August
23

Kicking Crystallex (KRY) to the curb

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I bought shares several months ago in Crystallex: KRY, a junior gold miner attempting to develop a premier mineral reserve in Venezuela called Las Cristinas, based on a simple calculus. I reasoned that it was more likely than not that the company would receive the final environmental permit needed to begin mining, and that if it received the permit shares would at least double. I still believe the second part to be true, but as time passes it seems less likely that Crystallex will receive the permit (at least not on the terms of the previously-negotiated mining contract).

In June, the company announced that the Las Cristinas environmental impact study had been approved and a bond posted. Management said that the permitting was in the “very final stages.” Perhaps it is. But that statement is less probable now that two months have passed with no action (especially in light of the fact that competitor Gold Reserve (GRZ) has already been granted a permit).

Two additional factors reinforced my decision to sell. First, other junior miners such as Goldenstar Resources: GSS and Western Goldfields: WGDFF.OB have come down so much in recent weeks that they are more attractive on a risk-adjusted basis. Second, Crystallex bears the burden of servicing heavy carrying costs for its debt so the delay hurts its balance sheet as well as investor patience.

Bottom line: For Crystallex longs, I hope the company does get the permit. The stock can now be seen as a call option on that probability possibility. I was happy to cash in my position for a slight (~10%) profit. I see better opportunities in this market than making a binomial bet on Hugo Chavez.

DISCLOSURE: No position in KRY. Long GRZ, GSS, WGDFF.OB.

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4 Comments for

Kicking Crystallex (KRY) to the curb

  • Ken | August 24th, 2007 at 5:49 am

    I feel the same about KRY but I am hanging in there. They are the only company that will get a share of the pie. Even if they go 50-50 with Chavez, they will still have at least 7 MIllion ounces on their balance sheet.

  • Crystallex (KRY) units offer is not a good sign | January 25th, 2008 at 12:13 pm

    [...] longtime readers know I was once bullish on Crystallex but soured on the stock after the long-anticipated environmental permit never materialized.  That was several months ago, and the company still has not received the environmental [...]

  • miner | March 31st, 2008 at 10:42 pm

    permits will be here sooner than you think

  • Crystallex (KRY) permit denied! | April 30th, 2008 at 3:36 pm

    [...] On the news, Crystallex shares dropped as low as $.50 and closed at $.91. The company says it is considering options “including an application for reconsideration.” Its time for Crystallex to be honest with investors. If Chavez wanted Crystallex to get the permit, it would have received the permit. As I stated last August, the fact that the permit decision was taking so long suggested that Chavez was not lending his suppo…. [...]

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