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5/10/08

Gold Reserve (GRZ): The saga takes a twist

Naomi Campbell recently interviewed Chavez, and this is a really
gratuitous way of getting a picture of a nekkid chick on my blog


Just so you know once and for all that this whole permitting episode has absolutely nothing to do with the environmental impact of mining and everything to do with a high level politics, here's Steve Bodzin of Bloomberg on the latest twist in the tale today;

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Chavez to Decide This Week on Crystallex, Gold Reserve Permits

By Steven Bodzin

May 10 (Bloomberg) -- Crystallex International Corp. and Gold Reserve Inc. may get mining permits from Venezuelan President Hugo Chavez, less than two weeks after their stocks plunged on announcements operations would be blocked on environmental grounds.

``The decision will be made in the coming week,'' Environment Minister Yubiri Ortega said late yesterday in an interview at the presidential palace.

Crystallex plummeted 64 percent to 60 cents in trading on the American Stock Exchange since April 29, the day before it said Ortega's ministry would deny an environmental permit for its planned Las Cristinas mine. Gold Reserve said on the same day its permit for an existing mine would be revoked. The company's stock, traded in Toronto, has fallen 52 percent to C$1.75.

``There is irreversible environmental destruction, irreversible,'' Ortega said about the mining operations. ``If there is some type of remediation, and I don't know what in the world that could be, they may still get their permits.''

Ortega said Chavez will decide whether to grant permits after consulting with her and Minister of Basic Industries and Mining Rodolfo Sanz.

Crystallex Vice President Richard Marshall and Gold Reserve President A. Douglas Belanger didn't respond to calls for comment placed outside of business hours.

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Here are a few notes on that news story:

1) What the darnation does "irreversible damage" mean, anyway? In the case of KRY, the damage done up to now just goes away once you build a bigass open pit. In the case of GRZ, the area has been pockmarked but is still covered by a load of trees...what do the trees know that Yuri Ortega doesn't?

2) Chavez is now in full Simon Bolivar mode, and gets to decide on the fate of his country and minions with a simple "yes" or "no". This is Hugo's favourite fantasy, of course. All you greedy gringo minions hanging on his every word etc etc

3) This just blows the idea of the whole thing being about the environment straight out of the water. I hope that's clear as a bell.

4) Locals have shown they will lobby for Brisas. Meanwhile, the truth is coming out about the unpopularity of Crystallex in the region.

5) One of the stranger things in this note is the silence from Richard Marshall, IR guy at KRY. As one of the worst type of company pump merchants out there, he'd normally be jumping all over this story and getting his word in on a public level. The fact that he doesn't want to talk to the press while continuing to hand out false hope to the beaten up shareholders speaks volumes of the company culture at KRY.

Bottom line: Anything could happen in the next 7 days, and quite frankly the most likely thing to happen is nothing. This is just another episode in the sorry saga of Las Cristinas, and I maintain that GRZ has been caught up in the crossfire of a larger political fight. The dubious manoeuvres from KRY in the period 1998 to 2003 are easy enough to find out about, and I'd guess that all this environment thing is much more to do with that and much less to do with pollution in a state that continues to be heavily polluted every single day by informal artisan gold mining.

So as for the trade here, it's still obviously GRZ. There is no downside at this current price of U$1.72 (my average is U$1.89, for the record). There is upside for the company without any permit (to repeat, residual asset value is U$2.36 minimum, and likely much higher...see this post). And the big big bonus prize is now in play: King Hugo decides to let Brisas run, that $1.72 triples in a day. KRY would also shoot up, but without the permit the stock is worth exactly zero. GRZ has no risk and plenty of possible reward here. Definitely the way to play this soap opera from here.