Chavez's Recent Statement Positive For Crystallex 8 comments
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1. KRY is being discussed at the highest level of government, meaning that decision makers are present and being considered. You do not go to any president's (or CEO's office for that matter) office with minor proposals or heavy discussion. You go there once the heavy discussion has been filtered out, and you're ready for the GO/NO-GO decision discussion. This is very positive for Chavez to have KRY in his mind, especially when the "mining industry" is mentioned. It's not that he was asked specifically about KRY, rather, he used them as THE EXAMPLE. This is extremely positive.
2. Chavez is not a fool, regardless of what you think about his policies. He's fully aware of the frustration that KRY has been suffering, and this statement was an effort to appease that management and show support. This demonstrates a healthy, working, functional relationship that both would like to maintain, otherwise why even mention it?
3. Chavez is also feeling tremendous internal pressure. Venezuela is currently suffering from very high unemployment. This statement was also aimed at appeasing the miners and locals of VZ. This is also in light of the nationalization of a critical broadcast TV station which has many upset.
4. Lastly, I would offer that it's very healthy that KRY has not issued a public statement supporting or commenting on the Chavez statement. First, they should be focused on the permit, not on managing wild expectations. Second, it's a demonstration of respect to Chavez to not undermine his statements in any way, but to simply allow the process to move forward. Chavez specifically noted that they are moving as quickly as possible. KRY wants to support him, and the best way to do this, is to say nothing and comply.
I think these statements are very positive, I think the lack of a major price movement (I'm realistic, and consider major anything between 5-10%, more I think would be too much) yesterday may be market manipulation.
I welcome other people's views and discussion, both longs and shorts, as we want to get all sides of this.
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This article has 8 comments:
I'm afraid, however, that I must politely disagree with you in this instance. I am not arguing for or against the fortunes of Crystallex in Venezuela, just pointing out what I consider to be flaws in your argument that it is necessarily the case that “<strong>Chavez'... Recent Statement [is] Positive For Crystallex</strong&...
Please do not take my criticisms of your argument personally; rather consider it in the spirit of a friendly & polite debate.
That said, let me go through your well-organized (but in my humble opinion, unsupported) statements (which I’ve hopefully put in <strong>bold<... – we’ll see once I hit the “add comment” button if my rusty HTML skills are up to the task!) point by point:
<strong>1. KRY is being discussed at the highest level of government, meaning that decision makers are present and being considered</strong&... [and <em>“It's not that he was asked specifically about KRY, rather, he used them as THE EXAMPLE. This is extremely positive.”</em>]
According to the Dow Jones story, President Chavez says he is waiting for a report on Las Cristinas from his Mining Minister (note the distinction between Las Cristinas vs. Crystallex). Yet, it is the Ministry of Environment (MinAmb) who are responsible for issuing the long-awaited Environmental Permit. What exactly is the nature of the Mining Minister’s report, given the Ministry of Mines & Basic Industries (MIBAM), which the Mining Minister heads up, apparently approved the this same Las Cristinas project back in March, 2006?
It would suggest, at least to me, that there are broader issues being contemplated with regards to Las Cristinas. Furthermore, it should be noted that it could be the case that in this instance the President uses the terms “Las Cristinas” and “Crystallex” interchangeably, but we cannot be certain of that, and therefore, we cannot ascribe more meaning to his statement than is evident.
According to the Bloomberg story, President Chavez said that his administration is continuing to work with Crystallex. This would imply to me that the company is aware and involved in the discussions, at least at some level. What those discussions are is anyone’s guess, as they have not been disclosed, other than the company’s repeated statements to investors that they know of no impediments to the project (there have not been any discussions about the Mine Operating Agreement being changed to a state-majority joint venture, etc.) nor to the long-awaited Environmental Permit (final stage of the process, imminent, by Easter, etc.).
I agree that discussions taking place within the highest levels of the Chavez administration does appear to be fact. This could be good news, or it might not – but before we can determine its outcome one way or the other, we have to recognize that it is wholly dependant upon what exactly is being discussed, why, and what are the motivations or agendas of the decision-makers and their influencers.
I am not convinced we have enough information to make that determination yet; and therefore, we can make no conclusion as to the impact of the outcome.
I am afraid I haven’t seen anything in the Bloomberg, Dow Jones, or the transcript of the press conference (supplied by VTV) that would support your assertion
that President Chavez spontaneously mentioned Crystallex, rather than being asked specifically about the company. Even if that were true (I will concede you may have sources that I am unaware of who may have given you unreported first-hand accounts of this), my points above, that we cannot know the significance of this one way or another stand.
<strong>2. Chavez is not a fool, regardless of what you think about his policies. </strong>
I agree with you that he is not a fool (and must also confess that I typically don’t agree with his policies, but as you imply that’s another matter separate from the real issues here).
