CRYSTALLEX
INTERNATIONAL CORPORATION
 
 Management’s
Discussion and Analysis
 For
the year Ended December 31, 2007
 (All
dollar amounts in US dollars, unless otherwise stated)
 
 This
Management Discussion and Analysis (“MD&A”) of the financial condition and
results of the operations of Crystallex International Corporation (“Crystallex”
or the “Company”) is intended to supplement and complement the Company’s audited
consolidated financial statements and the related notes as at and for the year
ended December 31, 2007.  This MD&A should be read in conjunction
with those audited consolidated financial statements.
 
 The
Company prepares its consolidated financial statements in U.S. dollars and in
accordance with Canadian Generally Accepted Accounting Principles.
 
 This
MD&A was prepared on March 31, 2008 and the Company’s public filings,
including its 2007 Annual Information Form, are available on SEDAR at
www.sedar.com
 
 Special
Note Regarding Forward Looking Statements
 
 Certain
statements included or incorporated by reference in this Management Discussion
and Analysis, including information as to the future financial or operating
performance of the Company, its subsidiaries and its projects, constitute
forward-looking statements. The words “believe,” “expect,” “anticipate,”
“contemplate,” “target,” “plan,” “intends,” “continue,” “budget,” “estimate,”
“may,” “schedule” and similar expressions identify forward-looking
statements.  Forward-looking statements include, among other things,
statements regarding targets, estimates and assumptions in respect of gold
production and prices, operating costs, results and capital expenditures,
mineral reserves and mineral resources and anticipated grades and recovery
rates.  Forward-looking statements are necessarily based upon a number
of estimates and assumptions that, while considered reasonable by the Company,
are inherently subject to significant business, economic, competitive, political
and social uncertainties and contingencies.  Many factors could cause
the Company’s actual results to differ materially from those expressed or
implied in any forward-looking statements made by, or on behalf of, the
Company.  Such factors include, among others, risks relating to
additional funding requirements, reserve and resource estimates, gold prices,
exploration, development and operating risks, illegal miners, political and
foreign risk, uninsurable risks, competition, limited mining operations,
production risks, environmental regulation and liability, government regulation,
currency fluctuations, recent losses and write-downs and dependence on key
employees.  See “Risk Factors” section of this Management's Discussion
and Analysis. Due to risks and uncertainties, including the risks and
uncertainties identified above, actual events may differ materially from current
expectations. Investors are cautioned that forward-looking statements are not
guarantees of future performance and, accordingly, investors are cautioned not
to put undue reliance on forward-looking statements due to the inherent
uncertainty therein.  Forward-looking statements are made as of the
date of this Management Discussion and Analysis and the Company disclaims any
intent or obligation to update publicly such forward-looking statements, whether
as a result of new information, future events or results or
otherwise.
 
 Cautionary
Note to U.S. Investors
 
 The
terms "proven mineral reserve" and "probable mineral reserve" used in this
report are Canadian mining terms as defined in accordance with National
Instrument 43-101 - Standards of Disclosure for Mineral Projects under the
guidelines set out in the Canadian Institute of Mining, Metallurgy and Petroleum
("CIM") Standards on Mineral Resources and Mineral Reserves, adopted by the CIM
Council on August 20, 2000 as may be amended from time to time by the CIM. These
definitions differ from the definitions in the SEC's Industry Guide 7. The
terms, "measured mineral resource", "indicated mineral resource" and "inferred
mineral resource" used in this report are Canadian mining terms as defined in
accordance with National Instrument 43-101. While the terms "measured mineral
resource", "indicated mineral resource", and "inferred mineral resource" are
recognized and required by Canadian regulations,
  1
  they
are not defined terms under Industry Guide 7 and normally are not permitted to
be used in reports and registration statements filed with the SEC. As such,
information contained in this report concerning descriptions of resources under
Canadian standards may not be comparable to similar information made public by
U.S. companies in SEC filings. With respect to "indicated mineral resource" and
"inferred mineral resource" there is a great amount of uncertainty as to their
existence and a great uncertainty as to their economic and legal feasibility. It
can not be assumed that all or any part of an "indicated mineral resource" or
"inferred mineral resource" will ever be upgraded to a higher category.
Investors are cautioned not to assume that any part or all of mineral deposits
in these categories will ever be converted into reserves.
 
 Overview
 
 The
Company is engaged in the production of gold and related activities including
exploration, development, mining and processing in Venezuela. The Corporation’s
principal asset is its interest in the Las Cristinas project located in Bolivar
State, Venezuela. The Corporation’s other assets include the Tomi operations,
the Lo Incréible properties (which include the La Victoria deposit), and the
Revemin mill, all of which are located in Bolivar State, Venezuela (the “El
Callao operations”).
 
 Highlights
 
 §
              In
      June 2007, the Company received written notice from its project partner,
      the Corporacion Venezolana de Guayana (the "CVG"), that all the
      requirements of the Ministry of the Environment and Natural Resources,
      (“MinAmb”) for the issuance of the Authorization to Affect Natural
      Resources (the “Permit”)  to commence construction at Las
      Cristinas had been fulfilled.  The CVG notice was based on
      MinAmb approval of the Las Cristinas Environmental Impact Statement
      (“EIS”), the subsequent posting of a Compliance Guarantee Bond and payment
      in full of certain taxes. Accordingly, the Company believes it has
      satisfied all of the regulatory requirements and is in a position to
      receive the Permit.
 
 §
              In
      October 2007, the Venezuelan National Assembly’s Commission of Economic
      Development published a report following hearings on the Las Cristinas
      project.  The report concluded that the CVG and Crystallex have
      met all the regulatory requirements and called for the prompt issuance of
      the Permit.  The hearings included representatives from MinAmb,
      the Ministry of Basic Industries and Mining, (“MIBAM”), the CVG and
      Crystallex.
 
 §
              Concluded
      a 13,566m drill program at Las Cristinas. Reserves were increased by 20%
      to 16.86 million ounces calculated at a gold price of $550 per ounce.
      Measured and indicated resources increased by 18% to 20.76 million ounces.
      Inferred resources increased 38% to 6.28 million ounces. The Company filed
      an updated Technical Report for the Las Cristinas project on SEDAR in
      November 2007 to support these revisions.  The new reserves are
      contained in approximately 465 million tonnes of ore at a gold grade of
      1.13 grams/tonne and have a waste to ore strip ratio of 1.38 to
      1.  The resulting open pit will be 1,250 meters wide, 3,100
      meters long and 490 meters deep.
 
 §
              As
      part of its continuing corporate and social responsibility commitments,
      the Company commenced construction of a new medical centre and sewage
      treatment plant to serve local communities in the vicinity of the Las
      Cristinas project.  Both projects are currently well underway
      and are scheduled for completion in 2008 with a total estimated cost of
      $5.3 million.
 
 §
              In
      April 2007, the Company closed a public equity financing of common shares
      of the Company for net proceeds of $50.7
  million.
 
 §
              On
      February 11, 2008, the Company closed a public equity financing of 32.9
      million units for net proceeds of $65.0
million.
 
 
 2
  Las
Cristinas – Permit progress
 
 During
2007, the Company’s project partner, the CVG, was formally notified by MinAmb
that all the requirements for the issuance of the Permit had been fulfilled.
MinAmb approved the EIS for the Las Cristinas gold project, and requested the
CVG post a construction compliance guarantee bond and pay certain environmental
taxes. Crystallex posted the requested bond and paid the requested taxes. No
impediments have been raised in discussions with Government officials, and they
have recently confirmed that the Company is in good standing for the issuance of
the Permit.
 
 The
Company received additional support for the issuance of the Permit in the fall
of 2007, when the Venezuelan National Assembly's Commission of Economic
Development reviewed the protracted timeline for the issuance of the Permit.
Following its October 4th, 2007 hearings, the Commission issued a report noting
that representatives from MinAmb, MIBAM, the CVG, and Crystallex had testified
at their hearings. The Commission's report concluded that the CVG and Crystallex
had complied with the feasibility study and other legal and technical
requirements, thus allowing for the Permit to be granted by MinAmb. The Chairman
of the Commission recommended MinAmb grant the Permit.
 
 In
early 2008, Mr. Rodolfo Sanz was appointed the Minister of MIBAM and President
of the CVG, having direct involvement with the Las Cristinas project in both
capacities. Crystallex has met with Minister Sanz and expects to host Mr. Sanz
at Las Cristinas in the near term.
 
 Crystallex
representatives have also recently met with the newly appointed Canadian
Ambassador to Venezuela and provided him with an update on the Las Cristinas
project. The Ambassador is very active, as is the Government of Canada in
furthering the interests of Canadian companies investing in Venezuela. Following
a visit to Bolivar State, the Ambassador commented that he was working to
advance Canadian interests (including mining) in Bolivar State and
Venezuela.
 
 The
Company is actively pursuing all channels available in Venezuela to keep the
Permit issue high on the agenda of the officials responsible for promoting,
authorizing and approving mineral development in Venezuela.
 
 Las
Cristinas – Social investments and commitments
 
 The
Company is committed to improving and supporting the local communities in the
areas of its existing mines and the Las Cristinas project.  For Las
Cristinas it has established an area of influence(“AOI”) that includes 11
separate communities that are within 20 km of the project. In each of these
areas, the focus since 2002 has been in developing reliable and safe potable
water sources and systems, and in supporting local schools.  The
Company has also provided a significant portion of the cost of operating the
current rural medical clinic in Las Claritas, the largest of the
communities.  The clinic staff of five, including full time coverage
by two doctors, medical supplies including drugs, and other operating costs such
as building maintenance and improvements are provided by the Company. Ongoing
support for a variety of local needs including school supplies and improvements,
local sports teams, children’s Christmas parties are also provided and
administered by the Company’s community relations staff.
 
 The
Company is currently undertaking major new construction programs to improve
infrastructure and medical service for the local communities.  A new
hospital that is nearly double the size of the existing rural medical clinic is
under construction.  It will support all communities within the
AOI.  It will also be equipped with new medical equipment and
furnishings.  This project, including previously completed design work
is estimated to cost $2.8 million.  In addition, the streets leading
to the new hospital will be paved and the main street in Las Claritas, which is
in bad repair, will be replaced.
 
 The
other major current community infrastructure project is the construction of a
sewage treatment system at an estimated cost of $2.5 million including work
already completed This project will greatly improve the sanitary conditions of
the three adjoining villages of Las Claritas, Nuevas Las Claritas
and
  3
  Santo
Domingo. Most of the underground sewage piping system is already in place and
the plant is due to be completed in the second half of 2008.
 
 Las
Cristinas - Updated Resources and Reserves
 
 On
November 7, 2007, the Company filed on SEDAR a Technical Report titled
“Technical Report Update on the Las Cristinas Project Bolivar State,
Venezuela.  The report included an update of the resources and
reserves for the Las Cristinas project.
 
 Proven
and Probable reserves at Las Cristinas, calculated using a $550 per ounce gold
price and revised operating costs, are currently estimated to be 16.86 million
ounces.  As detailed in the November 7, 2007 Technical Report, the
estimate of operating costs has increased from $7.66 per tonne of ore in August
2005 to $9.80 per tonne of ore.  Operating costs are now expected to
average $258 per ounce for the first five years of production and $346 per ounce
over the life of mine, based on a 20,000 tpd operating rate.  Reserves
were estimated assuming an average gold recovery rate of approximately 88% and
variable cut-off grades of between 0.33 g/t and 0.57 g/t.
 
