Crystallex Continues to Confuse Investors

The last week of March proved to be a confusing week for Crystallex (KRY) investors. To the obvious chagrin of Crystallex shareholders, on March 28th, Crystallex’s neighbor, Gold Reserve Inc (GRZ), issued a press release stating that it had received approval of its Environmental and Social Impact Assessment [ESIA] and had received its construction permit from the country’s Ministry of the Environment (MinAmb).

Crystallex, on the other hand, has been promising approval of its ESIA study for more than three years but is still lodged firmly somewhere on the waiting list, despite submitting its study for approval a year and a half before Gold Reserve Inc. In what could only be considered an attempt at damage control, Crystallex trotted out its CEO, Gordon Thompson, for an interview with the Globe and Mail to explain how extremely positive and happy they were that Gold Reserve had received its approval, as it is “proof that the Chavez government, which others fear will follow through on threats to nationalize the mining industry, is in fact looking to develop its resources with the private sector to create jobs and government income.” That would have been enough to sustain investors but Thompson went on, throwing another wrench into the mix by saying that “We got our permit under the new process established by the Chavez government, which creates a situation where we have a partner, (the Corporation Venezolano de Guayana or CVG), that takes a little longer,"

A year and a half in mining circles may constitute “a little longer”, but that comment has doubtlessly caught investors by surprise as the notion of a new process seems to have come out of left field. After all, since submitting the EISA in 2004, Crystallex has been touting the receipt of the permit as being a short term wait. In fact, mine plan documents released to the public show an initial anticipated timetable of just eight months, as Crystallex suggested it would begin construction of the Las Cristinas mine by the fourth quarter of 2004 with mining operations to begin by the third quarter of 2006. The time table has been adjusted forward every subsequent quarter since then and gold production is now slated for sometime in 2009.

The questions investors should be and are asking are, when did Crystallex become aware of this new, lengthy process and why had they not been informed of it prior to Thompson’s interview? The Globe article goes further by stating that Crystallex is “the first foreign mining company to try to win permission from the Venezuelan government under the new rules.” If new rules are in play, this creates yet another concern for Crystallex investors, as the new rules clarify that Venezuela will no longer be granting concessions but will instead defer to a contractual regime in which the Venezuelan State has majority control over mining projects. According to Venezuelan authorities at the MinAmb, should they approve Crystallex’s EISA, the final decision will still be up to President Chavez.

Another comment by Thompson must also have been met with consternation by Crystallex investors. While denying recent rumors of an interest in the company by a Russian mining company, he stated that “the permitting process would "start all over again" for another corporation if it took over the company.” Since Crystallex applied for its permit years ago, its professional and amateur promoters have been flogging the possibility that Crystallex would be bought out once they received the required permit from the MinAmb. Thompson's statement calls this possibility into question, for if the permitting process would start all over again, why would a potential suitor not have bid for Crystallex much earlier when their share price was hovering at one half to one third the value that the market has assigned it today? In the Globe article, Thompson, referring to Gold Reserve’s permit and that of Crystallex, continued on, saying that “One can't go ahead until the other goes ahead, and we're hoping that very soon after Easter we should be in the very same position that they are.”

This statement was met with challenges from both parties alluded to. An industry insider and close to the Las Brisas project called Thompson’s comment “wrong” and that the government of Venezuela, in October of 2006, clearly stated that if there were problems that affected one project that did not affect the other project, progress of the latter project would not be suspended or delayed. Despite sharing some infrastructure, the Las Cristinas and Las Brisas project are separate and distinct.

Additionally, in a Reuters article released on March 30th, a Senior official at the Ministry of the Environment, Sergio Rodriguez, the general director of Planning and Ordering, commented that Crystallex must make changes to its mining plan and EISA as “ Crystallex had not acted responsibly in environmental planning for the project in the southern state of Bolivar.” Rodriguez went further to say that “The (infrastructure) proposal that Crystallex is making is a project that has raised many objections."

According to Rodriguez, Crystallex’s plan does not take advantage of the mining of copper mineral that is found at Las Cristinas, and their plan does not does not have a plan to destroy cyanide used to extract the gold.

Crystallex, which has rapidly gained a reputation for constantly blaming the press for its woes by claiming that the press was misreporting or not accurately interpreting comments made by Venezuelan officials, including comments made by the President of Venezuela, returned the salvo by issuing a vague press release that said that:

Crystallex has spoken to Senior Officials at the Ministry of Environment ("MARN") and to Mr. Sergio Rodriguez, who was quoted in the Reuters article.

