TO ALL KRY SHAREHOLDERS.
Crystallex International Corporation -
Untangling Cristinas' documents, Part 1
Crystallex International Corporation KRYShares issued 340000001998-04-14 close $6.7Wednesday Apr 15 1998THE PAPER TRAIL - Part one of two By Stockwatch Business Reporter On April 16, 1997, Crystallex International issued a statement informing investors that the Venezuelan Supreme Court had issued a "final and binding" decision on April 15 which ordered the government to gazette the change in ownership of the coveted Las Cristinas 4 and 6 gold concessions to Crystallex subsidiary Inversora Mael. That sounded like a profound legal win for Crystallex, which has challenged the Venezuelan government over its granting of a work contract to Minca, the joint venture between Placer Dome and the country's industrial administrator, Corporacion Venezolana de Guayana - better known as CVG - to exploit surface and bedrock deposits at the properties. "Las Cristinas 4 and 6 concessions were transferred to Mael in 1986," the KRY board of directors stated in its widely publicized release. "Publication in the official gazette is the final legal formality required under Venezuelan mining law to perfect the transfer for all purposes." So sweeping was Crystallex's apparent victory, there seemed little more that could be said, except for offering condolences to Placer Dome and its Venezuelan state partner over the loss of their 11.8-million ounce target. Instead of congratulating the government for a putting up a spirited defence of its actions - and thanking Placer for defining the orebody - the final words slipped in by the board were a sly proviso: "Crystallex will continue to seek full recognition of its ownership rights, including through further proceedings before the Venezuelan courts." To many readers, the final sentence hardly fit with the earlier gloating and corporate high-fiving. In the space of a few sentences, "final and binding" victory suddenly was no longer so final or so binding and, in fact, the latter part appeared to be one of those word wiggles designed to deflate part or all of the earlier statement - upon careful reading. What the Crystallex board imparted as victory would be repeated a few months later, on July 15, 1997. That day, the court denied Crystallex the right to challenge the government over its granting of the gold rights to Placer-CVG. Instead, the court handed the company a much smaller prize, ruling it could, however, sue over its granting of the copper rights to Placer in 1996. Admissions Judge Maria Lopez ruled inadmissible the challenge to nullify the government's declarations over the gold rights because the six-month time limit to present opposition to its resolutions had expired back in 1989. Mael did not make the same mistake in 1996 when the government awarded Placer-Minca the copper rights, following the joint venture's discovery of significant copper deposits intermingled with the gold. As a result of the timeliness of Mael's copper challenge, this motion was admitted for trial. The response from Crystallex's board over being denied the right to sue over the gold was ecstatic. "We are exactly where we want to be at this stage of the legal process," trumpeted KRY board member, president and front man, Marc Oppenheimer, on July 16. In yet another carefully worded statement on July 18, 1997 the board called the July 15 decision "a definitive step forward toward the enforcement of the company's ownership rights to the mining concessions Cristinas 4 and 6." Such is the apparently incongruous world of Crystallex's interpretations of Venezuelan court rulings, that what appears to be defeat is actually victory, but usually victory requires a disclaimer. The two 1997 "victories" joined "victories" Mael won in 1991 and 1996, bringing to four the number of apparent wins for Crystallex. Crystallex touts claim that the next court win in Venezuela will result in the dissolution of Placer-Minca's right to mine Las Cristinas. Placer, of course, failed to follow Crystallex's legal logic. On July 16, when Crystallex was claiming it had won the court case, the Vancouver-based miner was proceeding with the final stages of financing for the US$600 million mine it had planned for Las Cristinas. "We need to have that small margin of doubt cleared up about our mining rights before the lenders will sign off," Placer spokesman Hugh Leggatt told the Financial Post a few weeks earlier, on June 7. The lenders, satisfied with the judgement, soon signed off and