Embattled miner Crystallex International Corp. has lost control of the promising Las Cristinas gold project in Venezuela as the government continues its strategy of nationalizing key resources.
The company is threatening litigation but the loss could mark the end of its tumultuous nine-year effort to develop the gold mine.
Corporacion Venezolana de Guayana has "unilaterally terminated" the mine operating contract it had with Toronto-based Crystallex, according to a letter from the state-owned firm that Crystallex disclosed on Sunday.
The letter included a resolution passed by CVG on Feb. 3. According to Crystallex, the resolution cited the company's "lack of activity to progress the Las Cristinas project for more than one year" and "for reasons of opportunity and convenience."
Venezuelan President Hugo Chavez has steadily moved to bring resources under state control and in the past year has turned his attention to gold miners. The Caracas office of Reuters cited an unnamed mining ministry official who confirmed the contract was cancelled and that CVG has nationalized the project.
Stock of Crystallex plunged 40 per cent on Monday to 14 cents from 23 cents. It had already lost more than half its value in a slow and steady decline since last June.
At that time there was some positive news for Crystallex, which had struggled for several years to secure key permits from the Venezuelan government. The company said it had reached a deal with China Railway Resources Group Co. Ltd. to push ahead on the mine. China Railway - which was already active in Venezuela - would have a two-thirds stake in Las Cristinas.
China and Venezuela had been developing closer economic ties and Crystallex hoped the connection would finally see the mine built. Crystallex on June 7 last year said its deal with China Railway was a "binding agreement" and that the government of Venezuela provided an "expression of support" for the partnership.
It stoked enough interest in Crystallex that it was able to quickly raise $35-million in financing in a bought deal led by Macquarie Capital Markets Canada Ltd.
Crystallex had hoped to finalize its China deal by the end of 2010 but was unable to do so.
The mine operating contract, now lost, was the key asset Crystallex was supposed to contribute to the proposed partnership. Las Cristinas is considered one of the largest undeveloped gold deposits in the world but the low-grade ore will be expensive to process.
The company in its statement on Sunday said it has "fully complied with all its obligations" under the mine operating contract and said Las Cristinas is "shovel ready" while it continues to wait for key permits.
The company added it is "reviewing its position in light of this correspondence" from CVG. Crystallex is "considering all steps necessary to protect its investment." These possible steps include international arbitration.
On Monday, spokesman Richard Marshall said the company had no additional comments.
Rusoro Mining Ltd., which mines gold in Venezuela in a joint venture with the state, has been connected to the Las Cristinas project. The TSX Venture-listed Russian miner is based in Moscow and has a Vancouver office.
"If the government is interested in working with us on the project, we are ready to tackle this challenge with the necessary international financing," Rusoro's president in Venezuela, Andrea Padovani, told Reuters Monday in a telephone interview. "If the government would like our help to start this project, of course we are going to accept the challenge."
A Rusoro official in Vancouver would not comment. Stock of the company - with a market capitalization of about $200-million - rose almost 2 per cent on Monday.