Venezuelan politician levels bitter accusations
Crystallex International Corporation KRY
Shares issued 34,000,000 Mar 18 close $4.50
Wed 18 Mar 98 Street Wire
TAKE YOUR PRACTICES ELSEWHERE, CONGRESSMAN SAYS
By Jerry Collins
Stating on Wednesday in a conference call that his country welcomes
business but not falsehoods and misleading statements statements from
promoters of junior mining companies, the head of Venezuela's mining
commission took a highly inflammatory aim at Crystallex International and
what he calls misrepresentation of its legal and corporate affairs in his
country. His comments, which apparently hit the company's supporters by
surprise, sent Crystallex's stock crashing down by about 40 percent in
early trading before it was halted at 8:09 am PST.
Mr Acosta told a March 18 teleconference in Miami Beach that
Vancouver-based Crystallex's claims that it should be given legal standing
on the Las Cristinas gold concessions is "nothing more than judicial
privateering -- attempting to use the court in an effort to stall the
development of these sites by the rightful party."
He adds: "Crystallex does not have the rights it is claiming and which it
is telling investors it has."
Mr Acosta says the rightful owner is Minera Las Cristinas, or Minca -- a
joint venture between Placer Dome and the state-owned Corporacion
Venezolana de Guyana, or CVG. According to Placer Dome, the joint venture
acquired Las Cristinas 4 and 6 in 1991; it confirmed a massive discovery of
bedrock gold at the concessions in 1994 (now estimated at nearly 12 million
ounces) and began construction of its mine last year. In January of this
year it announced work was being halted "until the Supreme Court of
Venezuela ratifies its decision of July 15, 1997 declaring inadmissible the
challenge by (Crystallex subsidiary) Inversora Mael to Minca's gold mining
rights."
Although the allegations are nothing new -- old hat says the company -- the
congressman's comments had a devastating effect on Crystallex shares. After
opening at $6.85 -- down from the previous day's close of $7.15 -- the
shares largely held their value until Mr Acosta was about half way through
his roughly hour-long teleconference, which began at 7:30 am PST. By 8:05,
the stock began to tumble, crashing through the $6 level, and by 8:09 it
was halted at the company's request, closing at $4.50. The biggest net
sellers on the day were Salman Partners and Canaccord Capital, both
Vancouver based firms.
Similar charges by New York short seller Manuel Asensio knocked the stock
down $2.35 to $6.90 on March 5.
For its part, Crystallex has repeatedly and strenuously argued that it
holds title to the properties and that the Venezuelan Supreme Court
confirmed its title in three decisions, in 1991, 1996 and 1997.
Crystallex officials, who ironically were at the same Miami mining
conference at which Mr Acosta levelled his accusations, issued a strong
rebuttal to the charges. "We categorically deny the charges made today by
Venezuelan congressman Rafael Rodriguez Acosta," Marc Oppenheimer says,
pointing out that Mr Acosta does not speak for the government of Venezuela.
Mr Oppenheimer says Mr Acosta has become a "fixture" at North American
mining conferences and has made these accusations before. "This latest
attack adds nothing new to previous allegations that have never been
sustained."
Mr Oppenheimer insists Crystallex's title claim is indeed before the
political administrative chamber of the supreme court, citing its case
number (13551). "Acosta's personal views are irrelevant," he huffs.
"Crystallex's action is being considered by the court in the ordinary
course."
Mr Acosta, however, stresses that the question before the courts is
"whether it should overrule a decision by a supreme court justice who said
Crystallex had no right to sue over gold rights."
That was part of a supreme court ruling on July 15, 1997. The other part
was to allow Crystallex to pursue its challenge of the copper rights in the
concessions; Placer Dome has appealed the admission of the case regarding
the copper rights. Sources close to the case say that even if the
copper-rights case goes to trial, and it is determined that these rights
were improperly transfered to Placer Dome partner CVG, these rights would
not be handed to Crystallex, but would revert to the state, which would
probably hand them back to Placer Dome-CVG.
