You guys may know that I have a position in Crystallex (AMEX: KRY). If you follow the stock, you know that yesterday was a bad day. There was this press release, which speaks of… well let me just quote some of it:
Crystallex International Corporation … announced today that, subject to receipt of all necessary regulatory and shareholder approvals, it has agreed to amend the terms of certain unlisted common share purchase warrants … held by two holders in the United States. The proposed amendment is in relation to 2,272,727 Warrants originally issued by the Corporation as part of an issuance of 4,545,455 special warrants (each special warrant consisting of one common share and one-half of one Warrant) completed on August 29, 2003. Each Warrant entitles the holder thereof to acquire one common share in the capital of the Corporation at an exercise price of US$2.75 per share until September 15, 2006.
If you’re me, you have little idea what this means. I’ll take a stab. Crystallex has about 220 million shares outstanding. Each of the “warrants” described above includes one common share of KRY stock. And since those warrants can be exercised at $2.75, starting yesterday these 2 US dudes could sell their 2 million shares (about 1%) of KRY at $2.75 and make a quick $1 profit. (Note: the actual number of warrants could be larger; the math is pretty tricky.)
I can’t say we weren’t warned before. Robutnic pointed this out back in April in a comment to my original post here. TerryB responded in the comments, that these guys with the warrants aren’t normal investors. So they wouldn’t be so inclined to sell right away.
There was supposedly some bigger news yesterday that I only picked up on while watching Madd Money last night. I can’t find anything in the wires, but Cramer said that rumors are spreading that Venezuela will try to get as much as 50% of the profits from the mine. I’ll try to post links and more on this when I get something. (UPDATE: See the article linked below in the “Further Reading” section for a good overview of how the rumors got started yesterday.)
Understandably, the stock dropped 50% yesterday (which makes sense if they’re looking at 50% of the profit) then had a decent rebound to close just over $3. As I write this, the stock is plummeting again and trading at the $2.50 level.
Before I leave, here is Crystallex’s response to all of this. They’ve put out a press release: Crystallex Confirms Las Cristinas Position. The title is a bit forward, as the Minister of the Environment and Natural Resources (“MARN”) hasn’t yet given the okay for production (this is what we are all waiting for). However the rest of the government down there is prodding:
Just last week the Permanent Commission of the National Assembly petitioned the Minister of the Environment and Natural Resources (“MARN”) in support of Crystallex commencing the Las Cristinas project as soon as possible. In addition the media in Venezuela reported last week that Deputy Ricardo Gutierrez, President of the Commission of Mines of the National Assembly had met with the Mayor of Sifontes district to express their joint support for the rapid commencement of the Las Cristinas project by Crystallex. Deputy Gutierrez also stated that he had arranged to meet with the Minister of MARN to express his commission’s support for the rapid development of the Las Cristinas project by Crystallex.”
However, the press release doesn’t deny the rumors brought up yesterday. I just reread the press release, and it states:
…we have received no request or proposal for any change to our operating contract.
And doesn’t say anything about the special warrants. What does all this mean? Where will the stock go? This is speculation at its craziest. This could be the begining of the end for this company. Can we trust the management? On the other hand, if the rumors are just rumors, this is a great buying opportunity. I’m getting tired of this trade and working on my exit strategy. More on that later.
Further Reading:
– The article I wrote when I first purchased shares: Cramer’s Crystallex Play.
– A great article that came out after I published this: Crystallex Burned Again in Venezuelan Sell-Off Frenzy by Jon A. Nones