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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

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Sunday, April 20, 2008

Aurelian Hit Hard by Ecuadorean Politics

Shares of junior gold miners with operations in Ecuador were hammered on Friday as the country's new constitution approved the revocation of most pre-existing mining concessions. The most promising emerging junior gold mining producer, Aurelian Resources (TSX:ARU, OTC:AUREF) lost $2.32 per share or 31.5 per cent to $5.04 per share on Friday. The market cap of Aurelian was almost $1 billion on Thursday and is now about $685 billion. Shareholders have been hurt badly by this severe change in government policy. Yet, this outcome has been telegraphed by Ecuador's political regime for some time and is one reason I have not invested in Aurelian, despite the great promise of their Fruta del Norte project.

I had been following Aurelain for some time, paying close attention to the Ecuadorian constitutional rewrite. This is of special interest to me, having studied political economy in Ecuador in 1980 immediately after a longstanding military junta handed over power to a civilian government. Ecuador is a poor country and could benefit from economic development. This decision is likely to set back investment in resources projects going forward.

Crystallex International (TSX:KRY, AMEX:KRY), a junior gold miner with production with a large mining project in Venezuela called Las Cristinas, is another example of a company beset by political risk. Last year saw its shares swing wildly Venezuela's government suggested the country planned to take over the mining sector. As a result, the share price has suffered.

KRY is an appropriate symbol for Crystallex shareholders. The stock has ranged from $1.59 to $5.25 over the past year. It is currently at $1.89.

ARU and KRY are excellent examples of why it is important to invest in junior gold miners in politically safe regions of the world. What happened in Ecuador should not be generalized to all of Latin America. For example, Brazil is one of the more mining friendly countries of the world. The Brazilian government has welcomed the jobs and wealth created by mining interests such as Yamana Gold and Jaguar Mining. Mexico (Minefinders), Quebec (Metanor) and Sweden (Gold-Ore) are also considered mining friendly countries.

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