Lots of gold, no rush: a multi-billion dollar gold mine in Venezuela sits and waits for someone, anyone, to dig it up

Latin Trade, May, 2004 by Mike Ceaser

Take three Canadian mining corporations, give them the continent's richest gold-mining concession, throw in a bit of bush pilot history and a few lawyers, and what do you get? In Venezuela, not one ounce of marketable gold.

In 1991, Vancouver's Placer Dome Corporation won the concession to mine a remote, jungle-covered corner of northeastern Venezuela. Placer believed it had hit the mother lode. After all, the Las Cristinas mine contained between 10 million and 12 million ounces of gold, as well as large amounts of copper. Great riches would finally be pulled from the land where Renaissance-era English explorer Sir Walter Raleigh sought the fabled city of gold, El Dorado, and came away empty handed.

But Placer didn't count on dropping gold prices, a tireless rival and the legacy of legendary bush pilot Jimmy Angel.

Today, more than a dozen years and innumerable court filings later, Placer is out of the deal. Its nemesis Crystallex, in Toronto, now holds the concession and promises to begin mining early next year, predicting US$1.2 billion in pre-tax profits from the project. But a third Canadian miner, Vannessa Ventures, claims to be the real concession-holder and vows to stop Crystallex. Meanwhile, thousands of wildcats miners, many Brazilian and Guyanese, have invaded and occupied the concession.

Along the way, the battle for Las Cristinas has enriched a generation of attorneys, left mining stockholders scratching their heads and sullied the reputation of the Venezuelan government, which managed to sell or give away the mining rights no less than three times. "If that project were in Bolivia, Peru or any of the other big mining countries, it would have been going by now" says Douglas Silver, president of Balfour Holdings, a Colorado mineral appraisal company. "The problem is the country."

The drama dates back to 1935, when Jimmy Angel and his co-pilot sought a mythical river of gold and spotted instead the world's highest waterfall, Angel Falls. In gratitude for a gold mine of a tourist attraction, the Venezuelan government gave each of the men a mining concession. The co-pilot got Las Cristinas.

The claim passed through the co-pilot's widow, several lawyers and an Italian miner, none of whom worked the mine, and finally was purchased by the Venezuelan company Inversora Mael. In 1997 Crystallex bought Mael and promptly announced that it owned the rights to Las Cristinas, even though at that time Placer was developing the mine in conjunction with its partner, state-owned Corporacion Venezolana de Guayana, through their jointly-owned subsidiary Mineria Las Cristinas.

"In fact, there was no ongoing legal proceeding or pending decision in any Venezuelan court which could possibly have resulted in Crystallex having an interest in Las Cristinas," wrote Manuel P. Asensio in his 2001 book Sold Short. Placer Dome President and CEO John Willson, now retired, once called Crystallex "claim jumpers." Crystallex charged that the writer, Asensio, had a financial interest in pushing down Crystallex's stock price.

Crystallex got nowhere in court, but its claims were enough to dry up financing for the project, say those involved. Meanwhile, the price of gold, which had been at $400 per ounce in 1996, dropped to $250, and in July 1999 Placer suspended work on the mine. After offering to sell out to Corporacion Venezolana and receiving no response, in July 2001 Placer sold its interest in the continent's richest mine to Vannessa Ventures for $50, although Placer retained rights to a share of potential future revenues.

Venezuelan authorities, who had been salivating over royalties from a huge mine, charged that Mineria Las Cristinas and Placer had violated their contract by not developing the mine faster and called the transfer to Vannessa a contract violation. In November 2001 the National Guard moved in and evicted Mineria Las Cristinas employees. The government put the concession out for tender again; this time the winner was Crystallex, even though Crystallex already claimed the mine.

Mineria Las Cristinas claims it had invested $172 million in the mine and alleges that its rights were taken away illegally and that the bidding process was improper. If not for the legal troubles, says Mineria Las Cristinas President Erich Rauguth, the mine would be going "full bore" today and the company would have invested an additional $58 million, earning about $5 million dollars. "Do you have any idea what that would mean to us?" he asks. "It's 50 cents a share. The loss to Vannessa is enormous, and the loss to the country is even worse."

Mineria Las Cristinas is not alone in questioning the transaction. Venezulan Congressman Edgar Mora headed a subcommission of the National Assembly's Permanent Oversight Commission which investigated the Las Cristinas contract. Mora says that the 2001 bidding process was not properly done. With interest from "six of the world's largest mining companies, they gave [the concession] to a company with no importance," he says. "It makes one think."