 Proven
and Probable Reserves for Las Cristinas are tabled below:
 
 Tonnes
      (millions)
              Grade
      (g/t)
              Ounces
      (millions)Proven
      Reserves
              113
              1.24
              4.48Probable
      Reserves
              352
              1.10
              12.38Total
      Proven and Probable Reserves
              465
              1.13
              16.86
 
 Measured
and Indicated resources are presently estimated at 20.76 million ounces, an 18%
increase from 17.66 million ounces reported in the August 2005 Technical
Report.
 
 
 Measured
and Indicated resources, which include reserves, are tabled below:
 
 Tonnes
      (millions)
              Grade
      (g/t)
              Ounces
      (millions)Measured
      Resources
              146
              1.14
              5.38Indicated
      Resources
              483
              0.99
              15.38Total
      Measured and Indicated Resources
              629
              1.03
              20.76
 
 In
addition to the Measured and Indicated Resources, Las Cristinas has estimated
Inferred Resources of 6.28 million ounces (230 million tonnes at an average gold
grade of 0.85 g/t).
 
 The
strip ratio is estimated at 1.38:1.  The updated reserve estimate is
contained in a single open pit, which is approximately 3.1 km long and 1.2 km
wide at its widest point, with a maximum depth of approximately 500m.
Mineralization is open at depth.
 
 All
estimates of mineral reserves and mineral resources have been estimated in
accordance with the Standards on Mineral Resources and Reserve Definitions and
Guidelines of the Canadian Institute of Mining, Metallurgy and Petroleum as
adopted by the Canadian Securities Administrators in National Instrument
43-101.  Mineral resources that are not reserves do not have
demonstrated economic viability.
 
 The revised reserve and resource
estimate was prepared by MDA under the direction of Steven Ristorcelli, P. Geo.,
Scott Hardy, P. Eng., and Thomas Dyer, P.E., all independent qualified persons
for the purposes of National Instrument 43-101, with geological and sampling
input from Dr. Richard Spencer, P. Geo., Crystallex's former Vice President
Exploration, who is a qualified person for the purposes of National Instrument
43-101.
  4
  Selected
Annual Information
 2007
              2006
              2005Financial
      Results ($000, except per share)
              
              (Restated)
              (Restated)Mining
      Revenues
              $13,565
              $28,088
              $24,990Net
      Loss
              ($30,451)
              ($35,684)
              ($43,764)Basic
      and Diluted Net Loss per Share
              ($0.12)
              ($0.15)
              ($0.22)Weighted
      average shares – Basic and diluted (millions)
              256.7
              230.2
              194.7Cash
      Flow used in  Operating Activities
              ($34,309)
              ($30,676)
              ($34,253)Investing
      ActivitiesExpenditures
      on PPE
              $26,893
              $49,788
              $92,831Financing
      Activities
              $49,215
              $83,643
              $18,428Financial
      Position ($000)Cash  and
      cash equivalents
              $16,065
              $28,573
              $4,070Restricted
      cash and cash equivalents
              -
              -
              $21,323Total
      assets - Restated1
              $339,240
              $324,695
              $270,915Outstanding
      Debt
              $83,291
              $87,697
              $96,938Shareholders’
      Equity
              $228,407
              $199,481
              $135,475
 1   The 2006 and 2005 balances have
      been restated as discussed in Note 11 to the Consolidated Financial
      Statements.
 
 Summary
of Quarterly Results (Unaudited)
 $,000 except per
      share
              2007
              2006Q4
              Q3
                (Amended)
              Q2
                ((Amended))
              Q1
                (Amended)
              Q4
              Q3
              Q2
              Q1Revenue
              $4,809
              $2,188
              $2,848
              $3,720
              $5,720
              $9,769
              $5,520
              $7,079Net Losspreviously
      reported
              -
              ($9,256)
              ($13,703)
              ($12,071)
              ($11,617)
              ($8,815)
              ($8,296)
              ($6,956)Adjustment to unrealized
      gain
              
              2,534
              1,580
              9,252
              -
              -
              -
              -Net loss as
      amended
              $(8,787)
              $(6,722)
              $(12,123)
              $(2,819)
              ($11,617)
              ($8,815)
              ($8,296)
              ($6,956)Per Share–Basic and
      diluted
              ($0.03)
              ($0.03)
              ($0.05)
              ($0.01)
              $(0.04)
              ($0.04)
              ($0.04)
              ($0.03)
 
 The Q1
to Q3 2007 Net Loss have been amended to reflect the year end adjustments to
unrealized gains as discussed in this MD&A and in Note 10 to the 2007
Consolidated Financial Statements.
 
 The
quarterly trends are consistent with the explanations of the annual trends set
out in this MD&A.
   5
  Financial
Results Overview
 
 The
Company recorded net losses of $30.45 million (($0.12) per share), $35. 7
million (($0.15) per share) and $43.8 million (($0.22) per share) in 2007, 2006
and 2005, respectively.
 
 The
decrease in the net loss in 2007 compared to 2006 is due primarily to recording
an unrealized foreign currency translation gain of $14.3 million relating to
future income taxes compared to $Nil in 2006. This unrealized non-cash foreign
currency translation gain arose from the translation into U.S. dollars at the
end of the year, certain Venezuelan-denominated future income tax liabilities
that are recognized in connection with expenditures on the Las Cristinas
project. The Company recorded an operating loss of $6.3 million at the El Callao
operations in 2007 compared to an operating loss of $0.3 million in 2006,
coupled with a foreign exchange loss of $4.6 million (which includes $14.3
million unrealized gain on transaltion of future income taxes relating to Las
Cristinas) in 2007 compared to $0.5 million foreign exchange gain in the
comparative period. The El Callao operations have been impacted by the combined
effects of lower production and the increasing spread between the official
exchange rate and the parallel exchange rate in Venezuela as discussed in the
“Income Statement” section of this MD&A. Accordingly, revenue from gold
sales declined to $13.6 million in 2007 from $28.1 million in
2006.  The foreign exchange loss is also due to the use of the
parallel rate in translation of financial statements as opposed to the lower
official rate used in previous years.
 
 The
decrease in the net loss in 2006 compared to 2005 is due primarily to recording
a commodity contract loss of $3.8 million in 2005 relating to gold contract
positions which were eliminated in 2005 and a $6.6 million write-down of its
investment in ECM in 2005 (refer to Note 9 in the Notes to the Company’s
Consolidated Financial Statements). The 2005 results include $1.4 million of
unrealized foreign exchange gains relating to future tax liabilities as
discussed above.
 
 Revenue
from gold sales increased in 2006 compared to 2005 due to the realization of a
higher average gold price on gold sales which more than offset the reduction in
ounces sold.
 
 Cash
flow used in operating activities was a deficit of $34.3 million in 2007
compared with a deficit of $30.7 million in 2006 and a deficit of $34.3 million
in 2005.  The cash flow deficits incurred in all three years were
largely attributable to corporate general and administrative expenses which
approximated $20.0 million per year, interest of approximately $9.4 million per
year and cash used to fund operating losses at the El Callao operations which
generated an operating loss of $6.3 million in 2007.
 
 The
Company’s cash position at December 31, 2007 was $16.1
million.  Capital expenditures on a cash basis for Las Cristinas were
$26.9 million during 2007.
   6
 El
Callao Operations Review
 
 Key
Mine Operating Statistics (USD)
 2007
              2006
              2005Operating
      StatisticsGold
      Production (ounces)
              33,567
              47,345
              53,178Gold
      Sold (ounces)
              32,815
              48,570
              55,217Per
      Ounce Data:Total
      Cash Cost1,2
              $519
              $540
              $420Total
      Cost1,2
              $557
              $570
              $456Average
      Realized Gold Price2
              $413
              $578
              $453Average
      Foreign Exchange Rates (Bolivars)
              4,341
              2,150
              2,150Average
      Spot Gold Price
              $695
              $604
              $445
 
 Key
Mine Operating Statistics (Bolivars)
 2007
              2006
              2005Operating
      StatisticsGold
      Sold (ounces)
              32,815
              48,570
              55,217Per
      Ounce Data: (Bolivars , thousands)Average
      Realized Gold Price
              1,794
              1,243
              973Total
      Cash Cost1
              2,388
              1,147
              875Financial
      Results (Bolivars, thousands)Mining
      Revenues
              58,885,665
              60,389,200
              53,728,500Total
      Cash Operating Cost1
              78,362,220
              55,709,790
              48,314,875Average
      Foreign Exchange Rates
              4,341
              2,150
              2,150
  1
                Total
      Cost represents the total cost of gold production, including amortization,
      depletion, accretion and revisions to asset retirement
      obligations.  For an explanation, refer to the section on
      Non-GAAP measures at the end of this MD&A.  The calculation
      is based on ounces of gold sold.  Since the secondquarter of 2005, all costs at the
      El Callao operationsareexpensed due to the shortlife of these
      mines.2
                Based
      on the average parallel (market) exchange rate in effect in 2007 compared
      with the official exchange rate in 2006 and 2005.  Using the
      official rate in 2007, the total cash cost of production was $1,048 per
      ounce.
  Production
Summary
 2007
              2006
              2005Gold
      Production (ounces)Tomi
      Open Pits
              8,437
              19,428
              30,290Tomi
      Underground
              13,551
              22,210
              19,811La
      Victoria
              9,356
              3,260
              1,491Purchased
      Material
              2,223
              2,447
              1,586Total
      Gold Production (ounces)
              33,567
              47,345
              53,178Total
      Ore Processed1
      (tonnes)
              312,915
              367,667
              418,414Head
      Grade of Ore Processed (g/t)
              3.8
              4.4
              4.2Total
      Recovery Rate (%)
              87%
              92%
              94%Total
      Gold Recovered (ounces)
              33,567
              47,345
              53,178Total
      Cash Cost Per Ounce Sold
              $519
              $540
              $420Mine
      Operating Cash Flow ($000)2
              ($3,481)
              $1,866
              $1,776Capital
      Expenditures ($000)3
              ---
              ---
              $856Net
      Mine Cash Flow  ($000)
              ($3,481)
              $1,866
              $920
 1
                Ore
      from Tomi, La Victoria and purchased material is processed at the
      Company’s Revemin mill.2
                Mining
      Revenues less Operating Expenses adjusted for non-cash items and excludes
      exploration costs of $1,574,000 in 2007 and $620,000 in
    2006.3
                Capital
      expenditures at the El Callao operating mines, excludes Las
      Cristinas.  Since the second quarter of 2005, all costs at the
      El Callao operations have been expensed due to the short reserve life of
      these mines.
  7
  Tomi
 2007
              2006
              2005Tomi
      Open PitsTonnes
      Ore Mined
              95,629
              227,845
              313,599Tonnes
      Waste Mined
              1,531,589
              2,287,217
              1,971,402Strip
      Ratio (Waste:Ore)
              16.0:1
              10.0:1
              6.3:1Tonnes
      Ore Processed
              105,126
              211,936
              319,287Average
      Grade of Ore Processed (g/t)
              2.8
              3.1
              3.2Recovery
      Rate (%)
              90%
              94%
              93%Production
      (ounces)
              8,437
              19,428
              30,290Tomi
      UndergroundTonnes
      Ore Mined
              61,031
              89,689
              72,177Tonnes
      Ore Processed
              65,334
              88,183
              63,319Average
      Grade of Ore Processed (g/t)
              7.0
              8.4
              10.2Recovery
      Rate (%)
              92%
              93%
              95%Production
      (ounces)
              13,551
              22,210
              19,811
 
 La
Victoria
 2007
              2006
              2005Tonnes
      Ore Mined
              128,676
              64,222
              24,892Tonnes
      Waste Mined
              557,657
              353,052
              126,704Strip
      ratio (Waste:Ore)
              4.3:1
              5.5:1
              5.1:1Tonnes
      Ore Processed
              125,903
              51,424
              25,649Average
      Grade of Ore Processed (g/t)
              2.9
              2.3
              2.02Recovery
      Rate (%)
              79%
              86%
              89%Production
      (ounces)
              9,356
              3,260
              1,491
 
 Gold
production in 2007 was 33,567 ounces, a reduction of 29% compared to 47,345
ounces produced in 2006.
 