construction began in August last year. The July 15, 1997 ruling is not the end of the legal road, of course. Crystallex appealed its denial of the right to sue over the gold, while Placer appealed the admission of KRY's challenge over the copper rights. That leaves open the possibility - however slim - that the same court (the Political Administrative Division, Trial Court, comprising five justices, including Justice Lopez) will reverse her ruling and grant Crystallex and its subsidiary Inversora Mael leave to sue the government over the gold rights. Crystallex's noisy campaign emerged late in the Las Cristinas game, in March 1997, with the stunning announcement that it had acquired the mining rights to Las Cristinas, after reportedly paying $30 million for Mael. That came almost six years after Placer-CVG had been given permission to form a joint venture to exploit Cristinas (in June 1991), following an open-bidding process that Placer called lengthy, thorough, and fair. Placer-CVG was granted a work contract from the ministry in March 1992 and began reporting favourable drilling results a year later. Both sides have made considerable comment about the nature of the court and administrative decisions surrounding Las Cristinas. To date, Crystallex wins the word count, having issued around twice as many statements about the concessions since March 1997 as Placer. THE "FULL REVIEW" Positive interpretation of events is one of Crystallex's skills. On September 17, 1997, Mr Oppenheimer stated carefully that his company "continues to look forward to the full review of the Las Cristinas situation" by the supreme court. Investors trying to make sense of this word construction can look forward to divining how the issues now before the court will lead to what Crystallex calls "enforcement" of its ownership rights, or what Mr Oppenheimer means by a "full review." The 12-year court record that has been made available to the public is extensive but, unfortunately, far from complete. Placer is especially not keen to hand out court documents. Mr Leggatt says Placer's policy is to not become involved in the public-relations battle over Las Cristinas to the extent of distributing documents, even though he says such papers support Placer's contention that Crystallex has never even mounted a full-blown legal challenge regarding title before the Venezuelan courts - only a seemingly endless series of procedural challenges that have no bearing on title today. Strictly speaking, this is true. Crystallex, however, also can righteously claim it has a title contest underway in Caracas - that is, it has a narrow but promotable claim regarding title before the courts. A review of the court documents -- past and present -- however, cannot avoid focusing on the likelihood of success for that claim. Unkind commentators have likened Crystallex's challenges to the faint-hope appeals brought by activist prison lifers such as Clifford Olson, who provide lots of work for the courts but only the narrowest of margins the individuals launching them will get lucky with a judge. For example, on April 15, 1997, the Venezuelan court ruled the transfer of ownership to Inversora Mael in 1986 should be gazetted. This was done by the government the following month, in May 1997. Placer contends that while Mael may have had valid title to Las Cristinas 4 and 6 in 1986, its rights to mine at Las Cristinas in 1998 is another matter entirely. They contend this is a historical detail that only lawyers could dream up, and which establishes only a narrow period of ownership many years ago. Ownership after 1989 - and especially 1991 - is what counts. A review of the available rulings suggests there is no explicit challenge on the part of Mael-Crystallex that would see its historical ownership lineage moved up to the present day - that is, current court applications that will lead to the "enforcement" of its earlier ownership rights. Indeed, the official court record of July 15, 1997 indicates Mael waived its rights to Las Cristinas on July 30, 1991, and that the waiver was approved and ratified by the courts on October 17 and 18, 1991. Further, the presiding judge in the July 15, 1997 decision stated it was "clear as daylight" that Mael had failed to apply in writing to renew the 25-year leases in 1989. Nevertheless, Placer in January this year shut down construction of its mine at the site, resulting in the layoff of hundreds of area workers. In the face of much promotional noise by Crystallex's boosters, the miner said it