While it may or may not be the case that President Chavez is aware of the frustration that Crystallex (and presumably its shareholders) has been suffering, I do not understand how the statement attributed to him by Bloomberg (that his administration is continuing to work with the company), which I presume you are referring to, must necessarily be seen <em>“an effort to appease that [sic] management and show support.” </em>
You are quite right, if the Bloomberg quote is correct, he didn’t say “the government is continuing to work <em>against</... Crystallex” (he apparently said <em>“with”</e... but can we really jump to the conclusion that it is an effort to show support to beleaguered Crystallex executives? Perhaps neither of us have any real proof to argue definitively on either side of this point, so I’ll just have to say I am not so sure your position is defensible (though, of course, it could actually be the case – it’s just not provable with the facts as known).
<strong>3. Chavez is also feeling tremendous internal pressure.</strong&g...
You are right that unemployment - particularly in this area of Bolivar State - is very high, and this is causing considerable social problems, too. I agree that Crystallex will generate local employment should the project finally be green-lighted, but if it is true that most locals are artisanal miners, they probably do not have the skills to operate a commercial mine. Training programmes will go a long way to remedy this, and some of the miners that have been displaced by Gold Fields' PGM subsidiary at Cuacia could be hired, as well as others from Raúl Leoni, Paragua and elsewhere in El Callao, including other miners who have been laid off elsewhere. If the other Crystallex mines in El Callao are reaching the end of their mine life, workers from Tomi & Minera Bonanza could also be transferred to work the Las Cristinas project. But, I do not think that is going to create thousands of direct jobs.
This said, I think we have to acknowledge the existence of alternatives to resolve this chronic unemployment problem that do not necessarily require the exclusive participation of foreign multinationals. In the context of a country with a strong socialist government, some alternatives might be considered by the Venezuelan government that would probably not even come to the table in Western capitalist economies.
Small miners and some politicians have called for “Nationalization” of the mining industry (and some properties in particular, including not just Las Cristinas, but also those operated by Hecla and Gold Fields), suggesting that state majority-owned joint ventures in the form of an “Empresa de Producción Social” (EPS) could be established with the small miners. Whether or not there still a role for commercial miners to play in such a scheme remains to be seen, but it is definitely a socialist approach and I think you will agree that Venezuela is a socialist nation. So, even if it might be anathema to our capitalist or even classical liberal economic mindsets, I would not be surprised if some in Venezuela's political and labour circles would find such an approach appealing.
<strong>4. Lastly, I would offer that it's very healthy that KRY has not issued a public statement supporting or commenting on the Chavez statement. </strong>
I agree that at this stage, the best course of action from the company's standpoint is to remain silent. I am not sure, however, that that necessarily coincides with what shareholders might consider to be in their best economic interests. Shareholders are probably more than a little curious to know what the Chavez administration is contemplating with regards to Las Cristinas and whether or not Crystallex is aware of or involved in these discussions, so that they can make their own assessments with regards to the possible ramifications.
Finally, in re-reading my post, I see for someone who has said at the very beginning of this note that I disagree with you, I seem to have said, “I agree” quite often!
By way of disclosure I should point out that I have been actively following Venezuela’s gold mining industry for many years, and have previously been a shareholder of Bolivar Gold (subsequently bought out by Gold Fields at a reasonable premium) and Crystallex (many, many months ago), but that I don’t have any financial interest in any of the Venezuelan miners (nor do my family or friends, to the best of my knowledge). I have never shorted a stock, nor do I (nor anyone I know) receive any compensation or benefit in any other way financially for me posting my views. I like to think (perhaps mistakenly!) that this allows me to maintain an unbiased, dispassionate view of the issues. Some might call it a hobby - I like to think of it more like a morbid fascination. :>)
And while I don’t know the local miners in Bolivar State, I do have many “internet” acquaintances who are Crystallex shareholders, many of whom I know are quite exhausted from this whole multi-year embroglio. I sincerely wish a quick and positive resolution to the Las Cristinas saga in favour of Crystallex for their sake. I do mean that.
As for you, Manny, I wish you every success both at grad school, as well with your investments (including this one), and look forward to reading - and agreeing with - many more of your posts on this and other subjects in the future.
However you have ignored the fact that Gold Reserve at Brisas right next door are commencing building their mine this month and they will employ thousands of workers commencing within weeks. The Brisas mine is bigger and requires more capital expenditure than the proposed initial Las Cristinas operation. Once GRZ starts putting those people to work, and they see "on the ground" progess it will take some pressure off Chavez in regards to local employment issues.
Thanks very much for your reply, and I appreciate your analysis and more in-depth look to my statement very much. In no way would I ever take such a reply personally, and this is exactly the type of further refined analysis and debate I was hoping for.
