Crystallex, Gold Reserve Shares Spike on Takeover Rumours

St. LOUIS () -- Crystallex stock [AMEX:KRY; TSX:KRY] surged 17% while Gold Reserve [AMEX:GRZ; TSX:GRZ] jumped 11% today after rumours hit the market that Russia's biggest gold producer Polyus Gold may make a bid for both companies.

Canada's National Post reported that Polyus hired BMO Capital Markets, the investment banking unit of the Bank of Montreal, to help evaluate the companies.

Richard Marshall, Vice President of Investor Relations for Crystallex told RI that the company "does not comment on rumours and has nothing to report." Gold Reserve could not be reached for immediate comment.

Crystallex was awarded a contract to develop Las Cristinas in 2002, and has since drilled up Proven & Probable Reserves of about 13.6 million gold ounces. Gold Reserve was given rights to the abutting Las Brisas deposit, which has 10.1 million ounces of gold and 1.29 billion pounds of copper in proven and probable reserves.

However, both companies are awaiting a final environmental permit prior to production.

Crystallex applied for the environmental permit in spring of 2004, while Gold Reserve applied in September 2005. Last week, new Crystallex CEO Gordon Thompson said the for Las Cristinas was closer than ever.

Gold Reserve previously proposed a combined mining project to the government before Crystallex obtained rights to Las Cristinas, but it remains to be seen whether the government favoured this plan.

As most well know, Venezuela has been in heavy arms trade with Russia, buying helicopters and various other weapons. A possible political motive for the sale of these companies prior to the issuance of the permits - a risk that most other companies would not take - could be a way for Venezuela to pay back Russia for the arms.

Hernando Otero, International Law Associate for Appleton & Associates International Lawyers, told RI this "could carry some weight as Venezuela tries to gain favour with powers such as China and Russia that would unrealistically help it escape the U.S. are of influence."

Venezuela cannot touch the companies itself since all Canadian companies have "certain protection" under the Canada-Venezuela investment protection treaty.

But, "It is hard to tell what is on Venezuela's mind," said Otero. "I will tell you that having a bilateral investment treaty with Canada or any other countries has hardly deterred the government from taking measures that have affected investments of those nationalities."

Polyus Gold, Norilsk Nickel's gold spin-off, is the leading gold producer in Russia and the only Russian company among the world's largest gold producers. Last year's gold production totalled 37.8 tonnes.

Although, Polyus Gold shares are traded on RTS and MICEX, and ADRs are listed on the LSE [PLZL], it is unknown how much of a stake the government already owns, if any, and that the Russian government may look to buyout Norilsk and its subsidiaries.

Crystallex shares closed up 47 cents at $3.22 today on AMEX, while Gold Reserve shares finished at $4.62, up 46 cents.

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