 Lower
gold production in 2007 reflects reduced mining and processing activity, as well
as lower ore grades and gold recovery. Open pit mining was partially impacted by
heavy rainfall, poor equipment availability (particularly the long lead time
required to obtain a replacement drill compressor from the United States) and a
general reduction in productivity as the pits near depletion.  The
production of ore from the Tomi pits also declined due to higher strip ratios
(the ratio of waste mined to ore mined).  The strip ratio at the Tomi
pits increased from 10.0:1 in 2006 to 16.0:1 in 2007. The higher strip ratio in
2007 was due largely to deeper ore in both the Fosforito and McKenzie open pits
which require more waste removal prior to encountering the ore.  Also
contributing to the higher stripping ratio in 2007 was timing of mining of the
push-backs in both pits which saw most of the waste stripping completed in 2007
to uncover ore that is to be mined in 2008.   On the whole, in
2007, compared to 2006, there were fewer tonnes of waste and ore mined and a
greater proportion of tonnes mined were waste.
 
 Ore
processed declined by 15% in 2007 as a consequence of mining fewer tonnes of
ore.  Additionally, the grade of ore processed was 14% lower during
2007 compared to 2006.  Lower grades were primarily attributable to
the underground mine, where, in the current year, the ore feed to the mill is a
mixture of lower grade ramp development ore and stope ore, whereas in 2006, the
underground ore was all from the stopes, which tend to be higher grade than the
ore encountered during ramp development.
 
 Gold
recovery at the Revemin mill was also lower as a greater proportion of the ore
processed during 2007 was refractory ore from the La Victoria
deposit.  The refractory ore, which is less amenable to traditional
milling processes, has lower recovery rates than the non-refractory ore from the
Tomi deposits.
 
 8
  Operating
costs increased significantly in 2007 as a result of a general increase in the
cost of operating supplies, labour, higher mining contractor rates and higher
expenditures related to maintenance and repair of the processing plant (the
plant additions would typically be capitalized; however, are expensed due to the
short life of the operation).  For comparative purposes, if 2007 costs
are converted to USD using the same official rate as used in 2006, the total
cash cost per ounce in 2007 was $1,048 per ounce, an increase of 94% from $540
per ounce in 2006.
 
 At year
end 2007, there were two operating pits on the Tomi concession - Mackenzie and
Fosforito.  Fosforito is now depleted and mining will stop at
Mackenzie by mid 2008.  Mining operations are also being conducted at
the La Victoria pit.
 
 The
Company is evaluating a number of options for extending the life of the El
Callao operations beyond 2008.  The most significant project is the
expansion of the La Victoria pit.  The next phase of mining at La
Victoria requires diverting the Yuruari River.  The river diversion
and other associated project investments have a preliminary estimated capital
cost of approximately $9.0 million and no decision has been made on such a
project.  Based on the results from a 2004 drill program and
associated resource estimate, the river diversion project and expanding the pit
at La Victoria may add approximately 3 to 4 years of mine life to the El Callao
operations. The current phase of mining at La Victoria will continue until
November 2008.
 
 The
Company recently completed a drill program on the Fosforito pit at Tomi and the
results will be reviewed to determine if it will be feasible to expand the pit.
This is a relatively small project that, if undertaken, would require waste
stripping for most of the remainder of 2008 and would then produce ore into the
third quarter of 2009.
 
 The
Company is also drilling at the Tomi underground mine to determine the viability
of developing the mine below its current level. Mining on the current level will
be completed towards the end of the first quarter of 2008.  Ramp
development was suspended at the current level until the results of the drill
program are assessed.  Data should be available to make a decision on
expanding the underground mine by the end of the second quarter of 2008;
however, with the underground mine producing between 250 and 300 tonnes of ore
per day, the underground evaluation will need to access the availability of
additional sources of ore to maintain full capacity at the Revemin
mill.
 
 Drilling
is also underway on new targets identified in 2007 on the Tomi
property.
 
 Should
the Company not proceed with the La Victoria or Fosforito pit expansions, and if
it is not viable to operate Revemin with ore from the underground mine only,
production may cease at the El Callao operations by the end of
2008.
 
 Income
Statement
 
 Revenue
 
 Mining
revenue was $13.6 million in 2007, compared to $28.1 million in 2006 and $25.0
million in 2005.
 
 In
2007, gold sales were 32,815 ounces and the Company’s average realized gold
price was $413 per ounce, compared to sales of 48,570 ounces at an average
realized price of $578 per ounce for 2006, and 55,217 ounces at an average
realized price of $453 per ounce in 2005.  The realized price of gold
was significantly less in 2007 compared to 2006 due to the use of the higher
parallel rate of converting Bs to USD in 2007 as opposed to the official rate of
2,150 used in the translation from Bolivars (“Bs”) to USD in
2006.  Lower gold production in 2007 reflects progressively reduced
mining and processing activity, as well as lower ore grades and gold recoveries.
A higher realized gold price in 2006 more than offset the progressive reduction
in production from 2005 to 2006.
 
 The
Company sold its gold production to the Central Bank of Venezuela (“CBV”) for the first nine months of
2007.  Sales are based on the USD spot gold price at the time of
delivery; however, payment is received in Bs, with the USD revenues converted to
Bs at the official rate of 2,150Bs.  For USD reporting purposes, the
Bs are converted back to USD; however, the re-conversion uses the higher
parallel
  9
 (market)
rate, as the Company is not registered to apply to purchase USD at the official
rate of 2,150.  In practice, the Company is not buying USD, rather the
Bs received from gold sales are used to fund the El Callao
operations.   For reporting purposes, the conversion back to USD
results in reportable revenue and realized prices per ounce that are well below
the average USD spot gold rates for the 2007 periods.  For the 2006
and 2005 comparable years, the conversion to USD for reporting purposes was at
the official rate, thus the realized price per ounce figures are comparable to
the average spot gold prices for the applicable years in 2006 and
2005.
 
 In
order to maximize the Bs received from gold sales, the Company informed
Venezuelan authorities of its decision to sell its gold production to registered
local purchasers, as they buy the gold at a significant premium to the official
rate.  In October 2007, the Company commenced the sale of gold
production at El Callao to registered businesses at prices based on the USD spot
price of gold, with settlement in Bs pegged to the parallel rate instead of
selling to the CBV at the official rate.
 
 Venezuelan Exchange Controls
 
 In accordance with the Exchange Control
regulations in Venezuela, theCBVcentralizes the purchase and sale of foreign
currency in Venezuela which has been fixedsince 2003.  The current rate
of exchange is fixedat2,150(2.150 effective January 1,
2008)per United States
Dollar(“USD”).The Venezuelan government enacted the
Criminal Exchange Law that imposes strict sanctions for the exchange of
Venezuelan currency with other foreign currencies through other thandesignated methods. The exchange
regulations do not apply to certain securities which are traded within Venezuela
and on recognized exchanges outside Venezuela.  Therefore, the
purchase in one market and sale in the other market of these dual listed
securities provides an effective parallel
market for the Venezuelan currency.  The majority of the securities
that are so traded are issued by the Venezuelan government.
 
 The parallelor marketratein 2007 was volatile, but the trend has
been consistentlyhigher than the official
rate. As a result of this spread, transactions recorded and settled in Bs have
been converted to USD at the averageparallelexchange rate during 2007 instead of the
official rateas
usedin prioryears.Monetary itemsreported in Bs have been converted using the parallel
rate atyearend.During the third quarter of 2007 the
Company reviewed the accounting for foreign currency transactions in Venezuela
due to the increasing spread between the official rate and the parallelor marketrate in Venezuela. It wasdetermined that,as consequence of the rapid decline in
the valuation of the Venezuelan Bolivar,as reflected in the parallel market for
foreign currencies in Venezuela,the translatingfromBstoUSDusing the official rate wasno longer appropriate. As a result,the Companydetermined that amendments should be
reflected in the previously issued financial statements for the three and six
month interim periods ended March 31, 2007 and June 30, 2007, respectively, to
account for monetary,
income andexpense items at
the parallel or marketrate
prevailing at the respective dates of each.
 
 Exchange Controls Impact onRevenue and Operating
Costs
 
 The
Company sold its gold production to the CBV for the first nine months of
2007.  Sales to the CBV are based on the USD spot gold price at the
time of delivery; however, payment is received in Bs, with the USD revenues
converted to Bs by the CBV at the official rate of Bs 2,150. In 2006 and 2005,
for USD reporting purposes, the Company converted the Bs back to USD at the same
rate of 2,150 and, as a result, the reported realized price per ounce was
comparable to the actual average spot gold price for the
period.  However, with the parallel rate in 2007 materially above the
official rate and since the Company is not registered to purchase USD in
Venezuela at the official rate, it was determined that for 2007 USD reporting
purposes, the Company convert the Bs revenue back to USD using the higher
parallel rate.  (In practice, the Company does not convert the Bs
revenue to USD, rather the Bs are used to fund ongoing
operations).  As a consequence of receiving Bs at the official rate on
gold sales, then converting back to USD at the parallel rate for reporting
purposes, the Company’s 2007 reported USD revenue reflects a realized price that
is significantly below the average spot price for the year and below the actual
price realized for the year.  For example, the Company’s reported
realized price in 2007 is $413 per ounce as compared with the average annual
spot price of $695 per ounce on which the actual gold sales are
based.
  10
  Similarly, USD reported operatingcostsin 2007have been reduced as a result of
converting a portion of the costs to USDat the higher parallel rate in 2007
compared to theofficial
rate used in2006 and
2005.
 
 Operating
Expenses
 
 Mine
operations’ expenses were $19.6 million, $26.2 million and $22.1 million in
2007, 2006 and 2005, respectively.
 
 Similar
to revenues, operating expenses and unit operating costs in 2007 need to be
considered in light of the spread between the official rate and the parallel
rate. The 2007 USD reported costs have been reduced, in part, by the conversion
of some Bs costs to USD using the higher parallel rate as opposed to the
official rate used in 2006 and 2005. The total cash cost per ounce sold was $519
per ounce in 2007 compared to $540 per ounce in 2006 and $420 per ounce in
2005.  Using comparable conversion rates, the total cash costs for
2007 would have equated to $1,048 per ounce. The increase in unit operating
costs is attributable primarily to lower gold production and higher costs for
mining contractors, labour, maintenance and operating consumables.
 
 Amortization,
Depletion and Accretion related to Asset Retirement Obligations
 
 Amortization expense, related to the
Company’s El Callao operations,was$nil, $1.0millionand $2.4millionin 2007, 2006 and 2005, respectively.The reduction in
amortization expense reflects the full amortization of the carrying value of the
Revemin mill by theend of
the third quarter of 2006.Commencing in 2005, the Company decided
to amortize the remaining carrying value of the Revemin mill over a two year
period to reflect the estimate at the time of a two year life of reserves to be
processed at the mill.The
Revemin mill still continues to process ore at El Callao.
 
