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UPDATE 2-Venezuela says to take over Crystallex gold project

(Adds details, background throughout, Crystallex reaction)

CARACAS, Nov 5 (Reuters) - Venezuela will take over the giant Las Cristinas gold project operated by Canadian miner Crystallex, the government said on Wednesday, a new step by President Hugo Chavez to put key industries into state hands.

Venezuela’s mining ministry said it aimed next year to start a mine at one of Latin America’s largest deposits.

“This mine will be recovered and will be operated under state administration,” the ministry said in a statement, citing on a local radio interview with mining minister Rodolfo Sanz.

Chavez last year launched a nationalization drive, increasing state control over the OPEC nation’s oil industry. The U.S critic has since taken over key sectors of the economy including electricity, telecoms, cement and steel companies.

Strong government is generally popular in Venezuela and Chavez faces tough elections for governors and mayors on Nov. 23.

In the energy sector, the government took majority control of oil projects but still works with private minority partners. Lawmakers are working on a mining law that could allow a similar arrangement in mining.

Las Cristinas is owned by the government but operated under contract by Crystallex KRY.TO, which has waited for years in vain for permission to begin mining the deposit, located in a huge forest reserve in southeastern Venezuela.

The company said it had not been informed of any change to its status in Venezuela.

“We are pending on issuance of the (environmental) permit. Those discussions have been going constructively,” said Crystallex spokesman Richard Marshall. “There’s been no indication of any change whatsoever.”

Crystallex’ share price in Canada has plunged this year on negative government comments about Las Cristinas. It fell 47 percent to C$0.33, it’s lowest level in a decade, within about an hour of the government’s statement.

Mining minister Sanz said the government also planned to take over a series of “diamond plants” currently operated by private companies, as part of a strategy to increase Venezuela’s production of gold, diamonds, bauxite and uranium.

Flush with cash from an oil boom, Chavez has in the past played down the need for Venezuela to exploit its huge mining potential but falling crude prices in recent weeks have worried the government.

$1=$1.16 Canadian Additional reporting by Cameron French; Editing by Marguerita Choy