What happens to Crystallex/Las Cristinas after Quinto Dia's corruption revellations?

VHeadline Venezuela News reports: Courageous Quinto Dia journalist Michael Diaz has taken on the toxic waste of reporting Venezuela's gold mining sector in a newly-published article in which he says that, under the (unauthorized and possibly illegal) "protection" of executives at the Venezuelan Guayana Corporation (CVG) gold-mining subsidiary CVG-Minerven, an army of illegal miners are involved in the uncontrolled and illegal extraction of gold in areas of south-eastern Bolivar State without proper environmental permits.

Diaz says it is a flagrant challenge to Ministry of Environment (MinAmb) environmental control inspectors who were assigned to CVG-Minerven and who have, allegedly been threatened "to accept conditions and pay-offs" related to extraction of gold-bearing ore body from otherwise paralyzed mining concessions.

Diaz says he has information of "secret negotiations" that took place in Paris where concessions currently in the hands of trans-national mining companies were offered in return exchange for corrupt cash payments and that kilos of gold worth hundreds of thousands of US dollars were allegedly "lost" when Idaho-based Hecla Mining relinquished control of its Venezuelan gold-mining interests to CVG-Minerven. He says that Minerven's projected target of eight metric tonnes of gold bullion by the end of 2009 is an unachievable goal that could bring more problems than benefits to Venezuela gold industry since senior government officials are using every kind of pressure -- including overtly illegal threats -- to promote their own interests and maximize their personal gains.

"CVG-Minerven is using an army of illegal miners to process large quantities of gold material in violation of important laws that are obscuring the state mining entity's activities and generating a reduction in its overall assets ... this illegal exploitation of gold is taking place in ecologically fragile areas of the rainforest and without any environmental considerations ... it's an open challenge to the recommendations and regulations established by the Ministry of Environment and in public defiance of President Hugo Chavez."

According to documents and intelligence reports, Diaz says that senior officials at CVG-Minerven are suspending or terminating mining contracts and concessions to renegotiate them with other interested parties in exchange for juicy commissions.

CVG-Minerven president Luis Herrera is said to be in the eye of the storm of accusations after he was linked to previous attempts to invade mining concessions and is revealed to have traveled recently, at government expense, to Paris-France to "negotiate" the allocation of a major concession (Las Cristinas/Las Brisas del Cuyuni) to a Russian group unofficially identified as Russian Technologies (Rostech).

Quinto Dia's reporter says that Herrera's strategy could considerably expand the environmental devastation of hundreds of hectares in the heart of the Tumeremo/Kilometer 88 gold district with illegal miners involved in the indiscriminate and uncontrolled exploitation of gold. He says that the worsening situation demands action by the Attorney General's Office to establish responsibilities for environmental crimes which, according to experts, could lead to the prosecution of senior government officials involved in illegal activities that are detrimental to the Venezuelan state's patrimony.

In a letter given in evidence, dated May 27, 2009, a Herrera confidante, Francisco Hernandez, as manager of small-scale mining operations at the CVG ordered junior engineer Giovanni Mejias to coordinate "support and logistics" to extract gold material from land within the Las Cristinas project or he would lose his job. In the letter, Hernandez noted that the order had come from a higher level, citing Jose Antonio Urbina, the current coordination manager for CVG small mining ventures who is also a close associates of Herrera in the state-owned corporation. Hernandez ordered the engineer to carry out "all the logistics and coordination with the business operator" (Crystallex) with the caveat that failure to comply with his instructions would result in irreversible sanctions.

CVG-Minerven's use of illegal miners and the lack of environmental permits is in open violation of a series of laws according to Quinto Dia intelligence sources which claim that the letter given in evidence was sent shortly after National Guard (GN) soldiers had restrained Herrera from joining a convoy of trucks and Minerven technical staffers to collect tailings from Las Cristinas that had previously been extracted by illegal miners working in the area under Herrera's orders.

• The National Guard did not give in to Herrera's pressures and, from a legal point of view, the letter ordering work at Las Cristinas is the clearest indication, so far, of the illegality of Luis Herrera's and his closest executives' actions.

The status quo should raise alarm among government officials in various sectors as the true scope of the much-vaunted National Mining Plan (PMN) is revealed. It was originally intended to develop mining in an organized fashion in compliance with regulations under the jurisdiction of the Bolivar state government and to promote the establishment of joint ventures with investors who can ante up a percentage of future profits to begin operations under 51% state ownership.

Another goal is to force companies to commit to viable environmentally sustainable long-term mine production and to avoid international market speculation in mining stocks. The plan was to include the allocation of up to 2% of profits to social benefits and to create a special fund to increase quality of life in areas impacted by mining activities.