 The expense related to the
Company’s El Callao asset retirement obligations was $0.2 million,$0.3 millionand $0.3 millionin 2007, 2006 and 2005, respectively.
The current ore reserves at ElCallao are expected to be depleted in
November 2008. The Companywill be assessing the results of various
drill programs during the second quarter of 2008; however,at this time, it is uncertainwhetherthe El Callao operations will continue
beyond 2008.The Company
has also revised the previous estimates for minereclamationat El Callao. The increased estimates
and the earlier closure times have combined to increase the asset retirement
obligationsby $1.0million in 2007.
 
 There are no asset retirementobligations related to Las
Cristinas at present.
 
 Depletion expense, also related to the
Company’s El Callao operations,was$nil, $0.8 millionand $0.3 millionin 2007, 2006 and 2005, respectively.
These results reflect the decision to write-down all ofthe mineral properties at El Callao by
the end of 2006.
 
 Corporate
General and Administrative Expenses
 
 Corporate
General and Administrative expenses were $21.7 million in 2007 compared to $22.9
million in 2006. In 2007, an increase in payroll expenses related to severance
payments to a former executive were more than offset by a reduction in legal
expenses.
 
 Comparing
expenses of $22.9 million in 2006 with expenses of $23.1 million in 2005, higher
legal fees, principally related to the Las Cristinas project, were partially
offset by a decrease in capital taxes, payroll and travel expenses.
 
 Corporate
General and Administrative expenses include $3.1 million (2006: $2.5 million;
2005: $3.7 million) of stock-based compensation.
 
 11
  Interest
Expense
 
 Interest
expense was $13.0 million, $12.9 million and $11.8 in 2007, 2006 and 2005,
respectively. These amounts include interest accretion of approximately $3.6
million in 2007, $3.0 million in 2006, and $2.7 million in 2005, on the senior
unsecured $100 million notes and on the Standard bank debt up to early 2007,
both of which are instruments with debt and equity components. Interest expense
for all three years includes semi-annual cash payments of $4.7 million on the
$100 million notes which bear interest at 9.375% per annum and payable
semi-annually. The decrease in interest expense from 2006 to 2007 reflects
repayment of the Standard Bank debt in 2006 and 2007. The increase in interest
from 2005 to 2006 was primarily due to the fact that the restructured Standard
Bank debt, which was entered into in December 2005, was interest bearing
throughout 2006.
 
 Foreign
Exchange Gains
 
 Foreign exchange
gains include unrealized non-cash amounts of $14.3 million, $Nil, and $1.4
million in 2007, 2006 and 2005, respectively. These were derived from the
translation into U.S. dollars at the end of each respective year of certain
Venezuelan denominated future income tax liabilities in connection with
expenditures on the Las Cristinas Project.The
resulting future tax liability is subject to foreign exchange translation gains
and losses at each reporting period when it is re-valued into US dollars.
The Venezuelan year end foreign exchange spot rate used to translate Venezuelan
Bs to USD changed significantly from 2,150 Bs in 2006 to 5,500 Bs in 2007 to the
USD, resulting in the opening balance future tax liability being reduced by
$14.3 million and a corresponding unrealized foreign exchange gain being
recorded in 2007. There was no such gain in 2006 as the exchange rate in effect
in both 2006 and 2005 was at 2,150 Bs to the USD. The foreign exchange rate in
2004 was 1,920 Bs compared to 2,150 Bs in 2005 resulting in a $1.4 million
unrealized gain being recorded in 2005. See Notes 10 and 11 to the 2007
Consolidated Financial Statements for additional information relating to the
accounting for future income tax liabilities and restatement of prior
years.
 
 Liquidity
and Capital Resources
 
 Crystallex’s
principal sources of liquidity have been equity and debt financings. The Company
does not expect to generate positive cash flow after operating and corporate
general and administrative expenses until the Las Cristinas project is operating
at full capacity.
 
 After receipt of the Las CristinasPermit, the Company will determine its overall
funding requirements to cover the period throughcommercial production of Las Cristinas.
The funding requirement will include the balance of capital required to complete
the development of Las Cristinas, and funds to meet the Company’s general and administrative expenses,
debt service and financing fees.The Company intends to funditsoverall requirement with existing cash
andis considering various
financing alternatives includingpublic market debt,limited recourse project debt andequity.
 
 12
  Cash
and Cash Equivalents
 
 On
December 31, 2007, the Company had cash and cash equivalents of $16.1 million,
as compared with $28.6 million at December 31, 2006.
 
 The
change in the cash balance during 2007 is reconciled as follows ($
millions)
 
 Cash
      and cash equivalents, December 31, 2006
                
                $
                28.6Cash
      used in operating activities
                
                
                (34.3
                )Capital
      expenditures – Las Cristinas
                
                
                (26.9
                )Principal
      debt repayments
                
                
                (3.6
                )Total
      uses of cash and cash equivalents
                
                
                (64.8
                )Cash
      from issuance of common shares
                
                
                52.8Effect
      of exchange rate fluctuations on cashand
      cash equivalents
                
                
                (0.5
                )Cash
      and cash equivalents, December 31, 2007$
                
                $
                16.1
  At
December 31, 2007, the Company’s debt consisted of face value $100 million of
9.375% senior unsecured notes (the “Notes”) due December 2011. The Company may
redeem the Notes, in whole or in part, at any time after December 31, 2008 at a
redemption price of between 100% and 102% of the principal amounts of the Notes,
depending on the redemption date, plus accrued and unpaid interest and
additional interest, if any, to the date of the redemption.
 
 Cash
Flow used in Operating Activities
 
 Cash
flow used in operating activities is principally affected by general and
administrative expenditures, interest expense, the level of gold sales, realized
gold prices, cash operating costs, and movements in non-cash working
capital.
 
 The
2007 cash flow deficit from operations of $34.3 million reflects the following
approximate items - cash required to fund the operating deficit of $7 million at
El Callao, general and administrative expenses of $19 million, interest expense
of $9 million, and net of cash inflows from interest income of $1
million.
 
 The
2006 cash flow deficit from operations of $30.7 million reflects the following
approximate items - cash required to fund the operating deficit of $2 million at
El Callao, general and administrative expenses of $20 million, interest expense
of $10 million, and net of cash inflows from interest income of $1
million.
 
 The
2005 cash flow deficit from operations of $34.3 million reflects the following
approximate items - cash required to fund general and administrative expenses of
$20 million, interest expense of $9 million, commodity contract settlements of
$12 million and net of cash inflows from El Callao of $1 million, interest
income of $2 million and $4 million from working capital changes.
 
 Investing
Activities
 
 Cash
used for capital expenditures for the Las Cristinas project was $26.9 million in
2007 compared with $49.8 million in 2006 and $92.8 million in
2005.  In 2006 and 2005, the Company incurred additional capital
expenditures of $0.9 million and $9.9 million related to the El Callao
properties, respectively.
 
 Capital
spending at Las Cristinas has declined since peaking in 2005.  Reduced
spending in 2006 and 2007 reflect progressively lower expenditures for
engineering services and equipment procurement.    The
majority of the engineering design and equipment procurement was undertaken in
2005.  Reduced expenditures are also due to the delay in receiving the
Permit required for commencing site construction
  13
  activities.
With the exception of exploration drilling costs, the majority of 2007
expenditures represent ongoing costs for administering, securing and maintaining
the Las Cristinas camp and for off-site equipment storage.
 
 Since
April 2004, expenditures on Las Cristinas total approximately $206
million.  A Technical Report filed on SEDAR on November 7, 2007
included an updated capital estimate for Las Cristinas of $356
million.  Subsequent to receipt of the Permit and renegotiation of the
commercial terms of the major earthworks contracts that were awarded in 2005, a
further update of capital costs will be undertaken.
 
 The
Company has spent approximately $102 million on items included in the $356
million capital estimate.  The balance of $254 million is related to
expenditures to be incurred during the construction phase that will commence
once the Permit is received.  Ongoing expenditures prior to receipt of
the Permit are not included in the construction estimate.  Ongoing
costs include site security, camp catering, equipment storage, general site
administration, environmental, and social and community development
programs.
 
 Equipment
which cost approximately $64 million is in storage, principally in Houston
(USA), Antwerp (Belgium) and Cape Town (South Africa) and will remain in storage
until the commencement of construction at Las Cristinas.
 
 Financing
Activities
 
 On
February 11, 2008, the Company completed a public offering of 32,890,000 units
at C$2.10 per unit for gross proceeds of C$69,069,000, including 4,290,000 units
issuable upon the exercise of the over-allotment option by the syndicate of
underwriters. Each unit consists of one common share of Crystallex and one-half
of one common share purchase warrant. Each whole warrant entitles the holder to
purchase a further common share of Crystallex at an exercise price of C$3.00 for
a period expiring on the later of: (i) 18 months from the closing date of the
offering which occurred on February 11, 2008 and (ii) six months following the
Permit date, where the Permit date is the 45th day following the receipt by
Crystallex of the Permit. The Company paid underwriting fees of
C$4,144,140.
 
 On
April 24, 2007, the Company closed a public offering of 14,375,000 common shares
(including 1,875,000 common shares issuable upon the exercise of an
over-allotment option by the underwriters) at C$4.25 per share.  Net
proceeds to the Company were $50.7 million.
 
 The
Company fully repaid the $3.6 million outstanding balance of the Standard Bank
loan by the end of the second quarter of 2007.
 
 In
January 2007, the Company issued 245,710 common shares to settle $0.9 million of
the outstanding $1.8 million of exchangeable promissory notes due to Corporacion
Vengroup, S.A., (“Vengroup”).  In July 2007, the Company issued
215,190 common shares to Vengroup to settle the remaining $0.9 million balance
of the exchangeable promissory notes.
 
 14
  Contractual
Obligations and Commitments
 
 The
Company’s contractual obligations and commitments on an undiscounted basis, as
at December 31, 2007, are tabled below:
 
 $
      millions
              Less
      than One Year
              1
      - 3
                Years
              4
      - 5
                Years
              More
      Than 5 Years
              TotalLong
      Term Debt Repayments
              $     -
              $      -
              $100.00
              $      -
              $100.00Asset
      Retirement Obligations
              0.70
              2.70
              -
              -
              3.40Operating
      Lease Obligations and Social Commitments
              3.08
              0.10
              0.01
              -
              3.19Total
      contractual obligations
              $3.78
              $2.80
              $100.01
              $      -
              $106.59
 
 Under
the terms of the Las Cristinas Mining Operation Contract with the CVG dated
September 17, 2002 the Company has undertaken to make all investments necessary
to develop and exploit the Las Cristinas deposits.  As described
above, a further $254 million is expected to be spent on Las Cristinas to meet
this obligation.
 
 The
Company has royalty commitments that are only payable if gold is
produced.  There is no obligation to make payments if gold is not
produced.  Currently, the Company’s gold production is from the Tomi
and La Victoria concessions, which are subject to a 1.75% royalty on gold
revenue.  All gold production in Venezuela is subject to an
exploitation tax, established under the Mining Law, which is payable to the
Republic of Venezuela.  The exploitation tax is presently 3% of gold
revenue.
 
 In the
normal course of business, the Company has entered into contracts that contain
commitments to pay amounts dependent upon future events.  Such
amounts, if any, are not determinable by the year end; consequently, no amounts
have been accrued in the financial statements with respect to these
commitments.
 
