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Venezuelan Saga Update: Crystallex Bashed Again

By Jon A. Nones | Resource Investor

03 Oct 2005 at 03:50 PM EDT | St. LOUIS ( -- Crystallex shares [AMEX:KRY] crashed again today, falling 27 cents, or 17.2%, to $1.30, after Venezuela President Hugo Chavez dropped yet another political bomb – in three different places.

First and foremost, Venezuela has officially stopped granting environmental permits for mining companies pending the previously announced review of mining contracts and concessions.

Venezuela Deputy Environmental Minister Nora Delgado said in a telephone interview with Bloomberg today that the environmental permit process is “frozen” for the time being, until the country completes its review, which is scheduled for completion by year-end.

“We have sent all the paperwork on all pending permits back to the Heavy Industries and Mining Ministry,” Delgado said. “We won't be granting permits for anyone until this is completed.”

Crystallex will thus have to wait longer for their long-overdue environmental permit.

Secondly, during his weekly radio and TV program on Sunday, Chavez reiterated that the government would no longer allow oil companies to run oil fields independently under contract.

All foreign oil companies with operating contracts to pump oil Venezuela must comply with a new law and agree to form joint ventures with the government, and any that refuse will not be welcome, President Hugo Chavez said.

The existing oil companies running Venezuela’s 32 oil operating agreements must convert their deals into joint ventures with state oil company Petroleos de Venezuela SA. And, the state oil company is to have a majority share in all joint ventures with foreign firms.

“Almost all have agreed, there is just one European company left. And I have said: those that don't accept it should pick up their things and go, and hand over all the (oil) wells,” he said.

Although this news concerns a different sector, it is yet another stab at foreign-owned companies in Venezuela.

Lastly, Chavez announced on Friday that Venezuela has moved its central bank foreign reserves out of U.S. banks, liquidated its investments in U.S. Treasury securities and placed the funds in Europe.

“We’ve had to move the international reserves from U.S. banks because of the threats,” from the U.S., Chavez said during televised remarks from a South American summit in Brazil.

“The reserves we had (invested) in U.S. Treasury bonds, we've sold them and we moved them to Europe and other countries,” he added.

The implications for funding mine projects could be very substantial. If banks do not feel that there is recourse to seize assets in the event of default, the mines may not get financing. And, European banks can be light at times on project financing skills.

Today's Snapshot

Crystallex shares [TSX:KRY; AMEX:KRY] regained some value throughout the day to close at $1.40, down about 11% on AMEX.

Bolivar Gold [TSX:BGC] dropped 10 cents, or 3.92%, to end at $2.45.

Gold Reserve [AMEX:GRZ; TSX:GRZ] fell 10 cents, or 4.35%, to finish off the day on AMEX at $2.20.

Hecla Mining [NYSE:HL] lost 16 cents, or 3.65%, to close at $4.22.

The Big Picture

Now let’s take a look at the big picture. How much total value have these companies lost since the initial Venezuelan announcement?

On August 1, Crystallex reported 214 million fully diluted shares. If we use this number to calculate the value of the company on September 19, with shares trading at $2.72, this gives the company a market value of $582.08 million. Now, with shares trading at $1.40, the company is worth roughly $299.6 million, a loss of $282.48 million in just two weeks.

Bolivar Gold has 169.1 million fully diluted shares, according to its Web site. On September 19, trading at $2.85 a share, BGC had a market value of $481.93 million. Now, trading at $2.45, we see the company’s value at $414.29 million – not as big of a loss as Crystallex obviously, but still $67.635 million down the drain.

Gold Reserve currently reports 41.67 million fully diluted shares. So, if we calculate that number when the company’s shares were trading at $3.52 on September 19, its market value was about $146.67 million. Post news, we see a loss of roughly $55 million, thus bringing the company’s value to $91.67 million.

Hecla has about 121.6 million fully diluted shares at the present time. Using this number, multiplied by a share value of $4.25 on September 19, the company’s market value was $516.8 million. With shares closing today at $4.22, Hecla has seen a “big picture” loss of approximately $3.64 million – the least affected by the Venezuela news.

Disclaimer: The above calculations are estimates and should not be taken as exact values.

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