wanted to clear up all doubt about its work contract by way of a court ratification of the July 15 decision before it proceeded with construction. The statement coincided with a drop in gold prices so severe it shook the mining community to its foundations and caused gold miners to be devalued sharply on various exchanges. The announcement also gave Crystallex and its raucus cheerleaders much fuel to claim the delay was an admission that Placer's title was in jeopardy. Crystallex's stock has performed well since the Placer announcement. It reached $11.85 in February on the back of a third bullish analyst's report from Whalen Beliveau and Associates' Dorothy Atkinson and strong endorsement of Crystallex by California newsletter writer Bob Bishop. March was less satisfying for KRY's up-promoters. Early in the month, a New York down-promoter named Manuel Asensio hammered the stock with a series of contentious Internet postings and press releases. These reports sent KRY crashing to a close of $6.90 on March 5 from $11.60 on March 2. Crystallex stock rallied to $7.75 on March 16, only to be kicked down to $4.50 on March 18 after a Venezuelan congressman, Rafael Rodriguez Acosta, spoke out strongly against the company at a Miami mining conference. Among other charges, Mr Acosta accused Crystallex's management of "judicial privateering." Crystallex closed on April 14 down $0.10 at $6.70. DUBIOUS PEDIGREE The available court record offers some solid historical information about the case. The most complete account, by far, is contained in the July 15, 1997 ruling, which is summarized in two official accounts and a KRY executive summary. Included in these documents were submissions from Minca and CVG lawyers outlining the dubious pedigree of the Cristinas title. The record begins in 1964, when the rights to mine surface or alluvial gold, only - not bedrock gold - at Las Cristinas were awarded to the now-deceased widow of an American adventurer. Her name was Dot Culver Witney de Lemon; she died penniless in 1986. Mrs Culver took title to the concessions in 1964 for a period of 25 years -- to 1989 -- at which time they could be renewed or extended by writing to the Mining and Energy Ministry. Before 1982, the concessions had been subleased to Amalfi Grossi Gatti for small-scale surface operations. Mrs Culver then sued to cancel the agreement on July 17, 1982 in a Miranda state court. Less than a year later, on February 21, 1983, her lawyer, Rodolfo Rodrigo Schmidt, sought payment of his legal fees for work on the Gatti sublease case, and won a judgement against her in May 1985. In September 1985, Mrs Culver granted a power of attorney - "especially in matters referring to the mining concessions of the vein and alluvial gold deposits" known as Cristina 4,5,6, and 7 - to lawyers Jesus Angel Adrianza Morales and Edgar Fernandez Moran, the court record of July 15, 1997 shows. Seven months later, on April 7, 1986, Mrs Culver expressly revoked this power of attorney in a court-approved document. On April 15, 1986, the Cristinas 4 and 6 concessions were sold to a third party, Ramon Torres, for exactly the same amount Mr Schmidt demanded from Mrs Culver for his legal fees - 259,000 bolivars, or around $19,500 in 1986 dollars. In this way, the debt Mrs Culver owed lawyer Schmidt was settled. A day later, on April 16, 1986, Mr Torres appeared in court, together with lawyer Jesus Morales, "who attributed to himself the nature of legal agent of Dot de Lemon, which he no longer had because his general power of attorney had been expressly revoked weeks prior to that date," the court was told. Both entered into a "transaction for settling the differences existing between the parties in virtue of the claim for professional fees." ATTORNEY TRIES A QUICK ONE Therefore, with a view to paying Mr Torres the credit that he had against Mrs Culver, Mr Morales "without being the legal agent of Dot de Lemon but assuming the above-mentioned role," transferred to Mr Torres "all of the rights and shares of stock that corresponded to Dot Culver Witney de Lemon on the mining concessions of the vein and alluvial deposits called Cristina 4 and 6." This is the first time transference of bedrock rights get a mention - curiously, only after Mr Torres becomes involved. Mrs Culver died without heirs, and "it was apparently thought that the illegal and illegitimate dispossession would not have repercussions," a CVG submission stated. On May 14, 1986 - two months before she died - through a legal procedure stamped