 Off-Balance
Sheet Arrangements
 
 The
Company does not enter into off-balance sheet arrangements with special purpose
entities in the normal course of business.
   15
  Related
Party and Other Transactions
 
 The
Company entered into the following transactions with related and other
parties:
 
 a)
              Paid
      underwriting and consulting fees of $3.4 million in 2007 (2006 - $2.9
      million; 2005 - $0.1 million) to Macquarie Capital Markets Canada Ltd.
      (“Macquarie”) (formerly Orion Securities Inc.) which retains the Chairman
      of the Company as an employee. In February 2008 the Company paid to
      Macquarie, underwriting fees of $2.3 million relating to the public
      offering of units which closed on February 11,
  2008.
 
 b)
              Paid
      consulting fees of $0.09 million in 2007 to Kingsway Capital of Canada
      Inc. which retains the Chairman of the Company as a
    director.
 
 c)
              Paid
      legal fees of $0.7 million in 2005 to a law firm, while a partner of whom
      was a director of the Company.
 
 The
amounts charged to the Company for the services provided have been determined by
negotiation among the parties.  These transactions were in the normal
course of operations and were measured at the exchange value which represented
the amount of consideration established and agreed to by the related
parties.
 
 Fourth
Quarter results
 
 The
Company recorded a net loss in the fourth quarter of 2007 of $8.8 million
(($0.03) per share)  which  is principally attributable to
the aggregate of corporate general and administrative costs, interest
expense  and losses at the El Callao mining operations.
 
 Revenue
from gold sales increased to $4.8 million in the fourth quarter compared to $2.2
million in the third quarter of 2007. The increase in gold sales reflects higher
gold production, which was attributable to mining and processing more ore,
combined with higher ore grades, less stripping and sales of gold to local
buyers for higher proceeds rather than to the Central Bank of Venezuela at the
official rate.
 
 Cash flow used in operating activities
was a deficit of $3.1million for thefourth quarter of2007 as compared with a deficit of
$8.2million for thethird quarter of 2007.  The cash flow deficitfrom operationsin thefourth quarter of2007 was largely attributable to
$5.5million of corporate
generaland
administrative
expenseswhich includes
stock compensation expense of $1 million,$2.0million loss at El Callaobefore non cash adjustments, and positive cash flows of
$4.4million relating to working capital
items.
 
 Expenditures at Las Cristinas totalled
$5.5 millionduring the
fourth quarter of 2007. These expenditures were principally related to
operating the Las Cristinas camp and $0.9 million for the acquisition of
additional long lead time equipment.
 
 There
was a nominal increase in cash from financing activities due to the exercise of
2,500 stock options in the fourth quarter of 2007.
 
 The
Company conducted a study on its mine closure obligations in El Callao in the
fourth quarter of 2007. This study was based on closure plans submitted to the
Venezuelan authorities in 2007. The plan identified increased obligations
relating to re-vegetation of the tailings dam. Accordingly, this increase plus
increased costs for all items identified in the plans resulted in a $1.0 million
increase over the previous year’s estimates. Since all of the capital assets at
El Callao are written off due to a lack of reportable reserves to support their
carrying values, this increase has been recorded in operations expense in the
fourth quarter of 2007.
 
 As
described in detail in the subsequent section on restatement of prior periods,
the Company increased the carrying value of Las Cristinas by $32 million of
which $27 million related to the restatement of
  16
  2006
balances. Future tax liabilities and unrealized foreign exchange gains were
recorded in the current and prior years as detailed in Notes 10 and 11 to the
2007 Consolidated Financial Statements.
 
 Restatement
of Previous 2007 Quarters and December 2006 Financial Statements
 
 During the third quarter of 2007 the
Company reviewed the accounting for foreign currency
transactionsin Venezuela due to the increasing spread between the
official rate and the parallel or market rate in Venezuela. It has been
determined that as a consequence of the rapid decline in the valuation of the
Venezuelan Bolivars as reflected in the parallel market for foreign currencies
in Venezuela that the method of translation from Bolivars to United States
Dollars using the official rate was no longer appropriate in the circumstances.
As a result of this review, management determined that amendments should be
reflected in the previously issued financial statements for the three and six
month interim periods ended March 31, 2007 and June 30, 2007, respectively, to
account for monetary, income and expense items at the parallel or market rate
prevailing at the respective dates of each.
 
 During
2007, the Company reviewed its accounting policy relating to the capitalization
of interest costs incurred during the period of development on qualifying
mineral properties.  As a result of this review, the Company
determined that certain interest costs should be capitalized under U.S. GAAP
during the period of construction and development on its Las Cristinas project.
Under Canadian GAAP these costs will continue to be expensed as incurred.
Accordingly, note 19 to the December 31, 2006 audited consolidated financial
statements have been restated to give effect to the capitalization of interest
to the qualifying Las Cristinas project. These financial statements have been
adjusted and re-issued and the restated figures have been incorporated in the
2007 consolidated financial statements.
 
 In
2007, the Company reviewed its accounting practices in respect of certain
expenditures made in connection with its Venezuela Branch but funded by its
Canadian operations with respect to Las Cristinas. The Company determined that
such expenditures, previously treated as deductible for tax purposes, that have
been capitalized in the Canadian operations may not be deductible in Venezuela
thereby creating a difference between their accounting and tax values in
Venezuela. For Canadian GAAP purposes, the amounts determined to be potentially
non-deductible as at December 31, 2007 totalled $52.3 million of which $39.4
million related to 2006 and prior years. The Company recorded future tax
liabilities of $14.2 million and $23.5 million in 2007 and 2006, respectively.
Due to the decline in the in the parallel rate of the Venezuelan Bolivars to the
USD, there is a resultant unrealized foreign exchange gain on the opening future
income tax liabilitiesupon revaluation into
US dollars. The Company recorded unrealized foreign exchange gains in
2005 and 2004 due to changes in foreign exchange rates. There were no unrealized
foreign exchange gains relating to future tax balances in 2006 as the foreign
exchange rates were the same in 2006 and 2005 result. The Q1, Q2 and Q3 2007
previously reported net losses have been amended to reflect the effects of
unrealized foreign currency translation gains. The Q1 2007 results were
significantly impacted due to the change in Bs rate to the USD from 2,150 at
December 31, 2006 to 3,650 at March 31, 2007. The rate changed to 4,100, 5,010
and 5,500 at the end of Q2, Q3, and Q4 2007, respectively. Accordingly,
unrealized foreign currency translation gains of $9.3 million, $1.6 million,
$2.5 million and $1.0 million were recorded at the end of Q1, Q2, Q3 and Q4
2007, respectively.
 
 The
estimated future income taxes represent a net accounting entry derived from the
current lack of deductibility in the Venezuela Branch of certain expenditures
related to Las Cristinas which were funded by the parent entity in Canada. These
costs will be amortized for accounting purposes but may not be for income tax
purposes. Accordingly, the future income taxes represent an undiscounted
estimate of the tax effect of this difference, and therefore are not payable at
the present.
 
 Critical
Accounting Estimates
 
 Critical
accounting estimates are those estimates that have a high degree of uncertainty
and for which changes in those estimates could materially impact the Company’s
results. Significant estimates used include those relating to the timing and
receipt of the Las Cristinas Permit to construct, gold prices, recoverable
proven and probable reserves, available resources, available operating capital,
fair value of stock options and warrants, income taxes and required asset
retirement obligations.  These estimates
  17
  each
affect management’s evaluation of asset impairment and the recorded balances of
inventories, site closure and asset retirement obligations
 
 Adoption
of New Accounting Policies
 
 On
January 1, 2007, the Company adopted three new accounting standards that were
issued by the Canadian Institute of Chartered Accountants, (“CICA”): (i)
Handbook Section 1530 Comprehensive Income, (ii) Section 3855, Financial
Instruments – Recognition and Measurement, (iii) Section 3865,
Hedges.  These standards were adopted prospectively, and accordingly,
the comparative amounts for the prior periods have not been
restated.  There is no material impact to the Company’s financial
statements on adoption of these new standards except for the reclassification of
deferred financing fees as an offset to long-term debt.
 
 In
2007, the CICA issued Handbook Section 3862, Financial Instruments –
Disclosures, and Handbook Section 3863, Financial Instruments – Presentation,
and Handbook Section 1535, Capital Disclosures.  Handbook Sections
3862 and 3863 together supersede Handbook Section 3861, Financial Instruments –
Disclosure and Presentation and provide disclosure and presentation requirements
for financial instruments.  Handbook Section 1535, Capital Disclosures
specifies the disclosure of (i) an entity’s objectives, policies and processes
for managing capital; (ii) quantitative data about what the entity regards as
capital; (iii) whether the entity has complied with any capital requirements;
and (iv) if it has not complied, the consequences of such non compliance. These
new standards apply to interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007 with early adoption
permitted. The Company has elected to apply these standards for the year-ended
December 31, 2007.
 
 Future
accounting pronouncements
 
 The
CICA issued new accounting standards 1400, 3031 and 3251 which are effective for
interim and annual consolidated financial statements for the Company’s reporting
period beginning on January 1, 2008, and 3064 which may affect the financial
disclosures and results of operations of the Company for interim and annual
periods beginning January 1, 2009.
 
 The
company has not yet assessed the impact of Sections 1400, 3031, 3064 and 3251 on
its consolidated financial statements
 
 Under
3064 and as a result of the withdrawal of EIC 27, the Company will no longer be
able to defer costs and revenues incurred prior to commercial production at new
mine operations.
 
 Refer
to Note 3 to the 2007 consolidated financial statements for details of these new
accounting standards.
 
 Financial
Instruments
 
 The
balance sheet carrying amounts for cash and cash equivalents, accounts
receivable and accounts payable and accrued liabilities approximate fair value
due to their short-term nature.  The estimated fair value of debt is
$82,000,000 (2006: $84,878,219) and is determined by discounting the contractual
cash flows using market interest rates for debt with similar terms and
risks.
 
 Outstanding
Share Data
 
 A
summary of common shares, common share options and common share purchase
warrants at March 31, 2008 are tabled below:
 
 Common Shares Issued
              294,670,845Common Share Options
              12,388,088Warrants
              29,570,000Fully Diluted Common Shares
              336,628,933
  18
  Controls
and Procedures
 
 The
Company maintains disclosure controls and procedures which are designed to
provide reasonable assurance that information required to be disclosed by the
Company is recorded, processed, summarized and reported within the time periods
specified by regulations. The Company performed an evaluation, under the
supervision and participation of management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of its disclosure controls and procedures as of the end of the period
covered by this report. Based on this evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were not effective as of the end of the period covered by this report
due to the reasons described in “Internal Control Over Financial Reporting.” The
steps taken by management of the Company to address each of these areas of
weakness are also described under the heading “Management's Plans to Remediate
Material Weaknesses”.
  Internal Control over Financial
Reporting
  The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting. Any system of internal control over
financial reporting, no matter how well designed, has inherent limitations.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation.
 
 As of
December 31, 2007, Management evaluated the Company’s internal controls over
financial reporting (“ICFR”), as defined under Multilateral Instrument 52-109 –
Certification of Disclosure in Issuer’s Annual and Interim Filings of the
Canadian Securities Administrators.  For the purposes of Management’s
evaluation, a weakness in the Company’s ICFR would be considered to be a
“material weakness” if the weakness was a significant deficiency, or a
combination of significant deficiencies, that resulted in there being more than
a remote likelihood that a material misstatement of the annual or interim
financial statements would not be prevented or detected on a timely basis by
Management or employees in the normal course of performing their assigned
functions.
 
