Crystallex: Promotion, Politics and Permits

On Friday May 04, Crystallex shares surged 7% to 4.23. This increase was ostensibly due to an update regarding the long awaited permit from the Ministry of Atmosphere [MINAMB] in Venezuela given by newly appointed CEO Gordon Thompson at the 2007 Latin American Mining Congress in South Beach, Miami. (To avoid confusion, the MINAMB until recently went by the acronym MARN.)

While the presentation, made by Thompson and co-speaker Robert Crombie was essentially the same as those given during past presentations, the most interesting comments from Thompson came during the question and answer session. When asked about the status of the Environmental Approval and Construction Permit, Mr. Thompson launched into an excuse riddled explanation that did nothing to engender confidence in investors. As noted in a previous article, after Crystallex’s neighbor Gold Reserve Inc. (GRZ) received it’s permit, Thompson offered up the excuse that, unlike Gold Reserve, Crystallex has a mining contract [MOA], not a concession, and as such the Corporation Venezolano de Guayana or CVG, the quasi governmental company that has the mining rights to Las Cristinas and awarded the MOA to the company in 2002, was acting as intermediary in the permitting process. That, according to Thompson, “takes a little longer.”

Why it would take a year or more longer he did not explain. To the chagrin of investors, that was the first time Crystallex had offered up this explanation but they should have expected it. Most recently the reasoning Crystallex offered was that in other parts of the world the permitting process can take up to three years or more. This argument doubtless had to be abandoned when Gold Reserve received their permit within 20 months. In answering the question asked, Thompson expanded on the process and also added that further delays were due to changes in the Venezuelan government over the years. Why these changes substantially affected Crystallex and not Gold Reserve was not commented on.

After expanding on the permitting process, Thompson continued by confirming that Crystallex is in the “final stages” of gaining MINAMB approval. Unlike previous occasions when Crystallex had expressed that they were in the “final stages“ or, as ex-CEO Todd Bruce commented more than a year ago in a March 26, 2006 press release “ We anticipate receiving this MARN permit in the near term,” Thompson provided a few more details about what was happening with the MINAMB but in providing an answer, Thompson gave genesis to even more questions.

Thompson commented that roughly 5 or 6 weeks ago, the CVG and MIBAM had provided the final documentation to the MINAMB for a technical review. The technical review process, he stated, culminated in a site visit and review that took place the week prior to the presentation and the company claims to have received positive feedback from the visiting officials. No definition or further explanation of the positive feedback was made available. While investors are relieved that the technical review is taking place, they are doubtless wondering about Thompson’s comments. When explaining that the final documentation had been submitted and the site visit had taken place, Thompson said that this put their application right where they wanted to get it all these years which was right into MARN for the technical review.

Was Thompson admitting that despite prior comments of an imminent permit they had not reached this “final stage” previously ? How could that be if the company has been telling investors that they expected the permit literally at any time. Surely the company had to have knowledge that the final documentation had not been submitted. They must also have known that the site visit had not taken place. Crystallex representatives were not available to comment at the time of writing. At best, Crystallex’s much vaunted management team have little to no!
idea about what is required to mine in Venezuela but a more cynical mindset might conclude that if the truth were initially told and a many years wait was anticipated, the stock price and Crystallex’s financing abilities would have been severely restricted.

The presentation itself took place with little market reaction. The following day presented a different story. A website hosted by Ant and Sons, a company that bills itself as “an independent provider of investment commentary, research, news and analysis that has helped ordinary investors chart the financial seas since 2003.” and who claim that they strive “to break stories before they are covered by mass media and present them in an unbiased way.” published a write up of the presentation made by Crystallex. While the relationship, if any, between Crystallex and Ant and Sons is unknown, reading their coverage of the company, it is difficult for anyone to believe that it is unbiased or that the research itself is anything but a cursory reading of the daily Crystallex tip sheet.

In a recent article, Ant&Sons attempted convincing readers that the dilution that accompanied Crystallex’s recent bought deal financing was actually a positive and that it should instill faith that Crystallex would soon be receiving the permit it needs. In a previous article, Ant and Sons listed 4 signs Crystallex’s permit was on the way. The first reason is all that one needed to read to disregard the rest of the coverage. Reason number one, it stated, was that “Just yesterday, as reported in a Venezuelan newspaper, the Venezuela Permanent Parliamentary Environmental Commission has urged the final environmental permit to be issued to Crystallex.” The only problem with that is that the article that Ant and Sons was quoting from was several years old. Most ironic and damaging to Ant and Son’s reputation for any serious research is the last paragraph of their most recent article in which they say:

According to a published report on SeekingAlpha this morning, Gold Reserve Inc. (GRZ), owner of the Las Brisas mining concession, just recently went through the same process in order to obtain their environmental permit from the Venezuelan government. Upon site inspection the permit was granted approximately ten days later. Gold Reserve shares shot up 50% to $6.60 on the news.

