With much less fanfare than Crystallex (KRY) has exhibited without its “final” permit, Gold Reserve Inc. (GRZ) of Spokane Washington today announced that it had received approval of its Environmental and Social Impact Assessment [ESIA] for the exploitation and processing of gold and copper mineralization at its Las Brisas project.
This must leave Crystallex investors wondering why they have been left waiting. Crystallex, despite all of its projections , claims of positive relationships with the Venezuelan government and promotional literature has yet to reach that plateau despite submitting its EISA more than three years ago. This is a full year and a half longer than Gold Reserve Inc. had to wait for their permit approval . Taking it one step further, according to the executive summary posted on the Crystallex website, the Mine Operating Agreement that Crystallex signed with the Corporacion Venezolana de Guyana [CVG]. A state run corporation, the CVG is responsible for “environmental and mining permits”, so in this case, independent mine operators have been more successful at moving their project forward than the state run CVG. It gives one pause to wonder.
Crystallex, as gold bugs know, is the company that ran an ill fated ownership promotion in the late 1990’s which was finally settled by Venezuela’s Supreme Court when it decided that not only did Crystallex not have any claim to ownership rights to the Las Cristinas 4&6 concessions but that it did not even have legal standing to pursue such claims. Crystallex was also the company that was suspended from trading by the regulatory authorities and restated its financial reporting twice in 2003 which revealed that under accounting rules, they had been operating at a loss despite claiming to be profitable for several years.
Since 2004, Crystallex has been claiming that a permit from the Venezuelan Environment Ministry is nigh. “Sooner rather than later” to quote what appears to be the adopted Crystallex mantra. Even with the quasi-government support from the CVG and a high profile project, the permit remains elusive. Something else that should give investors the incentive to rethink the potential of their investment.
After announcing the approval of it EISA, Gold Reserve’s share price surged 45% by midday to $6.40. Crystallex, in a sympathy move jumped 22% by midday to 3.74.
Unless the Venezuelan government approves Crystallex’s EISA “sooner rather than later”, the jump in their share price is expected to be short lived as investors and traders begin to question the sincerity of the government in beginning the development of Las Cristinas, heralded as one of the largest gold deposits in the world.
Whether the market affords the same reaction to Crystallex shares as it did to those of Gold Reserve Inc. is also questionable. Despite the fact that the Las Cristinas concessions are next door to the Las Brisas concessions, the companies themselves could not be further apart
Gold Reserve owns its Las Brisas concession whereas Crystallex has only a contract to mine the deposit. When it comes to financing the projects, Gold Reserve has the clear advantage. It can pledge the gold at Las Brisas as security against loans whereas it is doubtful Crystallex can do the same.
Under new proposed mining rules, already awarded concessions are protected until their expiry dates. The future of contracts on the other hand is less clear. More recently, the Venezuelan government has forced changes to contract terms with oil conglomerates exploring and developing projects in Venezuela. These changes have resulted in the oil companies accepting a much reduced minority stake in the projects and as yet no concrete compensation plan has been put forward.
Gold Reserve also has the rights to mine and process copper, which in recent years has seen its price soar. Crystallex has no rights to mine copper and statements from the company indicate that they have given up trying to negotiate for those rights.
Gold Reserve also has a clear, unobstructed balance sheet, something that Crystallex investors no doubt envy. Crystallex, despite its restating of financial statements, has accumulated over 100 million in unsecured junk rated debt and has 245 000 000 shares outstanding while Gold Reserve has no accumulated debt and only 39 million outstanding shares.
Even more troubling to the investor are occurrences within Crystallex itself . This year alone Crystallex has lost Todd Bruce, it’s CEO, Dan Hamilton, it’s CFO and Deloitte and Touche, its independent auditors. No explanation was provided by the company for any of these departures but investors know that when the top posts at a company leave, it can’t all be good.
There is also a resurgence of a more sinister type of promotional activity surrounding! Crystallex, mainly in the form of the company‘s supporters. In early March, Canada’s Financial Post, a publication often linked to Crystallex, published what appears to be unfounded rumors from unnamed “sources” that claimed that Russian gold producer OJSC Polyus Gold had hired BMO Capital Markets to investigate the possibility of buying out either Crystallex, Gold Reserve or both. The share price of both companies jumped after the report but eventually settled down as the credibility of those rumors were called into question and the doubts began piling up.
Also on the resurgence are Crystallex favorable articles that contain false information and are sponsored by long time Crystallex promoter Roy S. Carson and his now virtually defunct e-publication Vheadline News.
Carson has been a regular backer of Crystallex since its ownership promotion in the 1990s but has built a reputation of writing and publishing inaccurate and outright false information in his efforts to lend support the company which in itself gives tacit approval of his publication by allowing its executives to make “exclusive” comments and to hold “exclusive” interviews for publication in the e-zine.
Speculating in mining stocks of companies operating in Venezuela has the potential to be financially rewarding but as always, the cream rises to the top while sediment sinks to the bottom. Mixed metaphors aside, in this race to profitably develop gold mines in the country, Gold Reserve, the proverbial tortoise in this race has already started outpacing the hare named Crystallex.
Disclosure: author has no position in KRY or GRZ