 In
making its assessment of the Company’s ICFR as of December 31, 2007, Management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework. As of
December 31, 2007, Management identified the material weaknesses in the
Company's ICFR as described below.
 
 Previously
Reported:
 
 Management
identified as of December 31, 2006 the following material
weaknesses:
 
 1.           Override
and Monitoring of Established Controls:   During the process of
review and evaluation, it was determined that certain weaknesses existed which
resulted in local management of the Company’s Venezuelan branch having the
ability to override established internal controls relating to the granting of
service contracts and approval of completion of contractual service
work.  This weakness had the potential to result in material
misstatements in the Company’s consolidated financial statements.
 
 To
address this weakness, Management has implemented additional controls around the
granting of service contracts and the required approvals of completion of
contractual service work performed to ensure the completeness and
appropriateness of all amounts recorded in the Company’s consolidated financial
statements.  Testing revealed these new controls were not operating
with 100% consistency.  We are continuing to educate and emphasize the
importance of these controls.
 
 2.           Tax
Obligation:   Management concluded that, as of December 31, 2006,
a weakness existed in ICFR caused by a lack of competent staff in place at its
Venezuelan subsidiaries to ensure the Company appropriately recorded and
disclosed taxation related matters in preparing its consolidated financial
statements with respect to various types of tax obligations in
Venezuela.
 
 19
  Management
has fully remediated this problem by hiring a qualified tax manager in Venezuela
to ensure the Company’s Venezuelan tax obligations are appropriately recorded
and disclosed in the Company’s consolidated financial statements.
 
 3.           Complex
Accounting Issues – US GAAP:  Management had concluded that, as of
December 31, 2006, the Company did not have adequate levels of expertise with
respect to US GAAP complex accounting issues.  This weakness has the
potential to result in material misstatements in the Company’s US GAAP
reconciliation note in its financial statements.
 
 Management
has fully remediated this weakness through the hiring of qualified staff with
proficiency and experience in US GAAP.  Staff is being supported in
their professional development activities to gain additional competence in US
GAAP.  The Company has made arrangements to access appropriate
external advisors to review on an as needed basis all US GAAP accounting matters
relating to the Company’s consolidated financial statements.
 
 4.           Segregation
of Duties:  During the process of review and evaluation Management
concluded that, as of December 31, 2006, a weakness existed in ICFR caused by a
lack of adequate segregation of duties in the preparation, review and approval
of subsidiary operating results which are included in the Company’s consolidated
financial statements.
 
 Management
has fully remediated this weakness by hiring additional competent staff at the
subsidiary level and changing the review and approval procedures in the
preparation of subsidiary operating results.  Management continues to
perform additional procedures in relation to the subsidiary operating results
included in the Company’s consolidated financial statements.
 
 Current
Year:
  As
enunciated below, the Company has determined that internal control over
financial reporting was not effective in preventing possible material
misstatements without further substantive work. Accordingly, additional
substantive procedures were applied subsequently to provide assurance that such
misstatements do not exist, and accordingly believes that the consolidated
financial statements are now free from material misstatements. In addition, the
Company has commenced a number of remediation steps to rectify such weaknesses
in order to diminish the possibility of a material misstatement in 2008. These
are outlined below.
  Management
has identified as of December 31, 2007 the following material
weaknesses:
 
 (a)           There
are insufficient controls to monitor and prevent the override of established
controls at the Company’s subsidiaries with respect to existing policies and
procedures, communication of the delegation of authority and the timeliness of
financial analysis and reporting, primarily in remote locations.
 
 (b)           The
Company did not consistently maintain implementation of effective controls over
the purchasing function relating to the documentation of the arrangements
with certain suppliers at the parent entity level and the authorization and
approval of both suppliers and services at remote locations.
 
 (c)           The
Company did not design and maintain effective controls over the identification
and recognition of timing differences in accounting for future income taxes.
This resulted in an audit adjustment to the Company’s December 31, 2007
consolidated financial statements and the restatement of the Company’s December
31, 2006 and 2005 consolidated financial statements with respect to mineral
properties, future income taxes and operations.
 
 Each of
these material weaknesses could result in a material misstatement to the
Company’s annual consolidated financial statements that would not be prevented
or detected.  Material weaknesses (a) and (b) noted above could also
result in unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the consolidated financial
statements.
 
 20
  As a
result of the material weaknesses described above, Management has concluded
that, as at December 31, 2007, the Company’s internal control over financial
reporting was not effective.
 
 The effectiveness
of the Company’s internal control over financial reporting as at December 31,
2007 has been audited by PricewaterhouseCoopers LLP, our independent auditors,
as stated in their report which appears herein.
  Management’s
Plans to Remediate Material Weaknesses
  Management, under the Board’s
direction, has undertaken significant additional work to ensure the consolidated
financial statements are free from material misstatement that maynot
have been prevented or detected as a result of the material weaknesses
noted.  Furthermore, Management has identified and commenced the
implementation of additional internal control procedures, particularly in remote
locations, to ensure the acquisition, use or disposal of the Company’s assets
are appropriately authorized.
 
 Management
has taken the following steps to address the weaknesses identified:
 
 (a)           Monitoring
and override of established controls:     Management
continues to work with the subsidiary managers, particularly at remote
locations, to ensure corporate policies and internal control procedures are
respected by all and information is provided on a timely
basis.  Training and coordination of activities amongst the senior
managers of the subsidiaries is ongoing.
 
 (b)           Controls
over the purchasing function:     Management has begun
a process of renewing and updating the physical documentary support for existing
service providers and suppliers and establishing a regimen of pre-qualifying
potential new service providers and suppliers. Management has implemented
additional controls at the subsidiary level to ensure appropriate approval and
timely authorization of suppliers.  We are continuing to reinforce
compliance with these controls.
  (c)           Controls
over accounting for income tax timing
differences:     Management continues to work with
independent expert advisors, in both Canada and Venezuela, to ensure the timely
identification of those items giving rise to timing differences for income tax
purposes.   Management has implemented controls to ensure the
valuation basis, for both accounting and tax reporting purposes, of the
Company’s assets, is identified, recorded and retained for financial reporting
purposes.
  
 21
  Risk
Factors
 The
business and operations of the Company and its affiliates are subject to risks.
In addition to considering the other information in the Company’s 2007 Annual
Information Form, which is available on SEDAR at www.sedar.com,
an investor should carefully consider the following factors. Any of the
following risks could have a material adverse effect on the Company, its
business and future prospects.
 
 Risks
Associated with Operating in Developing Countries
 The
Corporation’s mineral exploration and mining operations are located in Venezuela
and may be adversely affected by political instability and legal and economic
uncertainty that might exist in such country. The risks associated with the
Corporation’s foreign operations may include political unrest, labour disputes,
invalidation of governmental orders, permits, agreements or property rights,
risk of corruption including violations under U.S. and Canadian foreign corrupt
practices statutes, military repression, war, civil disturbances, criminal and
terrorist actions, arbitrary changes in laws, regulations and policies,
taxation, price controls, exchange controls, delays in obtaining or the
inability to obtain necessary permits, opposition to mining from environmental
or other non-governmental organizations, limitations on foreign ownership,
limitations on the repatriation of earnings, limitations on mineral exports,
high rates of inflation and increased financing costs. These risks may limit or
disrupt the Corporation’s projects or operations, restrict the movement of funds
or result in the deprivation of contractual rights or the taking of property by
nationalization, expropriation or other means without fair
compensation.
  Risks Specific to Operations
inVenezuela
  Political
and Economic Instability
  The
Corporation’s mineral properties are located in Venezuela and as such the
Corporation may be affected by political or economic instabilities there. The
risks associated with carrying on business in Venezuela, in addition to those
highlighted above, include, but are not limited to violent crime, which is
prevalent throughout the country and includes kidnapping, smuggling and drug
trafficking especially in remote areas. Changes in resource development or
investment policies or shifts in political attitudes in Venezuela may adversely
affect the Corporation’s business. Operations may be affected in varying degrees
by government regulations with respect to restrictions in production, price
controls, export controls, exchange controls, income taxes, expropriation of
property, maintenance of claims, environmental legislation, land use,
unauthorized mining activities, land claims of local people, water use and mine
safety. The effect of these factors cannot be accurately predicted.
  Environmental
Permit Still Required
  MIBAM
completed its overall approval process of Las Cristinas on March 26, 2006. On
June 14, 2007 the Company announced that it received written notice from the CVG
that all the requirements for the issuance of the Las Cristinas Permit from
MinAmb had been fulfilled.  The CVG confirmed that MinAmb’s approval
of the Las Cristinas Environmental Impact Study, together with Crystallex’s
payment of certain taxes and posting of a Compliance Guarantee Bond, as
requested by MinAmb, represented the final steps in the process for the issue of
the Permit.  CVG’s notice to the Company was based on a formal notice
the CVG received from MinAmb, which stated that the Permit would be issued
following the payment of the taxes and the posting of the
bond.  Development of Las Cristinas and the ultimate commencement of
commercial production are dependent upon receipt of the Permit, which will allow
the Corporation to proceed to put in place financing to fund construction. As
the Las Cristinas project is the Corporation’s primary project, the continued
delay in receipt of the Permit could have a material adverse effect on the
future of the Corporation’s business, and may result in the need for additional
financing.  There can be no assurance as to when or if the Permit will
be granted.
  Exchange
Controls
  Venezuela
currently has exchange controls that affect the ability of companies doing
business in Venezuela to convert Venezuelan source income into foreign currency.
The Central Bank of Venezuela enacted such exchange control measures in 2003 in
order to protect international reserves. The
  22
  exchange
rate, originally fixed at approximately 1.6 Bolivars /U.S.$, has since been
adjusted twice upwards and presently stands fixed at 2.15 Bolivars/U.S.$. There
can be no assurance that exchange controls will not continue and, if they do,
that they will not adversely affect the Corporation’s operations, including its
ability to satisfy its foreign currency obligations.
  Mining
Operation Contract
  Lack
of Ownership Rights
  Under
the Venezuelan Mining Law of 1999 (“VML”), all mineral resources
belong to the Republic of Venezuela.  In accordance with the VML, the
Government of Venezuela has reserved for itself the right to directly explore
and exploit the Las Cristinas deposits and has elected to do so through the
CVG.  See “Las Cristinas Project – Mining Operation Contract” in the
AIF.  The Mining Operation Contract is an operation agreement and does
not transfer any property ownership rights or title rights to the gold produced
to the Corporation.  Rather, the Corporation has been authorized to
exploit the Las Cristinas deposits for the CVG in accordance with the Mining
Operation Contract.  The interests of the Corporation in the Las
Cristinas deposits are contingent upon the Corporation continuing to satisfy its
obligations under the Mining Operation Contract.  Failure to do so
could result in the CVG having the right to terminate the Mining Operation
Contract.  In addition, the CVG is party to an agreement dated May 16,
2002 with MIBAM.  As the CVG’s rights thereunder are contingent upon
the CVG continuing to satisfy its obligations, while the Corporation has no
reason to believe the CVG is not performing its obligations thereunder, any
failure to do so could result in MIBAM having the right to terminate such
agreement, thereby effectively terminating the Mining Operation
Contract.
  Lack
of Copper Rights
  In
addition to gold, the Las Cristinas deposits also contain very low levels of
copper, 0.11% on average.  Under the Mining Operation Contract, the
Corporation is only entitled to exploit the gold contained in the Las Cristinas
deposits.  Based on the feasibility studies carried out by the
Corporation and following discussions with the CVG, the Corporation has
determined that exploiting the copper contained in the Las Cristinas deposits
would detract from the economics of the Las Cristinas
project.  Furthermore, it may not be technically viable to produce a
marketable copper concentrate from the main Las Cristinas deposit as the copper
is too low grade.  The Corporation does not need the right to exploit
the copper contained in the Las Cristinas deposits in order to exploit the gold
and does not currently intend to negotiate with the CVG for the right to exploit
the copper contained in the Las Cristinas deposits.
 
