Crystallex [AMEX:KRY; TSX:KRY] announced today that it has been denied the much-awaited environmental permit to develop its Las Cristinas project in Venezuela. The company's already decimated stock fell as much as 60% on the news in what might prove to be the final straw for hopeful investors.
The Director General of the Administrative Office of Permits at the Ministry of the Environment and Natural Resources of Venezuela (MinAmb) said it denied the company's request for the authorization to affect natural resources at Las Cristinas citing sensitivities surrounding indigenous peoples, the small miners and the environment in the area generally known as the Imataca Forest Reserve.
Despite the Las Cristinas area being designated as a mining zone, it lies within the boundaries of the Imataca Forest Reserve and therefore is subjected to more stringent environmental controls than areas outside of the area. Although the soil is not very productive, vegetation grows very quickly and biological diversity is high.
Artisanal or small-scale mining is considered the most economically important activity in the area. Negative impacts of a large-scale operation include accelerated migration, drastic changes in the labour market and local economy, risk of social conflicts, increased lack of public security and impacts to cultural traditions, cultural landscapes and cultural values.
Las Cristinas has proven and probable reserves of 16.86 million ounces of gold, as well as measured and indicated resources of 3.9 million ounces and inferred resources of 6.28 million ounces. The company forecasts annual production of 256,000 ounces for the first 5 years at a cash cost of $244/oz. For the impressive 65-year mine life, Las Cristinas will produce 233,000 ounces at an average cost of $339/oz.
However, Crystallex has been waiting for the Environmental and Social Impact Assessment (ESIA) permit to begin the construction phrase at Las Cristinas since early April 2004. The company received approval of its Environmental Impact Assessment Study (EIS) by MinAmb in June 2007. Shortly thereafter, Crystallex paid a Compliance Guarantee Bond and certain taxes for the issuance of the environmental permit.
In a Technical Report filed with Sedar on November 7, 2007, the company said there had been a change with regard to cyanide destruction. Originally it was envisioned that the excess reclaim water from the tailings management facility would be treated; however, it is now Crystallex's intent to treat the entire stream of CIL tailings.
Crystallex Chief Executive Officer Gordon Thompson said this year on February 28 that the company's environmental-impact assessment was approved and the necessary taxes had been paid. This followed statements at the Denver Gold Forum in September 2007 that the company can only stay confident and hunker down as it awaits the permit.
In a statement released on Wednesday, Crystallex said the communication by the Director General appears to be in conflict with the Las Cristinas EIS approval, Construction Compliance Bond Request and Environmental Tax request issued by the MinAmb and all mineral mining in the Imataca Region.
The area contains a number of mining projects, which like those of Crystallex, are seeking the required permits to continue their development and exploitation, the company said.
Gold Reserve Inc. [AMEX:GRZ; TSX:GRZ], which controls the Las Brisas property abutting Las Cristinas, received the Permit to Affect Natural Resources from MinAmb in March 2007, after applying for it in December 2005. The company is now awaiting the Initiation Act to commence full-scale construction.
The major difference between Las Brisas and Las Cristinas is the copper reserves. Crystallex does not plan to build a facility to process the copper, while Gold Reserve's plans include such a facility. The cost difference is about $400 million.
According to Crystallex's feasibility study, there could be as much as 2 billion ounces of copper in the deposit, using a 0.4 g/t cutoff assumption based on the Las Cristinas gold cutoff grade of 0.4 for reserve estimates. Copper is a toxic element and substantial amounts can be poisonous and even fatal to organisms.
Hecla Mining [NYSE:HL], the largest gold miner in Venezuela, has been operating successfully since 1999 in the Imataca Forest. In 2007, the La Camorra Unit produced 87,490 ounces of gold at an average total cash cost of $537 per ounce.
Crystallex said the decision is subject to several avenues of response, including an application for reconsideration under Venezuelan law. The company is working with the Corporacion Venezolana de Guayana to develop strong submissions in support of the authorization to affect natural resources.
Crystallex is committed to defending its rights in the Las Cristinas project and intends to respond to this matter vigorously in accordance with its legal entitlements to protect the interests of our shareholders, the company said.
Crystallex spokesman Richard Marshall didn't respond to RI's messages seeking comment.
Crystallex stock fell 77 cents to 91 cents on AMEX. Shares were trading almost three times higher in January around $2.50 and five times higher in mid-2007 near $4.50.