Venezuela to Take Control of Crystallex's Gold Mine (Update2)

By Daniel Cancel

Nov. 5 (Bloomberg) -- Venezuela's government said it will seize the Las Cristinas gold mine operated by Crystallex International Corp. to assure state control of the metals industry. Crystallex plunged 25 percent in Toronto trading.

Las Cristinas is estimated to have about 31 million ounces of gold ore, valued at about $35 billion, the Mining and Basic Industries Ministry said today in an e-mailed statement. Output at the mine has been paralyzed as Toronto-based Crystallex awaited permit approval from the Environment Ministry.

``This mine will be recovered and will be operated under state administration,'' the ministry said in the statement.

Venezuela's socialist government has seized control of industries that President Hugo Chavez has deemed ``strategic.'' Mining Minister Rodolfo Sanz said in the statement that the government plans to seize other mining deposits to increase production of gold, diamonds, bauxite and uranium.

``This just makes it impossible under Chavez to have any mining projects developed by foreign companies,'' said Gijsbert Groenewegen, a hedge fund manager at Gold Arrow Capital Management in New York. ``They're undermining what little confidence was left in Venezuela.''

20-Year Contract

Crystallex was given a 20-year contract to operate the mine in 2002 and hasn't been informed of any changes, Richard Marshall, vice president of Crystallex, said in a telephone interview.

``Venezuela owns and controls Las Cristinas and we're the builder and operator,'' Marshall said. ``We've had several meetings with the ministry in the last 24 hours and haven't heard of any changes.''

Crystallex fell 13 cents to 38 cents a share as of 4:15 p.m. in Toronto Stock Exchange trading. The shares, down 83 percent this year, plunged 43 percent on April 30 after the company said the environment ministry didn't plan to issue permits for Las Cristinas.

A ministry spokeswoman didn't immediately return phone calls seeking comment from Bloomberg News.

Gold Reserve Inc. President Doug Belanger and Rusoro Mining Ltd. Chief Executive Officer Andre Agapov didn't immediately return messages left by Bloomberg. The two companies have gold- mining or exploration activities in Venezuela.

The global financial crisis has made it necessary for Venezuela to assume control of its gold deposits, which can be used to increase the country's international reserves, Sanz said.

The state intends to take control of several diamond plants in the Guaniamo region currently being operated by private companies, the ministry said in the statement.

The minister's comments came from a radio interview with La Voz de Guayana, according to the statement.

To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@....