Crystallex: Still No Environmental Permit

I bought shares several months ago in Crystallex (KRY), a junior gold miner attempting to develop a premier mineral reserve in Venezuela called Las Cristinas, based on a simple calculus. I reasoned that it was more likely than not that the company would receive the final environmental permit needed to begin mining, and that if it received the permit shares would at least double. I still believe the second part to be true, but as time passes it seems less likely that Crystallex will receive the permit (at least not on the terms of the previously-negotiated mining contract).

In June, the company announced that the Las Cristinas environmental impact study had been approved and a bond posted. Management said that the permitting was in the “very final stages.” Perhaps it is. But that statement is less probable now that two months have passed with no action (especially in light of the fact that competitor Gold Reserve (GRZ) has already been granted a permit).

Two additional factors reinforced my decision to sell. First, other junior miners such as Goldenstar Resources (GSS) and Western Goldfields (WGDFF.OB) have come down so much in recent weeks that they are more attractive on a risk-adjusted basis. Second, Crystallex bears the burden of servicing heavy carrying costs for its debt so the delay hurts its balance sheet as well as investor patience.

Bottom line: For Crystallex longs, I hope the company does get the permit. The stock can now be seen as a call option on that probability possibility. I was happy to cash in my position for a slight (~10%) profit. I see better opportunities in this market than making a binomial bet on Hugo Chavez. Disclosure: No position in KRY. Long GRZ, GSS, WGDFF.OB.