The situation is looking worse and worse in Venezuela for Crystallex International Corp. Recent comments attributed to mining minister Rodolfo Sanz suggest the Las Cristinas gold deposit could be taken away from Crystallex and handed over to Rusoro Mining Ltd. Crystallex itself has heard nothing from the government along these lines.
With the risk profile on the project getting even bigger, Haywood Securities analyst Kerry Smith cut his target price on the stock to 70¢ a share, down 46% from his prior target. The cut was made after he increased the discount rate to 10% from 7% to reflect higher risk.
"We have very little insight, other than increased risk associated with a
project in an already risky situation," he wrote in a note to clients.
Crystallex also reported its third quarter results last week. Mr. Smith wrote that they are not relevant except for the balance sheet. The company currently has US$44.6-million in cash, but it burned through US$16.9-million in the third quarter alone. Crystallex is taking steps to reduce spending, but he calculated that its cash position could be down to US$8-million to US$10-million in 12 months.
In the meantime, investors can only wait and see if Crystallex will get the environmental permit it needs in order to develop Las Cristinas. "If Crystallex lost its rights to Las Cristinas, the residual asset value would not be adequate to cover the existing debt, and the equity value would be effectively zero," Mr. Smith wrote.