  Although
the Corporation does not believe that the MIBAM would do so, the MIBAM retains
the right to grant exploitation and other rights with respect to the copper
contained in the Las Cristinas deposits to the CVG or a third
party.  The Corporation has been advised by its Venezuelan counsel
that:
  (a)
              if
      the MIBAM grants the right to exploit the copper contained in the Las
      Cristinas deposits to the CVG, subject to fulfilling all necessary
      requirements of Venezuelan law (including the additional grant by the
      MIBAM to the CVG of the right to negotiate the exploitation of the copper
      with third parties), the CVG has agreed under the terms of the Mining
      Operation Contract to negotiate the exploitation of the copper with the
      Corporation; and
 (b)
              if
      the MIBAM grants the right to exploit the copper contained in the Las
      Cristinas deposits to a third party, the Corporation’s right under the
      Mining Operation Contract to exploit the gold contained in the Las
      Cristinas deposits would, as a matter of Venezuelan law, take precedence
      over the third party’s right to exploit the
  copper.
  If the
MIBAM grants the right to exploit the copper contained in the Las Cristinas
deposits to the CVG, there can be no assurance that the MIBAM will grant to the
CVG the additional right to negotiate the exploitation of the copper with third
parties or that the Corporation will be able to negotiate an agreement with
respect to the exploitation of the copper with the CVG.  Also, if the
MIBAM grants the right to exploit the copper contained in the Las Cristinas
deposits to a third party, or if the MIBAM grants the right to exploit the
copper contained in the Las Cristinas deposits to the CVG and the CVG grants the
right to exploit the copper to a third party, there can be no assurance that the
Corporation will be successful
  23
  under
Venezuelan law in asserting that its right to exploit the gold contained in the
Las Cristinas deposits takes precedence over the third party’s right to exploit
the copper.
  Proposed
Amendments to Mining Laws
  The
Corporation’s business may be affected by amendments or changes to mining laws,
regulations and requirements in Venezuela.  At any time, a number of
draft mining laws may be proposed.  There is no assurance when or if a
draft mining bill will be enacted into law or what the final provisions of such
law will be, if enacted.  Any changes to current Venezuelan mining law
may adversely affect the Corporation’s ability to develop and operate the
Corporation’s Venezuelan properties.
  On
February 1, 2007 the National Assembly of the Republic of Venezuela issued the
“Law which Authorizes the President of the Republic to Issue Decrees with Rank
and Force of Law in those Matters Delegated” (the “Decree Law”), which empowers
the President of Venezuela to approve changes to certain laws without consulting
Congress for a period of 18 months. The Decree Law does not include any direct
mention of, or references to, mining matters and, accordingly, such matters
remain within the exclusive competence of the National Assembly.  In
order for amendments to the mining law to be enacted into law, it must be
accepted in the Venezuelan National Assembly and undergo a review by the
Permanent Commission of Energy and Mines.  The detailed provisions of
the Draft Mining Bill are then debated in the National Assembly, and finally the
Draft Mining Bill must be approved by the President of Venezuela. There is no
assurance that the Government of Venezuela will not issue further decrees or
otherwise attempt to modify existing mining rights or other laws affecting the
Corporation, its Venezuelan properties and its ability to operate in
Venezuela.
  Arbitration
Proceedings
  The
Corporation is a party that is interested in, but is not a party to, an ongoing
arbitration. See “Legal Proceedings — Withdrawal of MINCA Litigation — Vanessa
Arbitration” in the AIF, available electronically at www.sedar.com andwww.sec.gov.
  Sale
of Gold
  For the
past several years, the Corporation sold all of its Venezuelan gold production
to the Central Bank of Venezuela. In June 2006, the Central Bank of Venezuela
informed the Corporation it was suspending purchase of gold from the
Corporation. During June and July, the Corporation sold gold to accredited third
parties within Venezuela and in August 2006 the Central Bank resumed purchasing
gold from the Corporation and continued to purchase all of the Corporation’s
gold production through the end of the third quarter of 2007.  In
October 2007, the Corporation began selling all of its gold production to
accredited third parties in Venezuela. The Corporation is updating the
registration of its export licence which will also allow it to export and sell
gold outside of Venezuela. Pending the update of the Corporation’s export
licence, should the Corporation be unable to sell gold within Venezuela, it
could have an adverse effect on the Corporation’s revenues, cash flow and
profitability in the short-term.
  Unauthorized
Miners
  The
Corporation’s operations may also be affected by the presence of unauthorized
miners which is not uncommon in the gold mining areas of the Guyana Shield area
of northern South America, including Venezuela. The methods used by unauthorized
miners to extract gold are typically harmful to the environment and may be
disruptive of authorized mining operations. Although the Corporation, in
conjunction with the local authorities, employs strategies to control the
presence of unauthorized miners, there can be no assurance that these strategies
will be successful or that the Corporation’s operations will not be adversely
affected by the presence of unauthorized miners.
  Imataca
Forest Reserve
  In
addition to the general risks associated with environmental regulation and
liability, the Las Cristinas deposits are located within the Imataca Forest
Reserve (the “Forest
Reserve”). On September 22, 2004, Presidential Decree 3110, which
establishes an ordinance plan and regulations for the use of the Forest Reserve,
permits various activities (including mining) in up to 13% of the Forest Reserve
and establishes the legal framework for such activities, was issued.
Presidential Decree 3110 was issued in response to
  24
  previous
Presidential Decree 1850, the latter of which was issued in May 1997. Decree
1850 reserved an even larger part of the Forest Reserve for various activities
and became subject to a legal challenge before the Venezuelan Supreme Court. The
Venezuelan Supreme Court issued a prohibition order on November 11, 1997
prohibiting the relevant government authorities from granting concessions,
authorization and any other acts relating to various mining activities in the
Forest Reserve under Decree 1850 until the Venezuelan courts ruled on the merits
of the nullity action. It is possible that Presidential Decree 3110 could be
similarly challenged and that such challenge, if ultimately successful, could
prevent the Corporation from exploiting or fully exploiting the Las Cristinas
deposits.
  Venezuelan
Decree No. 1257 establishes the environmental assessment requirements for mining
projects. The Corporation was advised that the Las Cristinas project is not a
new project and, accordingly, Article 40 of Decree 1257 does not apply since no
significant increase in environmental impact is predicted.
  General
Risk Factors
  Title
to Mineral Properties
  Acquisition
of title to mineral properties is a very detailed and time-consuming
process.  Title to, and the area of, mineral properties may be
disputed or impugned.  Although the Corporation has investigated its
title to the mineral properties for which it holds concessions or mineral leases
or licenses, there can be no assurance that the Corporation has valid title to
such mineral properties or that its title thereto will not be challenged or
impugned.  For example, mineral properties sometimes contain claims or
transfer histories that examiners cannot verify; and transfers under foreign law
often are complex.  The Corporation does not carry title insurance
with respect to its mineral properties.  A successful claim that the
Corporation does not have title to a mineral property could cause the
Corporation to lose its rights to mine that property, perhaps without
compensation for its prior expenditures relating to the
property.  Furthermore, the Mining Operation Contract does not
transfer any property ownership rights to the Corporation.
  In 2005
the Government of Venezuela announced that it would be changing the mining title
regime from a system where title was granted in the form of joint ventures or
either concessions or operating contracts to a system where all new economic
interests would be granted in the form of operating contracts. In order to
effect this change, the Government advised that it would need to create a
national mining company which would be the nation’s contracting party covering
the entire country of Venezuela. The Government also indicated that, given this
change in title regime, it would also be appropriate to review all existing
mining companies in a single comprehensive exercise to ensure that only
companies found to be in compliance with their existing title terms and
conditions would qualify for the new title.This review was
completed as of December 31, 2005.  MIBAM completed its approval
process for the Las Cristinas project at the end of March 2006.  The
Ministry of the Environment and Natural Resources (“MinAmb”) approved the Las
Cristinas EIS in June 2007; and, based on this approval, the Corporation posted
a Compliance Guarantee Bond and paid certain surface taxes. However, there is no
assurance that the Government will not issue further decrees or otherwise
attempt to modify existing mining rights.
   Environmental
Regulation and Liability
  The
Corporation’s activities are subject to laws and regulations controlling not
only mineral exploration and exploitation activities themselves but also the
possible effects of such activities upon the environment. Environmental
legislation may change and make the mining and processing of ore uneconomic or
result in significant environmental or reclamation costs. Environmental
legislation provides for restrictions and prohibitions on spills, releases or
emissions of various substances produced in association with certain mineral
exploitation activities, such as seepage from tailings disposal areas that could
result in environmental pollution. A breach of environmental legislation may
result in the imposition of fines and penalties or the suspension or closure of
operations. In addition, certain types of operations require the submission of
environmental impact statements and approval thereof by government authorities.
Environmental legislation is evolving in a manner which may mean stricter
standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessments of proposed projects and a heightened
degree of responsibility for companies and their directors, officers and
employees. Permits from a variety of regulatory authorities are required for
many aspects of mineral exploitation activities, including closure and
reclamation. Future environmental
  25
  legislation
could cause additional expense, capital expenditures, restrictions, liabilities
and delays in the development of the Corporation’s properties, the extent of
which cannot be predicted.
  In the
context of environmental permits, in particular the approval of closure and
reclamation plans, the Corporation must comply with standards and laws and
regulations which may entail costs and delays depending on the nature of the
activity to be permitted and how stringently the regulations are implemented by
the permitting authority. In accordance with applicable laws, the Corporation
has provided various forms of financial assurances to cover the cost of
reclamation activities. However, there can be no assurance that the Corporation
will not incur reclamation costs that are in excess of such financial
assurances. While the Corporation plans to establish a reserve for reclamation
activities, there can be no assurance that the combination of the reserve and
financial assurances will be sufficient to meet future reclamation standards, if
such standards are materially more stringent than existing standards. The
Corporation does not maintain environmental liability insurance. The Corporation
has adopted high standards of environmental compliance; however, failure with or
unanticipated changes in Venezuela’s laws and regulations pertaining to the
protection of the environment in the future could adversely affect the
Corporation.
  Additional
Funding Requirements
  Under
the terms of the Mining Operation Contract, the Corporation is required, among
other things, to make all necessary investments and complete all works necessary
to reactivate the Las Cristinas deposits, to design, construct and operate a
processing plant to process gold for its subsequent commercialization and sale
and to return the mine, its installations and equipment to the CVG upon
termination of the Mining Operation Contract.  In order to carry out
the Las Cristinas project and its other mining projects, the Corporation will
need to raise substantial additional financing. In establishing its funding
requirements, the Corporation has assumed that costs incurred during the
construction phase of Las Cristinas will receive an exoneration from the 9%
Value Added Tax (“VAT”). Venezuelan Law allows for but does not guarantee the
granting of exoneration of VAT on goods and services, including expenses in
Venezuela, related to the construction and development of mining
projects.  Crystallex will apply for an exoneration of VAT during the
construction phase of Las Cristinas.  If the Corporation does not
receive the construction period VAT exoneration, sufficient additional funds
would need to be raised to cover the development phase. The construction period
VAT can then be recovered by the Corporation during the production phase of the
Las Cristinas project.
  The
Corporation may decide to meet its additional funding requirements through one
or more of non-recourse project debt and other forms of public markets debt and
equity. If the Corporation elects to raise commercial bank limited recourse