All of the points on your post are absolutely correct, and I don't think we necessarily disagree -certainly not on the facts. For example, it is true that I am making the assumption that when President Chavez referred to Las Cristinas he was equating this with Crystallex. It is absolutely correct that this is my belief and interpretation, and there was no secondary source that I am aware of. But I guess I would ask, is this really a poor assumption? Who is the largest mining operator of Las Cristinas at the moment? Who has received the most, both local and international press related to mining of Las Cristinas? Therefore, although he did not specifically say Crystallex, when he refers to the mining industry of the Las Cristinas, I would like to suggest that Crystallex is what he is referring to.
A lot of my post however was based on interpretation; however, I believe that is what makes for smart investment. If we consider Crystallex a speculative play, which I absolutely do, then I believe that we obliged as investors or traders, both short and long, to speculate based on facts and interpretation of those facts. I do speculate that the statements made by President Chavez do support the hypothesis that VZ is working diligently with Crystallex to develop a fruitful relationship where both will be prosperous. I also believe that these discussions are now at the highest level of government, which is a very good sign. Given your much more extensive experience in the mining industry, I think you would agree that it is far easier and faster to simply reject a permit. The fact that the process has taken this long I think should also be considered a positive.
With that said, thank you again for you comments, your well wishes, and I appreciate you making me realize that I should take more time to carefully explain my thoughts, with precision and accuracy in wording being key.
Best wishes,
Manny
But I do think you raise a valid point (even though I have issues with part of your comment - see below).
Another large-scale project, such as Brisas, which as you point out is about to kick-off in the immediate vicinity, will do considerable good to contribute to the economic & social development of the area, creating many new jobs directly, as well as many more indirectly - and they could draw on the pool of small miners from the areas that I have identified in my original post. You are quite probably right that that could alleviate pressure on authorities to act. This said, I am not convinced there are ever enough jobs to go around in such an economically-depressed area.
It should be noted that the impact of the New Mining Law on existing miners (including not only Gold Reserve, but also other publicly-traded companies with gold mining interests in Venezuela, such as Yamana, Rusoro, Menoro, Cadre, Gold Fields, Hecla & Crystallex - never mind the many private companies or those mining other metals, such as Anglo American's Loma Niquel, etc.) is still unknown. In my view, all of the miners in Venezuela face uncertainty right now - hopefully that will be clarified soon, and that it will not have a serious negative impact.
I wish you well with your investment in Gold Reserve Inc. - it is good to see they are able to make progress in such a difficult environment.
Where I am not entirely in agreement with your comments, j_yates, are the following:
1. I am not sure it is the case that Gold Reserve will "employ thousands of workers commencing within weeks."
2. I am not sure that larger capital outlay necessarily means a higher number of employees. I would imagine that opex has a greater linkage to employment than does capex.
However the parts where you say you are not in agreement indicates you do not appreciate the size and scope of the Brisas project. If you check the executive summary prepared for Gold Reserve by Aker Kvaerner as part of their bankable feasibility study, pages 18 and 19 headed Manpower Requirements, you will find that by the second year they anticipate employing 2,197 on Engineering and Construction, and for years 1 to 15 of production the manpower requirement is anticipated to be range of 674 - 934.
These numbers are considerably larger than the equivalent for the proposed Las Cristinas mine regardless of what you would imagine.
Source GRZ web site goldreserveinc.com/doc...
For what it's worth, I was not questioning the size of the Brisas project (which I intended to refer to as a mega-project in my post, but I guess I must have inadvertently edited that out before posting), just your assertion that "employ thousands of workers commencing within weeks."
That thousands of personnel would be required over the course of the engineering & construction phase, I don't doubt, but I think if you'll refer to my original post, you'll see that I was referring to mining jobs, of which there might be perhaps 900 at the top end (as you rightly point out, the engineer's figures indicate somewhere between 674-934). Perhaps I should have been clearer. For that, I apologize - I honestly wasn't trying to lead you down a garden path so I could subsequently ambush you! :>)
Finally, for me, "within weeks" usually has a time frame spanning somewhere betweeen 2 weeks to perhaps 7 weeks. Two years, or 104 weeks, takes us down the slippery slope of hyperbole, which I'll admit can be useful to try to make a point sometimes, but I was trying to avoid here. I realize everyone - and different cultures - have different concepts of time, but if you were an unemployed miner in Sifontes municipality, for instance and someone told you that you could expect a job "within weeks", for instance, I do think you would be disappointed if it turned out you were only hired many months later. In fact, the mining jobs would likely only ramp up after the majority of construction was completed, so it could be an even longer wait for a local who doesn't have construction or engineering skills (a percentage of the construction & engineering jobs would likely be imported anyway - but I won't hazzard a guess at just how many that might be).
I hope you won't think I am being too pedantic - I am just trying to clarify my initial point which I recognize certainly could have made better if I had been more clear - and probably more succint!
Peace & best of luck with your investments, no matter what or where they might be.