in court, Mr Torres transferred title to the company Inversora Mael, CA, "all of the rights and shares of stock that supposedly Dot de Lemon had transferred to him through a person who was no longer her legal agent." Among these rights were the ownership titles of the concessions Cristina 4 and 6. The court to which the submission was referring was called the First Court of the First Instance in Civil Matters, Miranda. Two days later, the court sent certified copies of the transaction and of the indicated document to the Ministry of Mines and Hydrocarbons, now called the Ministry of Energy and Mines. This judicial notification would figure largely in one of the lawsuits that Crystallex would later claim as a title win for Inversora Mael - that of May 9, 1991. Minca and CVG lawyers point out, however, that on May 17, 1986, Inversora Mael made an application to a superior court - the Court of the First Instance in Civil Matters - for the material delivery of the concessions and was denied this in a legal document dated July 8, 1986. This negative decision was ratified by a yet-higher court, the Second Superior Court in Civil Matters, through a decision dated November 30, 1990. "Inversora Mael never was the title holder of the concessions Cristina 4 and 6, because the citizen, Dot de Lemon, never stopped being the owner of the same up to the time of her death, which occurred on July 23, of the same year, 1986," the Minca submission stated. The reason was because Jesus Morales had stopped being the legal agent of Mrs Culver on April 7, 1986. On a date not noted in the court record, lawyers sorting out Mrs Culver's estate on behalf of the government sued Ramon Torres and Inversora Mael. They argued that a February 26, 1991 decision in the Third Court of the First Instance in Civil Matters ruled the estate of Mrs Culver as "unclaimed." The Minca lawyer quoted from tribunal's February 26, 1991 ruling on the matter: "Therefore, the mining concessions Cristinas 4,5,6, and 7, due to reversion, totally became part of the national heritage, all of this in agreement with Article 103 of the Constitution." MAEL WAIVES RIGHTS On October 17, 1991, a waiving-of-rights arrangement was authorized and the next day approved by the Fifth Superior Court in Civil and Mercantile Matters. This arrangement was between Inversora Mael and Mr Torres on one side, and the executors of the unclaimed estate of Mrs Culver on the other, the submission stated. (Although the official record does not note the date of the waiver, such an agreement was made on July 30, 1991.) Three items were agreed to between the parties, the record shows. First, Mael and Mr Torres abandoned an appeal that that was brought against the decision of the Third Court of the First Instance made on February 26, 1991. This resulted in the "non-appealable final decision" that declared the nullity of the transactions and transfers of April 16 and May 14, 1986, through which Mr Torres and Mael had gained "rights" to Cristina 4 and 6, the July 15 summary indicates. This nullity was ratified "solely and exclusively" on October 18, 1991. Second, in the same legal action of February 26, lawyers for the unclaimed estate desisted from a nullity lawsuit brought against Mr Torres and Mael. The Minca submission stated this withdrawal "could not have any effect whatsoever on the declared nullity and the annulment effects of the decision of the Court of the First Instance, which had already been declared a non-appealable final decision." Third, Mael alone declared that it did not have any claim against the unclaimed estate of Mrs Dot de Lemon, "or in relation to the mining concessions" Cristinas 4,5,6, and 7. The Minca lawyer read from the waiver, that Mael "has no claim against the above-mentioned unclaimed estate nor in relation to the mining concessions (Cristinas 4, 5, 6, and 7), the location and other characteristics of which are verified in legal documents." The Minca lawyer continued: "The Superior Tribunal, on October 18, 1991, solely and exclusively approved the withdrawal of the appeal" stemming from the Third Court of the First Instance on February 26, 1991 decision that declared the estate of Mrs Dot de Lemon as "unclaimed." According to Mael-KRY lawyer Ricardo Cottin's account, the Minca submission says Mael appealed the February 26, 1991 ruling, but formally abandoned this appeal and this abandonment was approved and ratified by the courts on October 17 and 18, 1991. The abandonment of the appeal was further confirmed on November 