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Dossier: Carrie Tait looks at one of the key stories of the week : Nationalization of Crystallex International Corp
By Carrie Tait
Financial Post
Ottawa
Petroleumworld.com 06 19 06
Dossier: Carrie Tait looks at one of the key stories of the week
Nationalization. To Crystallex International Corp., no word is more offensive. If Venezuela, home to Crystallex's Las Cristinas gold mine project, decides to nationalize mines there, Crystallex will get clobbered. But this week proved it doesn't even take that much to wipe away half of Crystallex's market cap. Just whispering the word sends Crystallex investors into a tizzy.FAQ
WHAT'S HAPPENED?
Is this the first time this has happened?
Hugo Chavez, Venezuela's president, broke the ice last September when he gave a speech saying his country would cobble together a national mining company, with Las Cristinas -- one of the world's largest undeveloped gold deposits -- in its portfolio.
Crystallex stock dropped 48% to $1.65 before trading was halted.
SO WHEN WILL LAS CRISTINAS BE NATIONALIZED?
Perhaps never. Crystallex is at the whim of Venezuela's government officials -- and it seems as though they don't all share the same views. On Thursday, Mr. Rivero's comments were trumped when Luis Gamargo started talking.
WHO'S HE AND WHAT DID HE SAY?
Right now, he might turn out to be Crystallex's saviour. In Venezuela, he's better known as the vice-president of the Permanent Commission of Administration and Public Services. Mr. Gamargo posted a statement on his Web site contradicting Mr. Rivero. With 429 words, Crystallex investors simmered down. Las Cristinas project will be spared, Mr. Gamargo said. The existing deal between Venezuela and Crystallex will be honoured, he said. Crystallex's stock, however, didn't react to Mr. Gamargo's soothing words. Yesterday, it closed at $3.66, still off from $4.29, where it closed last Friday.
WHAT IS THE DEAL BETWEEN CRYSTALLEX AND VENEZUELA?
Venezuela owns the gold project. Crystallex will develop and exploit it, paying Venezuela a 6% royalty, as well as corporate taxes on any profits. Crystallex believes this arrangement will be the blueprint for mining companies operating in Venezuela. But until the proposed mining laws are passed, it's anyone's guess.
DOES THIS MEAN NATIONALIZING LAS CRISTINAS IS COMPLETELY OUT OF THE QUESTION?
Don't bet on it. If this week is any indication, Venezuelan mining policy could change without warning. A proposal to change the country's mining laws was sent to Congress yesterday. Victor Alvarez, Venezuela's Mining Minister, expects lawmakers to approve the legislation by Aug. 15. Until then, uncertainty will probably grip Crystallex.
IS CRYSTALLEX READY TO START DIGGING FOR GOLD?
Yes and no. Crystallex has most of the infrastructure and machinery ready to go. And March brought excellent news for the company. Venezuela's mining ministry approved Crystallex's technical and financial plans for Las Cristinas. Investors did backflips, and pushed the stock up 77 cents, or 21%, to $4.43. It looked like the coast was clear, after all.
But the Toronto-based company has yet to secure its necessary environmental clearance. The go-ahead nod is way overdue. But for some reason, this particular governmental department has yet to budge.
"The [proposed] changes would affect companies that haven't started production yet. Companies such as Hecla [Mining Co.] wouldn't be affected as they are already producing. Crystallex, which hasn't started yet, would be affected." -- Jose Ramon Rivero said Monday
"Not every project will be affected by the proposed changes. And among those worth noting, for example, are the Las Cristinas project, the Camorra mine, Revemin, Minerven and others." -- Luis Gamargo said in his statement on Thursday
"Crystallex is an extremely volatile stock ... and it is in a volatile sector and it's really a volatile market." -- Catherine Gignac, a mining analyst at Wellington West Capital
"[The stock has] been up and down like a toilet seat." -- John Ing, president of Maison Placements Canada, said on Monday
Jose Ramon Rivero, head of Venezuela's mining subcommittee and a National Assemblyman, kicked off the fun on Monday when he told Bloomberg News Venezuela may seek majority control over mining operations. Crystallex, Mr. Rivero said, would be on the hit list. And that was all it took. Crystallex lost 24% of its value on Monday. At its lowest point that day, Crystallex was down 51%.
Financial Post
Saturday, June 17, 2006
Copyright ©2006 CanWest Interactive, a division of CanWest MediaWorks Publications Inc. All Rights Reserved.
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