Crystallex plays down jitters over Venezuelan gold venture

Crystallex plays down jitters over Venezuelan gold venture

By PATRICK MARKEY, Reuters News Agency

Monday, October 3, 2005

LAS CRISTINAS, VENEZUELA -- A cluster of low, white buildings, bulldozed roads and an airstrip carved out of the jungle mark the site where Crystallex International Corp. plans to soon start mining at Las Cristinas, Venezuela's largest gold deposit.

Toronto-based Crystallex says it's ready to begin work once the Venezuelan government clears its environmental permit. It brushes off recent political clamour over mining deals that left investors jittery about Las Cristinas, where it has held an operating contract since 2002. "We're just waiting for the green light to go ahead," Crystallex general manager Guillermo Adrian said outside the site in the mineral-rich state of Bolivar in southern Venezuela. "We have completed all the technical aspects."

Las Cristinas and other deals are under scrutiny after Venezuelan President Hugo Chavez's government vowed last month to revoke inactive gold and diamond deals during a study of the sector that included an "exhaustive review" of Crystallex's contract.

Mr. Chavez, a populist former army officer who promises to fight poverty, has launched a broad revision of the energy and mining industries as he seeks to bolster state control over the natural resources of the world's No. 5 oil exporter.

Authorities have not named companies they believe are inactive, but their comments have been unclear about the impact on current contracts. They say they plan to hand idled mines to small-scale miners, many of whom work in unlicensed quarries.

Las Cristinas recently became a lightning rod during protests by hundreds of poor, unlicensed miners who demand more government backing, jobs and access to the area covered by Crystallex's contract.

The situation was complicated by a government campaign to remove small-scale gold miners from the River Caroni, an area that generates most of Venezuela's hydro-electric power.

Crystallex shares slipped after Mr. Chavez's comments, as markets were already wary about delays in the government approval of the company's environmental permit, the vital last step before proper mining. The company says its contract is safe, and that it is confident the environmental permit will soon be approved.

But the government's recent statements mean more than stock prices and investments to illegal miners like Leonel Avilez, who work inside the Las Cristinas camp with gasoline generators and water jets to salvage a few slivers of gold. "We just want them to let us work where there is gold," Mr. Avilez said.

In deforested holes blasted by water jets, about 400 unlicensed miners work inside Las Cristinas, which has estimated gold reserves of about 12.7 million ounces.

Hundreds more work small mines just outside the camp, where they criticize National Guard troops for taking away the fuel needed for generators and blocking access to Las Cristinas. Some want jobs with Crystallex once it starts production, as they admit gold yield is slim for small-scale miners. Others demand authorities give them legal access to parts of Las Cristinas where they believe gold is easier to mine. But most feel abandoned by the government, which they say has been slow to live up to promises to hand out technical assistance and legal permits.

Some industry representatives wonder if Mr. Chavez wants to take mining in the same direction as the state oil sector, where he has ordered foreign companies to switch from operating contracts to joint ventures giving the state a controlling stake in projects. Government officials plan a state gold and mining company to start work in early 2006, and say they will list the inactive mines at the end of this year.

Crystallex plans to start mining Las Cristinas in 2006, with an initial production of 300,000 ounces a year, which would make it the country's largest gold miner.

The company points to the mine construction materials it has waiting for shipment from Houston, the service contracts it has already signed, and its investment of more than $2-million (U.S.) in social projects such as housing, roads, school materials and medical equipment for local