* CRRC to own 2/3 of Las Cristinas, Crystallex the rest
* Chinese company joins list of those interested in mine
* Crystallex says government supports new partnership
(Recasts, changes dateline, previously BANGALORE)
By Frank Jack Daniel
CARACAS, June 7 A unit of China Railway
Engineering Corp is buying a majority stake in a project to
develop the vast Las Cristinas gold deposit in Venezuela's
southern jungles, minority partner Crystallex said on Monday.
The Chinese company is the latest in a long line of
prospectors drawn to Las Cristinas' estimated 17 million ounces
of gold. Red tape and legal cases have stopped legal extraction
of ore from the site for more than 20 years.
Canada's Crystallex KRY.TO purchased the rights to
develop Las Cristinas several years ago, but has struggled to
resolve a permit dispute with the leftist government of
President Hugo Chavez.
"The Chinese provide both engineering and financing. And
most importantly they are likely to have the protocol
connection with the Chavez government in order to bring this
project, which has been a stalemate, into production," said
analyst John Ing of Toronto-based Maison Placement.
China Railway Resources Group Co Ltd (CRRC), a unit of
giant Chinese contracting and engineering company CREC, will
own two-thirds of the new joint venture, while Crystallex will
own the remaining third.
"CRRC and Crystallex have met with the government of
Venezuela to apprise them of this strategic partnership and are
very pleased by the government of Venezuela's expression of
support," Crystallex said in a statement.
CRRC is also leading efforts to revive the stalled
environmental permitting process for Las Cristinas, and will
provide capital to develop the project to commercial
production, it added.
Chavez, who has nationalized large chunks of the OPEC
nation's economy, said last year he wanted the mine to be
developed in a joint venture between the government and Russian
A deal has not been forthcoming and the project has
stagnated. In recent weeks, soldiers and police have been
clearing wildcat miners from the jungle near the mine. Chavez
has even threatened to nationalize all gold concessions.
As with the Russian companies, such as Vancouver-based
Rusoro (RML.V), some analysts believe China's good diplomatic
relations with Venezuela will help the company get approval to
go ahead with the mine's development.
The deal may give Crystallex a new lease of life. The
Canadian company has so far recorded a $300.6 million non-cash
write-down at Las Cristinas as it waits for permission to
develop the project. In the first quarter of 2010 alone the
company reported a $3.6 million non-cash write-down.
Maison Placement's Ing has a target of C$2 on the
Crystallex stock, which was trading at 54 Canadian cents on
Monday. The stock has recovered from a low of 27 Canadian cents
China is a major financier of Chavez's socialist government
and in April agreed to loan Venezuela $20 billion for large
Separately, CREC is constructing a $7.5 billion railway
project in Venezuela linking southwestern Cojedes state and the
eastern Anzoategui state.
Las Cristinas was first concessioned in 1963 and in the
1980s was operated by an Italian adventurer, Amalfi Grossi.
Since he was expelled by the government in the 1980s only
wildcat miners have extracted gold there.
Old-timers who still squeeze gold from the reddish earth in
the devastated jungle around Las Cristinas say Grossi, who died
a broken man, cursed the mine to prevent anyone else developing
Before Crystallex, Canada's now-defunct Placer Dome
invested millions in the project before selling its stake for a
nominal $50 when gold prices dropped.
Its ore grade is low and experts say it will cost about
$500 an ounce to extract. Gold now sells for more than $1,200
Crystallex said CRRC had advanced $2.5 million during the
negotiation of the deal and the investment was convertible into
Crystallex shares at a price of 40 Canadian cents each.
The conversion price is at a nearly 27 percent discount to
Crystallex stock's Friday close of 55 Canadian cents on the
Toronto Stock Exchange.
Las Cristinas's proven and probable reserves are estimated
at 16.86 million ounces of gold based on a $550 gold price
assumption, Crystallex said.
Last month, the company said it was actively pursuing a
resolution of the permit dispute and may file for international
arbitration if a settlement was not arrived at.
(Additional reporting by Ashutosh Joshi in Bangalore)