The term financial news site lends some credibility to the news as it is published but had Ant and Sons done just a little bit of research, assuming they are so inclined, they would have discovered two important facts. The first is that there was no site visit at Gold Reserve’s Las Brisas property ten days prior to them receiving their permit. A quick call to the company would reveal that the MINAMB have not held a site visit to Las Brisas this year. Ant and Sons could also have avoided embarrassment by searching Seeking Alpha for other articles by the writer of the article they refer to. It was written by a Todd MacSween who has written several misleading articles about Crystallex, claims to own 944 shares of the company and is somehow affiliated with perennial Crystallex tout Roy Carson the “editor” of, a now defunct periodical that published more false stories promoting Crystallex than one can count . MacSween has written several articles published on Seeking Alpha and has made many patently false comments in the past including accusations against reporters from prominent wire services like Dow Jones and Reuters who “twist the truth” about Crystallex possibly for personal monetary gain, a takeover of Crystallex by Russian mining company Polyus that was in the works and a litany of other similarly sensationalistic and untrue claims. An interesting sidebar to this is that both MacSween and Ant and Sons may end up harming the Crystallex stock price istead of boosting it. If Crystallex does not get its permit within 10 days of the site visit, investors may begin questioning why it is so.

Despite all of these distractions, it behooves an investor to question how likely it is that Crystallex will get their permit soon and if this permit from the MINAMB is as important for them as it is for Crystallex itself. Venezuelan politicians are notorious for grand standing but recent comments deserve paying heed to as it seems as though the MINAMB is in no haste to approve Crystallex’s plans .

In a recent interview with Reuters, the chief main directorate of Planning and Arrangement at the MINAMB, Sergio Rodriguez, said that Crystallex has not acted responsibly in planning their project and that the plans had to be changed to minimize or eliminate environmental objections and that Crystallex consider plans to take advantage of processing the copper deposits at Las Cristinas. This would present a significant problem for Crystallex as their MOA does not include the rights to mine copper and all of their plans are designed to process the gold only. Any forced changes could take more than a year to complete.

Crystallex supporters have claimed that this particular article was revoked due to inaccuracies however as expected, they were incorrect yet again. Crystallex attempted a rebuttal of the article by issuing a rather limp press release saying that they had contacted Mr. Rodriguez and senior officials at MINAMB who confirmed that the “Reuters story does not reflect the statements made by Mr. Rodriguez”. What Crystallex did not comment on was what Mr. Rodriguez had to say, who these senior officials were and how they could be more senior than the Vice Minister or what specifically that Mr. Rodriguez said that was not reflective of MINAMB’s thinking. Crystallex also said that “they [MINAMB] are contacting Reuters in order to correct the mis-statements. “ Reuters countered by confirming that no one from MINAMB had contacted them, that they had Mr. Rodriguez’s comments on audio tape and a follow up call to Mr. Rodriguez confirmed that the heart of his comments were accurate but that some may have misinterpreted his statements as meaning that Crystallex would have to come up with a brand new plan instead of just making adjustments to the one that had been submitted.

More of concern to investors are comments made by the Ministry of Basic Industries and Mining, the government entity in charge of mining in Venezuela. A new mining law is currently being debated in Venezuela’s National Assembly and it calls for a mixed company regime in which Venezuela would control at least 51% of all mining projects. Crystallex has attempted to dispel worries about the new law by quoting from draft legislation and expressing the legal opinion that their MOA is safe from changes. Venezuela does not look at it from a similar perspective. In an April 17, 2007 interview with Dow Jones, Vice Minister of Mining Ivan Hernandez said of the MOA that Crystallex‘s operating contract has some clauses that need to be revised and that “It will move from being a contract to a mixed company (jointly owned by the Venezuelan government.)“

These comments echo Hernandez’s comments from an October 2006 interview in which he similarly stated that a change in the MOA would be forthcoming. Venezuela’s Minister of Basic Industries and Mining Jose Kahn offered little comfort for investors. Instead of reaffirming Crystallex’s position that their MOA would not be affected by changes to the mining law, he played the diplomatic politician and would only say that the Venezuelan government had not yet decided whether to put Las Cristinas under state control and that nothing would be decided until the law had passed in its final form. Mr. Kahn’s diplomacy not withstanding, his statement serves the purpose of clarifying for investors that the MOA can be changed and Crystallex could end up with less than 50% participation in the project. The lack of investment security thus fa!
r is alarmingly high however should Venezuela take a minimum of 51% of Las Cristinas, the turmoil that would ensue for both Crystallex and its investors would be immense. Crystallex’s main appeal are the gold reserves at Las Cristinas and that some major mining company may find that attractive enough to buy out the company. Any speculative premium on that account would fade immediately.

Financially it does not seem as though Crystallex could weather such a storm. The bloated share structure is further weighed down by covenants in the 100 million debt agreement that the company entered into in December of 2004. The unfortunate situation investors find themselves in is that Crystallex itself has not practiced a policy of complete disclosure and transparency and so they are left stranded with nothing but a hope and a prayer of the scenario that things will work themselves out for the best.

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