Crystallex business as usual at Las Cristinas

Shares in Crytsallex International (KRY-T, KRY-X) continued their roller-coaster ride on Sept. 26, gaining as much as 20% during the day only to end 6 cheaper at $1.90.

The shares received a boost early in the day after Crystallex said a “substantially completed” study by SNC-Lavalin Engineers and Constructors indicates that production at the Las Cristinas gold-copper project in Venezuela could be doubled to 40,000 tonnes per day for another US$153 million.

The proposed expansion builds on the originally planned 20,000-tonne-per-day operation, which sports a price tag of US$293 million. That price includes a recent 10% increase owing mostly to pricier building materials, costs associated with delays in receiving the environmental permit, and inflation.

Engineering work for the expansion would begin around six months after completion of the 20,000-tonne processing plant; a two-year construction phase would begin after a subsequent six months.

The expanded facility’s operating costs are estimated at US$6.91 per tonne of ore over its 23-year life span. By comparison, operating costs for the original 41-year, 20,000-tonne-per-day operation are placed at US$7.63 per tonne. Likewise, total cash costs for the expanded plan run around US$208 per oz., down from US$221 per oz.

Thanks to the lower operating costs under the proposed expansion, Mine Development Associates has increased the reserve estimate at Las Cristinas to 316.5 million tonnes grading 1.27 grams gold per tonne, for 12.9 million contained ounces.

Reserves under the original planned had recently been trimmed by 2% to 294.8 million tonnes grading 1.32 grams gold, owing to the higher costs. Both estimates are based on a gold price of US$350 per oz.

Las Cristinas was originally expected to produce an annual average of 270,000 oz. gold over 41 years, with the first pour slated for early 2007, pending permitting. Under the new scheme, production would average around 500,000 oz. annually.

Still, both plans could be for naught depending how a looming nationalization of Venezuela mining sector washes out.

Venezuelan President Hugo Chavez was recently quoted as saying during a televised speech that “Las Cristinas belongs to Venezuela, and we are going to create a national mining company there.”

He was later said he would also cancel all mining licences and stop issuing new ones to foreign companies. Chavez said the moves were part of his plan to lead Venezuela away from capitalism and toward a new “socialism of the 21st century” that will increasingly involve cooperatives and emphasize “collective property.”

Crystallex has repeatedly said that it is unaware of any change to the status of the Las Cristinas project or its contract to operate the mine.

Crystallex CEO Todd Bruce said in a prepared statement that Las Cristinas is indeed owned by the Venezuelan government and administered by state-owned Corporacin Venezolana de Guyana (CVG). CVG has in turn contracted Crystallex to develop the project.

Bruce maintains that his company’s development contract with CVG would persist even if Las Cristinas did become part of the country’s proposed national mining company. “Nowhere has it been said that Venezuela does not intend to honor valid and subsisting contracts with reputable and performing international companies.”

“The creation of the new national mining company would therefore have no practical impact on Crystallex as it is the mine operating contract that governs our role,” he added.

Crystallex says it plans to fulfill its obligations under its mine operating agreement upon receipt of the final environmental permit.