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Crystallex meltdown ugly, but not surprising

Crystallex shareholders can say a lot of things about their star-cross company, but they can't say they weren't warned. With Crystallex in free fall Wednesday after being denied permits on its always-controversial Las Cristinas project in Venezuela, it's worth reviewing the risk factors pointed out in a financing done less than three months ago. The latest news out of Venezuela, where the regime has a well-established disdain for North American resource companies, has knocked Crystallex back 67 cents to 94 cents on the TSX, well off the gold miner's 52-week high of $5.70. The stock is also now miles under the price on $2.10-a-unit financing done on Feb. 5, which saw the company raise $60-million by selling units consisting of one share and half a warrant. That last prospectus - the financing was led by Macquarie Capital Markets Canada - contained a nine pages of "Risk Factors," a detailed description of the perils of dealing in Venezuela. (Crystallex chairman Robert Fung was a partner in Macquarie's predecesors, Orion Financial and Yorkton Securities.) Starting on page 17, readers encountered specific warnings on the fact that environmental permits were still pending, and more general references to the capricious nature of the Hugo Chavez regime. The filing also showed Crystallex has spent $123-million on developing a mine, with equipment purchased and an airstrip and 19 kilometres of road built. On Wednesday, Crystallex revealed that the Ministry of the Environment and Natural Resources of Venezuela was denying a request to carry out exploration activities. The company said it plans to press the government for the authorization needed to get Las Cristinas back on track. For investors, Crystallex's tenuous standing in Venezuela has now gone from being page after page of warnings in a prospectus to grim reality.

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