"There is no basis in fact or law to believe that this decision will be
reversed," Mr Acosta says, referring to the copper-rights case before the
courts. This judicial matter is being conducted not as a trial but as an
ex-parte (one-sided) procedural matter. "But if it is reversed, Crystallex
would merely have the ability to file a lawsuit," he adds. "It would not
receive any rights."
If such a lawsuit were ever to proceed, the congressman says, the courts
would discover the following: that a lower state court ruled in February
1991 that any interest Mael claimed in these concessions was void; that in
October 1991, Mael reached a settlement in which it gave up any right it
claimed to these concessions; that the Ministry of Energy and Mines
transferred the concessions to CVG, and that "the rights belong to the
joint venture and a court cannot set aside that award."
Crystallex's assertion that it stands a strong chance of emerging with
possession of the gold rights for Las Cristinas 4 and 6 has found a lot of
support among the newsletter fraternity. Perhaps its greatest supporter is
Bob Bishop, who said in his publications "I think a win is right around the
corner" (February 27 Gold Mining Stock Report), and "If I'm wrong on this
issue I'll give serious consideration to sending out the refund cheques and
calling it a day" (Fax Alert No. 104, dated February 18).
Crystallex's supporters in the media include Globe and Mail columnist
Mathew Ingram, while among analysts, Dororthy Atkinson of Whalen Beliveau
is probably KRY's biggest cheerleader. In February, Ms Atkinson recommended
the stock for "aggressive investors," adding that should Crystallex win
mineral tenure to Las Cristinas 4 and 6, "we have a new $25 target for
Crystallex shares."
Mr Acosta says he has documents which he believes proves that Crystallex,
far from having its title confirmed by the court, does not even have a
title claim before the courts. Accompanied by fellow congressman Manuel
Alfredo Rodriguez, Mr Acosta told reporters: "We want to tell you that
despite numerous published claims in the Canadian press made by Crystallex
International and its promoters that pending a court challenge it could
gain the rights to gold concessions on these parcels, the claims are not
true. Even if it prevailed in its court challenge, Crystallex has no rights
to the exploitation of gold on these parcels."
Among these documents is a supreme court record of a Substantiation Court
decision that Inversora Mael "did not hold the concessions," and an
agreement signed by Mael in July 1991 "declaring it has no claims to the
concessions."
In addition, Mr Acosta released a letter sent to Ontario Securities
Commission chairman Jack Geller that outlined his views on the matter,
along with complaints about the company's conduct and statements regarding
a different group of concessions known collectively as Carabobo. Stockwatch
released exerpts from this letter, along with other information about Mr
Acosta's complaints, the day before Mr Acosta's speech.
In the matter of Crystallex's claims to the Carabobo concessions, Mr Acosta
was equally caustic in his remarks against the company.
Mr Acosta, who is president of the Subcommission on Mining of the Congress,
told the teleconference that Crystallex does not have title -- or even a
claim pending on title -- to four concessions known collectively as the
Carabobo concessions. On September 14, 1994 a congressional subcommittee
headed by Mr Acosta issued a damning report on Crystallex's conduct
regarding the transfer of title of four properties from a mining
cooperative called ACOMIXSUR.
That report, called "Special Commission to Investigate Allegations Made of
Corruption and Other Irregularities in a Mining Cooperative in the South of
Bolivar State", resulted in the "absolute nullification" of the transfer of
title to Crystallex by order of the federal mines ministry on July 4, 1995.
"Our congressional committee investigated the illegal sale of these rights
from ACOMIXSUR to Crystallex," he says. "Based on our investigation, the
Ministry of Energy and Mines in July of 1995 absolutely nullified this
sale. Crystallex has no rights to these parcels, but right here at this
(mining) conference, it continues to claim it does."
Crystallex officials notably did not include a rebuttal of his comments
regarding Carabobo in their announcement released shortly after Mr Acosta's
speech. In most of its brochure material and its latest annual report,
Crystallex boasts of possessing the largely unexplored Carabobo properties,
known specifically as Santa Elena 7 and 8, San Miguel 8, and Carabobo.
In various filing documents, however, Crystallex tells a different story.