5, 1991. That ruling, the Minca lawyer stated, was recorded by the Third Court of the First Instance as "definitely firm." MAEL "NEVER HELD TITLE" This appeal that Mael abandoned was "the only thing that could be procedurally approved," the court was told, because annulment of the transfers of the concessions Cristinas 4 and 6 were "non-appealable and final." Therefore, the Minca lawyer stated to the court, Mael "never was the title holder nor the owner" of the concessions. In her July 15, 1997 ruling, Justice Lopez noted for the court record the waiver signed by Inversora Mael and approved by the court on October 18, 1991: "Inversora Mael, CA, formally declares that it has nothing to claim from the nation or from Corporacion Venezolana de Guayana (CVG) by reason of the above mentioned alluvial gold concessions named Cristinas 4 and 6, and further, Inversora Mael CA will not bring any kind of action or appeals arising from or relating to the decision issued by the Supreme Court of Justice on March 9, 1991, and any legal decision there may exist on claims relating to alluvial gold concessions named Cristinas 4 and 6." At this point, Justice Lopez also noted the intervention of lawyer Elita Graterol Calles, who acted "in name and on behalf of" the government of Venezuela. Mr Calles argued the appeal should not be admitted owing to Mael's "manifest lack of legal standing" and the lapsing of the appeal. Justice Lopez rejected the argument that Mael manifestly lacked legal standing in the case. In her statement regarding causes for dismissal of the action brought by Mael, Justice Lopez noted that "this court believes that it is necessary to emphasize that there is a document on record whereby since year 1986 the appellant received by sale the rights over concessions of mines Cristina 4 and Cristina 6." "CLEAR AS DAYLIGHT" The judge also did not appear to consider all the waivers, appeals and abandonment of appeals in her July 15, 1997 ruling (to deny Mael-KRY the right to sue the government over the gold rights). She addressed the narrow procedural matter of the expiry of the concessions by Mael in 1989. Justice Lopez writes it is "clear as daylight and without doubt" that the expiration of the leases had taken place. "This court, in performing the law's demand, is precluded from considering matters other than the verification - as it has done - that the appellant, Inversora Mael, CA, filed the administrative appeal for nullity against administrative acts (issued by the ministry in February and March, 1989 were performed) in an untimely manner, that is, after the lapsing of the six-month term set forth in Article 134 of the Organic Law of the Supreme Court." It may have been clear as daylight to Judge Lopez, but Crystallex-Mael lawyer Cottin appears to believe otherwise. In an undated letter to Mr Oppenheimer, Mr Cottin says written notification to the Ministry of Energy and Mines for the renewal of Cristina 4 was made on January 24 and again on February 3, 1989. The ministry, however, rejected the renewal requested by Mael, stating the concessions had reverted to the state and that a renewal by Mael is therefore improper and illegal. "All along the appeal process . . . by Inversora Mael, it endeavoured to comply with the obligations that the mining law and the title impose to concession owners," Mr Cottin told Mr Oppenheimer. "However, the efforts of Inversora Mael were systematically rejected by the (ministry) by alleging that the rightful owner of Cristinas 4 and 6 was Dot de Lemon, subject to confirmation in the pending process before the supreme court." Mr Cottin's letter continues: "The Cristinas 4 and 6 concessions were granted for an original period of 25 years, renewable for subsequent extensions upon written notification to the (ministry) within six months from the termination date. According to Article 43 of the mining law, the renewal of denouncement concessions is mandatory and not at the discretion of the (ministry)." This allegation - that written applications were attempted but rejected - was not raised by any of the judges or lawyers' submissions in any of the four subsequent court cases relating to Mael-KRY's title claim. Whether this point will be pursued vigorously by Crystallex in any upcoming lawsuit against the government of Venezuela is not known. Mr Oppenheimer does not return phone calls, in spite of indications from his senior staff on March 31 that an interview may be possible if his lawyers are present. Part two of Untangling follows. |