However, Quinto Dia reveals, a number of factors are undermining original goals ... including the private ambitions of some government officials who seek personal enrichment: "In-depth investigations have shown that while the National Mining Plan was designed to combat private interests and the internal mafias (officials who engage in acts of corruption) the true purpose has been hampered since the Basic Industries & Mining (Mibam) Ministry rescinded 107 mining contracts when it was discovered that fraudulent figures and data were presented to the Minister (Rodolfo Sanz) who is also president of the CVG.

For example, according to CVG-Minerven projections gold production will reach eight metric tonnes by the end of 2009 with a value of some US$2.4 billion ... that's an impossible goal without the participation of major mining corporations present in southern Bolivar state, and they are paralyzed waiting for final permits to begin operations.

While the National Mining Plan may be vital to support Venezuela's hard-hit balance of payments is is not now fit for purpose. Herrera had sold the idea that the CVG plans could achieve the 8-tonne bullion goal by using the Victoria Tomi mine and the (formerly Crystallex-owned) Revemin mill to process gold with aid of small-scale miners. In fact, Herrera appointed officials to 'cook the books' to support his idea and to brand some companies as "enemies of the government" while promoting others, becoming a de facto lobbyist for them under the premise that he was acting under the explicit instructions of President Hugo Chavez Frias and Mibam Minister Rodolfo Sanz.

As if THAT was nor enough, Quinto Dia's Michael Diaz highlights the fact that a recent decision by the Central Bank of Venezuela (BCV) requiring 70% all gold produced in Venezuela to be offered for sale to the BCV as an exercise to do away with mafia control and internal corruption, has led to the exact opposite ... or rather a centralization of profits in the hands of private individuals and companies ... intelligence agencies have information of offers made against assurance that government officials will ensure the delivery of concessions in exchange for specific rewards...

An official intelligence committee has found that the extraction of the gold material is done without respective permits in contradiction of Ministry of Environment regulations to maintain ecological balance as a primary government objective and that Herrera's and his subordinates' actions are not compatible with National Executive requirements and in clear conflict with the latter's orders to the National Guard (GN) 5th Detachment which was instructed to combat illegal mining.

"The illegal exploitation of gold is not only considered a criminal offense in itself, but also generates a chain of responsibilities involving all concerned in the commission of illegalities from the actual beginning of the extraction through final production. Unauthorized mining is a criminal offense under the Environmental Penal Law and the Organic Law against Organized Crime," says well-known jurist and mining expert Dr. Luis Alfonso Castillo.

In additional information revealed by Quinto Dia, CVG-Minerven president Luis Herrera was directly implicated in violent events in 2005 for which Sifontes Mayor. Charles Chancellor was imprisoned two years ago pending a trial which has not yet taken place.

According to a 2005 report by the Inspectorate of the Armed Forces, Chancellor used Herrera in a plan conceived by former AN deputy Ortegano to establish a national mining company and to concentrate all mining concessions in Tumeremo Kilometer 88 area as part of a joint strategy to take over Las Cristinas. But before the conspiracy got off the ground, President Chavez unveiled his own national mining plan with the result that Ortegano moved sharply to Petroleos de Venezuela (PDVSA).

Diaz suggests that Herrera had taken opportunity from the appointment of Rodolfo Sanz as president of the CVG and Minister of Basic Industries & Mining (Mibam) to convince Sanz of "the golden dream" of reviving the Ortegano's original plan and to begin to attempt to wrest control of mining concessions using all available means -- including illegalities -- to benefit his own interests.

Meanwhile, as Crystallex International prepares for its shareholders' Annual General Meeting (AGM) in Toronto (Canada) tomorrow, Wednesday, there's still no clarification forthcoming from the Venezuelan government as to its continued gold-mining presence in Venezuela. Chairman & CEO Robert Fung last week inaugurated a sewerage and water treatment plant (just one of hundreds of similar social projects being completed across the country each week) in Las Claritas and a walk-in medical clinic is scheduled for completion in the next few weeks.

President Hugo Chavez Frias had already clarified in a January State of Federation Speech that both the Las Cristinas and adjacent Las Brisas del Cuyuni gold deposits would be brought under state control.

While the Las Brisas concession has already been rescinded, and Las Cristinas is under total 100% Venezuelan ownership, it appears unlikely that Crystallex International would be willing to concede 51% ownership and/or control over its Crystallex de Venezuela CA subsidiary and an apparently irreconcilable stalemate exists where the Venezuelan government obviously has the upper hand with Crystallex left (under contract) only with the option to appeal for remedy under Venezuelan jurisdiction.

In a last week statement to regional reporters, Crystallex de Venezuela president Luis Felipe Cottin had said that the company was considering an appeal to the Venezuelan Supreme Court ... an option that could take six or more months to reach any interim decision.