In a prospectus filed in a $21 million offering dated October 9, 1996 --
and which was repeated in an SEC document of May 1997 -- Crystallex states:
"The status of the company's interests in the Santa Elena 7 and 8
concessions, the Carabobo concession, and the San Miguel 8 concession, is
uncertain at the present time, pending the outcome of the company's
application to the Supreme Court of Venezuela for an order affirming its
rights to such concessions."
Crystallex adds: "ACOMIXSUR was the subject of an investigation conducted
by a Venezuelan congressional committee. The company was not implicated in
the inquiry, and no charges were brought against it. However, on July 4,
1995, the (ministry) announced that it had given notice to ACOMIXSUR that
ACOMIXSUR did not have the right to sell the Santa Elena 7 and 8
concessions, the Carabobo concession, and the San Miguel 8 concession to
Crystallex Venezuela, and accordingly, declared the transfers to be null
and void."
Mr Acosta hotly contests Crystallex's statement of record that it was not
the subject of the congressional investigation. "That investigation was not
against ACOMIXSUR, that investigation was against Crystallex," he said in
response to a Stockwatch question. "And the decision disallowed the
transfer of those concessions." The July 5, 1995 order was irrevocable and
not subject to appeal, according to those close to the case.
Far from KRY's contention that it had "applied directly to the Supreme
Court of Venezuela in response to this position of (the ministry) for an
order to affirm ACOMIXSUR's right to sell the concessions and the company's
entitlement thereto," Mr Acosta says Crystallex applied for a nullification
of the order on constitutional grounds, but that the court ruled it would
not hear the case.
Said Crystallex in the two documents of record: "The company believes that
its application to the Supreme Court of Venezuela will be successful."
Mr Acosta's response was as follows: "On July 5, 1995, when the decision
came from the ministry in Venezuela, Crystallex appealed with a
constitutional right, but that was nullified by the supreme court in
Venezuela," he said through an interpreter. Mr Acosta, however, did not say
when the court dismissed Crystallex's application. Crystallex officials
were unavailable for comment, declining as usual to return calls .
Mr Acosta outlined a horrific tale of corruption. According to the
congressman's report and allegations at the mining conference, Crystallex
convinced certain elements of the ACOMIXSUR mining cooperative to sell the
concessions using unacceptable incentives and high-class entertainment in
Miami. This was done to the economic detriment of the majority of workers
and their families at the cooperative. And down plunged the stock.
The concession incentivizing took place in the Venezuelan district of
Payapal (pronounced pay-a-pal).
Mr Acosta told the tele-conference that directors of this cooperative
received monthly salaries, of US$5,000 according to his report, and trips
to Miami, and that, he claims, was why the ministry voided that transfer
from this small cooperative of miners to Crystallex. (The Carabobo
properties are worked by artisans within the cooperative, which held title
to them, but they were not fully explored or mined in an industrial sense,
with heavy-duty equipment and employing conventional Western mining
methods.)
"This might seem like a commercial dispute," Mr Acosta says of Crystallex's
handling of the Carabobo affair, but he interprets the company's dispute
over losing Carabobo as "an exercise of vengeance toward the republic of
Venezuela."
Crystallex also faces accusations from a former director of Eurus
Resources, Jack Caplan, who says Eurus shareholders paid too much to merge
with KRY because included in the valuation were the Carabobo concessions --
which at that time were prized assets of the company. Eurus was a 50-50
partner with Crystallex over the Albino gold concession, also in Venezuela,
and that is why the merger took place.
The merger was completed in late September 1995 -- over two months after
the July 5, 1995 nullification order. According to Mr Caplan, Crystallex
officials told him the title problem was a mere "technicality." As a
result, he says, Eurus shareholders only received about one sixth of
Crystallex in the deal; were the nullification to have been recognized, the
shareholders would have secured about half of Crystallex. Mr Caplan now is
making noises about a lawsuit.
Officials at Placer Dome are understandably more than a little encouraged
by Mr Acosta's comments and their effect on KRY's share price. "What he
says is very much what we've been saying all along, but nobody's been
listening to us," says Placer Dome spokesman Hugh Leggatt. "Coming from him
now, that really does back us up and that's very pleasing."
( |