The Senior Officials contacted at MARN told the Company that the Reuters story does not reflect the statements made by Mr. Rodriguez and that they are contacting Reuters in order to correct the mis-statements.

What the Crystallex press release did not clarify is what Mr. Rodriguez told them or what aspects of Mr. Rodriguez’s comments that the anonymous senior officials at “MARN” told them they did not fully agree with. Reuters, in commenting on the Crystallex press release several hours later, stood by its reporting going so far as to state that they had tape recorded the discussion with Mr. Rodriguez and had accurately reported what was said. It is also difficult for the outside observer to understand how Crystallex could be unaware of these concerns and conditions expressed by Mr. Rodriguez, as company officials have made numerous claims that they have held meetings with government officials and the permit process in on track.

Mr. Rodriguez is also quoted in the Reuters updated article saying that confusion may have arisen if his comments were interpreted to mean that Crystallex would have to come up with an entirely new plan, instead of just incorporating suggested changes into their current plan. This would be difficult for Crystallex, as they do not have the legal rights to mine and process copper at Las Cristinas and their mine plan is based solely on the mining and processing of gold.

Does Crystallex have incentive to make their proposition more attractive to investors? One does not have to search far to find the affirmative. The day the interview appeared, Crystallex announced a CDN 53 million dollar offering that closes on April 24th. This total amount of the offering may very well have lacked willing buyers if it was known that Crystallex may be many more months away, and face much more controversy, before receiving approval of its EISA.

If Mr. Rodriguez’s comments are to be believed, Crystallex has much longer to wait than “soon after Easter.”

KRY 1-yr chart

Disclosure: None

Comments

[sapaloe:]

This story is plain wrong. It presents false "evidence" and refuses to value positive indications on this stock.
The editors for this website should pull this 'story' as it is more of a blog opinion hiding as journalism.
Investors beware...
Here are just a couple of the spins and lies in the above article that I have identified.

Thompson never mentions a "new" process. He says that the KRY process will take longer since it is associated with CVG.
That seems reasonable and does not change the fact that Rodriguez said that both GRZ and KRY had the "go ahead", pending some

revisions for KRY. So this is actually a positive moment for the stock.

The Rodriguez quote (though when read in one way is very positive and not negative) is now roundly discredited as having been

part of scam to drive the KRY price down just as it was rising... LOOK AT THE CHARTS! How could a Reuters reporter write

something based on one source, who is not even the primary contact person? Why didn't the reporter present counter points from

the company? How can Alpha's Blain report those quotes as a 'truth' in building the above argument? Awful, biased journalism.

You're questioning the integrity of management based on your misinterpretation is ridiculous.

As for the Russian buyout... The permit process would start all over again if the company is bought during the permitting

process. Once the permit is issued, it is operational and whoever owns Crystallex and its deposits is not required to go

through permitting again. The buyout happens after the permit. Everyone knows this, to present it otherwise is to twist the

truth.

Delaying the permit for one company based on the other... Obviously GRZ's permit was not delayed, but for GRZ to be

'operational' they rely on common investments from KRY including infrastructure (airport etc.), so it looks like GRZ is not

such a great investment without KRY also being permitted.

It has already been shown in the SEC filings that KRY does have a plan to deal with cyanide. Moreover, the copper was never

part of the plan and will never be until it is economic to extract it. This was settled with MIBAM.

KRY has responded that the press has been sensationalistic and that misquotes and misinterpretations are being spread through

the internet... and they have been right every single time. So what is your point? You are part of the effort to drive this

stock in the ground so that shorts and hedge funds can get their money out and in at a low price. You failed to present the

institutional investments in this company as positive news. You show that you have not read the SEC filings... Are you real

reporting or one-sided bashing? Obviously you are the latter.

"The day the interview appeared, Crystallex announced a CDN 53 million dollar offering that closes on April 24th. "
You are lying. The financing deal was announced a day before the hack story came out.
Just look at the reuters feed. Or the google finance site.

You should take your article down before someone sues you.
Cheers

2007 Apr 03 10:29 PM

[bane2007:]

Dear sapaloe, I generally do not waste time responding to critiques of my articles but you have insinuated legal action against either myself, SeekingAlpha or both. I will finger your accusations and explain my stance. I hope that you will at least respond accurately to them. If you choose not to, please keep in mind that legal action is available to us also as you have slandered me by making false accusations that I am a part of some cabal attempting to drive the stock price down.

1: Thompson never mentions a "new" process. He says that the KRY process will take longer since it is associated with CVG.

