Bill Cara: Crystallex management speaks up, Fri., Aug. 18, 2006, 2:21 PM

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August 18, 2006

Crystallex management speaks up, Fri., Aug. 18, 2006, 2:21 PM

I must admit that after I published remarks on Crystallex, I was sent a lot of incredulous mail.

So I sent off a note to the company, saying "You must have one helluva challenging job."

They responded with facts, and made the statement that all they can do is deal with the present and the future, and try to convey the facts to open-minded people. They sent me the following. Download Crystallex story.

It doesn't take a Venezuelan rocket scientist to see how that country is being played inside the Washington beltway, and admittedly I went along with that story for a while.

But no longer.

The other day I made some positive remarks and the stock took off. Gold btw was tanking at the time.

If there are readers who don't care for the Crystallex story, that's one thing. But to say that somehow these people are crooks or that I may have ulterior motives for changing my views, that's quite another.

So, let's be smart traders here and stick to the facts " not the history or the rumors or whatever.

Crystallex has stated a case. If you disagree with it, please tell us why, as specifically as you can. If the arguments are made honestly, I'll look into them and reply or I'll ask Crystallex management to reply.

As I have already stated; I believe Crystallex management are forthright people. I think the company has been preparing to put a world-class ore body into production, and has spent a small fortune in getting ready for the day the environmental permit is issued, which could be days or weeks. I know that all the recent financing, which has been extensive, has been sold to financial institutions who have done complete due diligence in the matter and who wanted to buy much more stock than they were allocated.

Yes, gold may drop to 600 or even 580 in the interim, but before Crystallex gets into production in 2008, I believe " and analysts at Citigroup, UBS and others like that believe " that gold will be priced in the 700's or higher.

If so, the profitability of this company will be even bigger than projected, and what we know today is sufficient cause to triple or quadruple the stock.

I always say that if I can find a situation that could double in two years, I'm a happy camper. So, for Crystallex let's discount that by 50 pct just to acknowledge the challenges of mining. I'm still in the ball-park for KRY, so that's all I need to recommend it.

Do I think there are better opportunities in the mining business? Possibly, but when I looked into the comparable detail, these so-called wonderful opportunities always seemed to go soft.

But there are a ton of mining deals that make more sense to some of you than KRY, so feed me the details and, if true, I'll jump on the bandwagon.

And if you want to critique KRY here, please be specific about this company, and don't compare it to something else because I don't have the time to check out everything you might have to say.

I truly want to know if this company ought to become in the mainstream of our gold and silver consciousness, like other mid-level companies such as IAMgold, Kinross, Agnico-Eagle or Yamana Gold, say.

Thanks.

Posted by Posted by Bill Cara on August 18, 2006 02:21:49 PM | Category:

Discourse

Bill,

Is the problem here, not the company or the deposit, but the inherent political risk in the location.

As such, is it not extrememly difficult for anyone, including you, to be objective and fact-based when making an assessment of whether KRY is a reasonable investment/speculation?

Full disclosure: I started a building a position some time ago, but it is not without some concern and it is not a large % of my portfolio.

Posted by: rward at August 18, 2006 2:50 PM [link]

I would echo the sentiments of rward.

The facts point to the permit being issued. It has existing mines in the country and has jumped through all the required hoops. The reserves are easy to get, energy is cheap, and there is access to well contructed roads, it has the support of the local governer and mayor and KRY seems to be far along in terms of procurring all required supplies. I have talked to Richard Marshall in investor relations and was impressed. The ONLY real negative to this stock is that the political climate or at least the perceived climate is negative, and it seems many investors get spooked out of this stock easily. Recently a Bloomberg article (which was over-exagerated) drove the pps way down and it has not recoved since.

One concern I may have about the stock going above $10 is that many resistence points have been established and a lot of traders who were down on this will take their profits.

Posted by: rick s at August 18, 2006 3:24 PM [link]

rick s,

You did the right thing by calling the Company and speaking to the Investor Relations rep. That is their job. Of course they are biased, but if they are working for a company that has a market cap of a couple hundred million dollars, say, you ought to expect a forthright answer to serious questions. Ask the tough questions. This is your capital, and you need to protect it. Follow up one way or the other until you get satisfied or decide to drop the whole thing.

Remember, it is NOT the job of management to sell you stock. They have a duty to shareholders to explain the good, the bad and the ugly of these situations. And that explanation has to be an honest one. That's the law.

Posted by: Bill Cara at August 18, 2006 3:35 PM [link]

Bill -

I see a second risk, beyond not getting the environmental permit. It's also possible VZ gov't would keep stiffing the company for an ever greater % of profits through arbitrary tax changes. They have done this on oil projects:

http://www.stuff.co.nz/stuff/0,2106,3769099a6026,00.html

HOWEVER, oil is the politically sensitive area, where nationalist politics are strongest (unlike Peru, which depends PRIMARILY upon mining). AND, oil is the area where gov'ts have greatest leverage in general.

Still, in order for the 2nd risk to emerge, the final permit would have been granted, and the project would have begun. (The time gov'ts pull such "stick-ups" on taxation is after the company is already deeply invested, and has no alternative but to proceed.) By that time, we would have enjoyed a fine initial bounce in share price.

Finally, if KRY is SMART about playing the politics, they'll get where they want to go. It may take time. (When business meets politics, politics rules - everywhere!) And VZ does move to its own rhythmn. Still, they want to be known as reliable partners to countries like Canada, I suspect, and will ultimately behave predictably.

My judgment (and I know ONLY the politics of getting licenses in Latin America, NOT mining) is that KRY continues to feel a very good speculative bet - especially if the fact sheet is correct in suggesting KRY will have the 3rd largest amount of reserves after Newmont and Barrick !!!

A fine risk/reward (1/7)if you place your stop at last year's base around 1.25, and 1/50 with a stop at 2.47 (a downside level not violated since 2/06).

Posted by: Jock at August 18, 2006 3:45 PM [link]