Crystallex International Corp: Take Your Money and Run

Crystallex International Corp (KRY) is a small gold miner based in Canada with current interest in Venezuela. It has been holding permits to mine over 13 million ounces of gold in the Las Cristinas property. But these permits have been wilting in the midday sun.

This stock's future rests entirely on the fickle economic shoulders of Hugo Chavez. Crystallex has the initial permits but is still waiting and waiting and waiting on the environmental go ahead. The NAV has flat lined around 3.50 for over 3 months, kept there with nothing but hope.

Should the environmental and Chavez-amental permits be granted, Crystallex will definitely takeoff. But, environmental attitudes are presently in chaos down there. Changes in cabinet, pressure from locals, and generally unpredictable decision making, have stalled the ongoing process. But this stall has kept the stock where it is at and not significantly lower.

If Chavez grants the environmental permits and allows foreign economic interests to displace the local "cottage industry" (i.e. squatters, displaced hill sides, and water sheds) the NAV should shoot up 3-7 dollars, (80% +), overnight.

But before the champagne dries from the shirts of leveraged investors and a few Fidelity fund managers, take your money and run. Why? Copper prices have sunk and most miners need to sell the copper to subsidize operations.

KRY 1-yr chart

Comments

[iamsmo]

Don't you want to hold out for the takeover bid should the permit come?

(I hold options in KRY)

[Jeffrey Todd]

You have offered 2 variables that reflect too much risk. 1. Hold out for permit 2. takeover bid

If either have a possible "no" then you have 4 different outcomes.

[Malkiel]

Bing! Sorry, too late, you lose. Chavez' nationalization announcement today just sounded the death knell for this little stock's price. Crystallex wasn't among the nationalized companies on this round, but clearly the stock price cannot stand now that the dictator has revealed his plan. Crystallex will only remain private until it has done the dirty work, then can be seized.

If the exchange has any integrity it will stop all trading in this stock until the practical effect of the other nationalizations makes itself apparent; otherwise, it will be a penny stock by the end of this week...

[Malkiel]

I missed the detail about the primary company being based in Canada, but unless they have significant holdings elsewhere they will still be ruined by the new Chavez action. This property could be seized at any moment, even if permits were granted.

[Jeffrey Todd]

I wrote the article in response to bloggers and some hedge fund managers that feel the "old" NAV of 3.50 was supported by the fundamentals in the company and present gold prices,(i.e. Cohen and others). My point was to show how much we really depend on local politics in this not so perfect world.

Crystallex has no property to be seized nor do they have but a handfull of paper pushers on site.