Thompson is very clear. He says “We got our permit under the new process established by the Chavez government, which creates a situation where we have a partner, (the Corporation Venezolano de Guayana or CVG), that takes a little longer,"

You are incorrect in your statement of fact.

2: The Rodriguez quote (though when read in one way is very positive and not negative) is now roundly discredited as having been part of scam to drive the KRY price down just as it was rising

There has been no discrediting of the comments made by Mr. Rodriguez. Reuters stands by their story and Mr. Rodriguez stands by his comments. You may reach Mr. Christian Oliver at the following e-mail address if you want to take this up with him. "christian.oliver"

You are incorrect in your statement of fact.

3: How could a Reuters reporter write something based on one source, who is not even the primary contact person?

Mr. Rodriguez is the contact person at the MinAmb for the approval of the ESIA.

You are incorrect in you statement of fact.

4: Once the permit is issued, it is operational and whoever owns Crystallex and its deposits is not required to go through permitting again. The buyout happens after the permit. Everyone knows this, to present it otherwise is to twist the truth.

It is Mr. Thompson, Crystallex's CEO who made the comment about starting all over again, not I. It is also my understanding that Crystallex will have to submit anther ESIA for approval if they do move ahead with their expansion plans. If you have any accurate and concrete information suggesting that the deposits would not require further permitting, I hope you write them in reply to me. If you are unable to provide this information then I and all other readers can conclude that your comment that a buyout happens after the EISA approval but is precluded from happening before it is wrong.

You are incorrect in your statement of fact.

5: Obviously GRZ's permit was not delayed, but for GRZ to be 'operational' they rely on common investments from KRY including infrastructure (airport etc.), so it looks like GRZ is not such a great investment without KRY also being permitted.


In my research and investigations for this article, I have confirmed that the Las Brisas mine can go ahead even if the Las Cristinas mine is stalled. As I reported, Mr. Thompson's comment was wrong. Please provide contrary information if you have it. I will even accept a current denial from Crystallex if you can get it as I have been unable to. You may reach them at [e-mail]

6: It has already been shown in the SEC filings that KRY does have a plan to deal with cyanide. Moreover, the copper was never part of the plan and will never be until it is economic to extract it. This was settled with MIBAM.

Once again, the comments about cyanide or copper production were not mine. They came from Mr. Rodriguez. I did not write that Crystallex had no plans for cyanide treatment but having plans does not mean that those plans meet with the approval of the MinAmb. Mr. Rodriguez is saying that they do not.

In your neck of the backwoods, it may be accepted practice to libel someone's character or damage their reputation for your own gain but according to the laws of this country, it is illegal to do so.

Please respond to my concerns above, issue an apology if you are unable to provide concrete information or list the name of your legal representitive so that we may contact them.

Best regards,

JLB

2007 Apr 04 02:41 PM

[sapaloe:]

Dear JL Blane,
This response is from Sapaloe. I have been trying to respond to you since I read your post. Due to technical difficultues this is my first ability to reply.

First, some people say I am legally insane, others impatient. This may be true. It certainly seems so yesterday. I hastily put together a response to your piece in order to counteract what I thought were problems with such a one-sided, misinformed piece. It appears that I was wrong.

I apologize for having thought you were consciously contributing to the short and hedge fund action. You obviously were not part of conscious manipulation of KRY. The release of the rebuttal article by Metzer on Seeking Alpha the day after I responded to your piece goes to show that Seeking Alpha is not very good with being timely, but may be seeking to give a balanced point of view. In terms of the stock market though, timing is everything isn't it.

I also, in my temporary insanity, had an opinion that lumped you in with a group of people who take every chance they get to manipulate this stock through misinformation. It turns out you were not consciously trying to undermine this stock. I was wrong.

In my humble opinion, you just have problems interpreting SEC files, selectively misinterpret and reproduce specious arguments, and lack the intiative to do follow up your challenges to the management. Your rebuttal to me still relies on what I think our misinterpretations of news releases. That is the opinion of myself and many other readers.

My kind advice to remove your article was to save Seeking Alpha from any legal trouble they may incur from hosting such a one-sided, misinterpreted opinion in your article. It was by no means to threaten you or anyone, as I think that is useless.

As far as your questions to me... You should really read Metzer's real. He brings up many of the same points... Which you fail to support.

I wish you luck and success in your publishing career and hope that you are now of a different mind about KRy. You certainly would be financially better off if you had chosed to interpret the KRY news releases in a less selective and misinformed way.

Best regards,
Sapaloe

2007 Apr 05 06:27 PM