manuel Asensio. He said unequivocally that, after doing extensive research into legal documents in Venezuela, he is convinced Crystallex has no legal claim to what are called the Las Cristinas properties, and as a result the stock is likely drop to less than $1. Crystallex has since said that it plans to sue Mr. Asensio for his remarks.
The short-seller, who admits to having bet heavily that Crystallex will fail, obviously has made up his mind about who will win control of Las Cristinas, but others say it's still a complicated and difficult fight to call. For one thing, it involves an arcane series of rulings by the Venezuelan Supreme Court that contradict the actions of both a government ministry and the country's former president -- all of this in a region well known for its past problems with high-level corruption.
At first glance, the Canadian players in this drama seem totally mismatched. In one corner is 97-pound Crystallex, with no track record and few assets. In the other is Placer Dome, one of Canada's largest mining companies, which has been trying to develop Las Cristinas, in Venezuela's so-called "kilometre 88" region, since 1992.
To top it off, Placer's partner in the Las Cristinas project is the former Venezuelan government holding company that claims it owns the rights to the property. On the plus side for Crystallex, however, is the fact that the company has several apparently solid legal rulings in its favour. Also, its chairman is Robert Fung, a former vice-chairman of Gordon Capital and friend of Hong Kong billionaire Li Ka-shing, and not a man to be taken lightly.
Eleven million ounces may not sound like much compared with the 200 million that Bre-X claimed to have, but it is a significant deposit by any other measure, and one that Placer has been counting on for some time. It is equivalent to about 20 per cent of the company's current production, and Placer has already spent about $110-million preparing the site.
In January, however, Placer said it was going to stop work until the Supreme Court makes its ruling -- a decision Crystallex fans took as a significant move in their favour. Last summer, Placer held a ceremony to mark the start of the project, saying it was convinced it had the ownership of Las Cristinas sewn up. In January, however, the company said it had had problems obtaining financing because the ownership is still in doubt.
In fact, last summer's ceremony was just one of many false starts at the property. Placer president John Willson was quoted in the summer of 1996 as saying "champagne corks were popping" because the company had concluded its negotiations with the Venezuelan government over Las Cristinas, and Placer expected to start work there in late 1996.
Last July, when a court ruling appeared to favour Placer -- the event that caused Crystallex shares to fall more than 50 per cent in a single day -- Mr. Willson said the matter had been settled, and work would soon commence on Placer's $535-million mine. Work did in fact begin, but as events have since shown, the matter was far from being settled.
TUESDAY: The case for and against Crystallex
Business West readers can reach Mathew Ingram by fax at (403) 244-9809 or by E-mail at
mingram@globeandmail.ca |