project debt, the Corporation will need to demonstrate to potential lenders
compliance with the Equator Principles, which are a set of guidelines adopted by
a number of international financing institutions to address the environmental
and social issues associated with project financing transactions. The Equator
Principles are largely based on policies and guidelines established by the
International Finance Corporation. Although the Corporation has completed an
Environmental Impact Study to international standards, which was approved by the
Venezuelan Ministry of the Environment and includes plans to comply with the
Equator Principles, there can be no assurances that potential lenders will
conclude that the project is in compliance with the Equator
Principles.  In this case, some institutions may decide not to lend to
the project, or the financing timeline may be extended while the Corporation
addresses the concerns of the banks.
  Despite
the financings that have been completed by the Corporation, the Corporation has
limited access to financial resources and there can be no assurance that
sufficient additional financing will be available to the Corporation on
acceptable terms or at all. Failure to obtain such additional financing could
result in a delay or the indefinite postponement of the Las Cristinas project
and other mining projects of the Corporation and could also result in the
Corporation defaulting in the performance of its obligations under the Mining
Operation Contract.
  Reserve
and Resource Estimates
  The
Corporation’s reported mineral reserves and resources are estimates
only.  As a result, there can be no assurance that they will be
recovered at the rates estimated or at all.  Mineral reserve and
resource estimates are based on limited sampling and are uncertain because the
samples may not be representative.  Mineral reserve and resource
estimates may require revision (either up or down) based
  26
  on
actual production experience.  Market fluctuations in the price of
metals, increased production costs or reduced recovery rates may render
estimated mineral reserves and resources uneconomic and may ultimately result in
a restatement of mineral reserves and resources.  In addition,
short-term operating factors, such as the need for sequential development of
mineral deposits and the processing of new or different ore grades, may
adversely affect the Corporation’s profitability in any particular accounting
period.  If its mineral reserve and resource estimates are incorrect,
the Corporation will not correctly allocate its financial resources, causing it
either to spend too much on what could be a less than economic deposit or to
fail to mine what could be a significant deposit.
  Mineral
Exploration and Exploitation
  Mineral
exploration and exploitation involves a high degree of risk.  Few
properties that are explored are ultimately developed into producing
mines.  Unusual or unexpected formations, formation pressures, fires,
power outages, labour disruptions, flooding, explosions, tailings impoundment
failures, cave-ins, landslides and the inability to obtain adequate machinery,
equipment or labour are some of the risks involved in mineral exploration and
exploitation activities.  The Corporation has relied on and may
continue to rely on consultants and others for mineral exploration and
exploitation expertise.  Substantial expenditures are required to
establish mineral reserves and resources through drilling, to develop
metallurgical processes to extract the metal from the material processed and, in
the case of new properties, to develop the mining and processing facilities and
infrastructure at any site chosen for mining.  There can be no
assurance that the Corporation will discover mineral reserves and resources in
sufficient quantities to justify exploitation or that the funds required to
exploit any mineral reserves and resources discovered by the Corporation will be
obtained on a timely basis or at all.  The economics of exploiting
mineral reserves and resources discovered by the Corporation are affected by
many factors, many outside the control of the Corporation, including the cost of
operations, variations in the grade of material mined and metals recovered,
price fluctuations in the metal markets, costs of processing equipment,
continuing access to smelter facilities on acceptable terms and other factors
such as government regulations, including regulations relating to royalties,
allowable production, importing and exporting of minerals and environmental
protection.  There can be no assurance that the Corporation’s mineral
exploration and exploitation activities will be successful.
  Uninsurable
Risks
  Mineral
exploration and exploitation activities involve numerous risks, including
unexpected or unusual geological operating conditions, rock bursts, cave-ins,
fires, floods, earthquakes and other environmental occurrences and political and
social instability.  It is not always possible to obtain insurance
against all such risks and the Corporation may decide not to insure against
certain risks as a result of high premiums or other reasons.  Should
such liabilities arise, they could negatively affect the Corporation’s
profitability and financial position and the value of the common shares of the
Corporation.  The Corporation does not maintain insurance against
environmental risks.
  Competition
  The
competition to discover and acquire mineral properties considered to have
commercial potential is intense.  The Corporation competes with other
mining companies, many of which have greater financial resources than the
Corporation, with respect to the discovery and acquisition of interests in
mineral properties and the recruitment and retention of qualified employees and
other personnel to carry on its mineral exploration and exploitation
activities.  There can be no assurance that the Corporation will be
able to successfully compete against such companies.
  Dependence
on Limited Mining Operations and Properties
  The
Corporation’s Tomi and La Victoria operations and Revemin mill currently account
for all of the Corporation’s mineral production and revenues. Any adverse
development affecting these operations could adversely affect the Corporation’s
financial performance and results of operations. Furthermore, future results for
the Corporation depend largely on the Las Cristinas project, which is currently
in the development stage and which may never be developed into a commercially
viable mining operation. Any event, or combination thereof, which adversely
affects the Las Cristinas project (whether the property
  27
  itself
or the Corporation’s ability to finance and/or construct and operate a
commercially viable mine on the property), would adversely impact the
Corporation’s future performance.
  Production
Risks
  The
Corporation prepares estimates of future production at its
operations.  Failure to meet these estimates could adversely affect
the corporation’s profitability, cash flows and financial
position.  There can be no assurance that the Corporation will achieve
its production estimates.
  The
Corporation’s actual production may vary from its estimates for a variety of
reasons, including actual ore mined varying from estimates of grade, tonnage,
dilution and metallurgical and other characteristics; short-term operating
factors such as the need for sequential development of ore bodies and the
processing of new or different ore grades from those planned; mine failures,
slope failures or equipment failures; industrial accidents; natural phenomena
such as inclement weather conditions, floods, droughts, rock slides and
earthquakes; encountering unusual or unexpected geological conditions; changes
in power costs and potential power shortages; shortages of principal supplies
needed for operation, including explosives, fuels, chemical reagents, water,
equipment parts and lubricants; labour shortages or strikes; civil disobedience
and protests; and restrictions or regulations imposed by governmental or
regulatory authorities or other changes in the regulatory
environments.  Such occurrences could result in damage to mineral
properties, interruptions in production, injury or death to persons, damage to
property of the Corporation or others, monetary losses and legal
liabilities.  These factors may cause a mineral deposit that has been
mined profitably in the past to become unprofitable forcing the Corporation to
cease production.  These factors also apply to the Corporation’s
future operations.  For example, it is not unusual for new mining and
processing operations to experience unexpected problems during the start-up
phase.
  In
addition to the general production risks outlined above, one of the most
significant physical production issues the Corporation faces in the Las
Cristinas project pertains to the heavy amount of rainfall the area receives (an
average of 3.3 m/year). MDA has accounted for anticipated time lost due to
rainfall in scheduling production and determining equipment
requirements.  Crystallex believes that the allowances made are
consistent with the range of practice employed by the iron ore and bauxite
mining industry in the same high rainfall regions in Venezuela as well as
comparable mining operations in similar or greater rainfall regions of Guyana,
Suriname and Brazil. Regardless, actual mining experience with the combination
of wet saprolite and high rainfall rates may require adjustment of these
estimates.
   Regulations
and Permits
  The
Corporation’s activities are subject to wide variety of laws and regulations
governing health and worker safety, employment standards, waste disposal,
protection of the environment, protection of historic and archaeological sites,
mine development and protection of endangered and protected species and other
matters.  The Corporation is required to have a wide variety of
permits from governmental and regulatory authorities to carry out its
activities.  These permits relate to virtually every aspect of the
Corporation’s exploration and exploitation activities.  Changes in
these laws and regulations or changes in their enforcement or interpretation
could result in changes in legal requirements or in the terms of the
Corporation’s permits that could have a significant adverse impact on the
Corporation’s existing or future operations or projects.  Obtaining
permits can be a complex, time-consuming process.  There can be no
assurance that the Corporation will be able to obtain the necessary permits
including any renewals thereof on acceptable terms, in a timely manner or at
all.  The costs and delays associated with obtaining permits and
complying with these permits and applicable laws and regulations could stop or
materially delay or restrict the Corporation from continuing or proceeding with
existing or future operations or projects.  Any failure to comply with
permits and applicable laws and regulations, even if inadvertent, could result
in the interruption or closure of operations or material fines, penalties or
other liabilities.
  Gold
Price Volatility
  The
gold price can fluctuate widely and is affected by numerous factors beyond the
Corporation’s control, including industrial and jewellery demand, inflation and
expectations with respect to the rate of inflation, the strength of the U.S.
dollar and other currencies, interest rates, gold sales by central banks,
forward sales by producers, global or regional political or financial events,
and production and cost levels in major gold-producing regions.  The
gold price is also subject to rapid short-term changes due to
speculative
  28
  activities.
During the period 1998 to 2007, the gold price fluctuated between a low of
U.S.$253 per ounce and a high of U.S.$841 per ounce. To date in 2008 the price
of gold has attained U.S.$1,000 per ounce.
  The
Corporation’s revenues, cash flow, profitability and the market price of the
common shares of the Corporation are significantly affected by changes in the
gold price.  If the gold price is below the cost of production at any
of the Corporation’s operations for a significant period, the Corporation may be
required to suspend or terminate production at the affected
operation.  In addition, the Corporation may be required to restate
its mineral reserves and resources, write down its investment and increase or
accelerate reclamation and closure charges at the affected
operation.  Any of these developments could negatively affect the
Corporation’s profitability, cash flows and financial
position.  Accordingly, even if the Corporation discovers and produces
gold, there can be no assurance that the gold price will be high enough to
enable the Corporation to sell the gold produced by it profitably.
  Currency
Fluctuations
  Currency
fluctuations may affect costs at the Corporation’s operations.  Gold
is sold throughout the world based principally on a U.S. dollar price, but a
portion of the Corporation’s operating expenses is in non-U.S. dollar
currencies.  Any appreciation of these non-U.S. dollar currencies
against the U.S. dollar could negatively affect the Corporation’s profitability,
cash flows and financial position.
  Credit
and Market Risks
  The
Corporation enters into financial agreements (financial instruments) with major
international banks, other international financial institutions and other
accredited third parties in order to manage underlying revenue and future cash
flow exposures arising from commodity prices.  Financial instruments,
which subject the Corporation to market risk and concentrations of credit risk,
consist primarily of cash and accounts receivable.
  Market
risk is the risk that the value of a financial instrument might be adversely
affected by a change in interest rates or currency exchange rates. The
Corporation manages the market risk associated with commodity prices by
establishing and monitoring parameters that limit the types and degree of market
risk that may be undertaken.
  Credit
risk is the risk that counterparty might fail to fulfill its performance
obligations under the terms of a contract. The Corporation limits the amount of
credit exposure in cash and cash equivalents by placing these in high quality
securities issued by government agencies and financial institutions. The
Corporation’s cash equivalents consist of Government of Canada Treasury Bills,
denominated in U.S. dollars. The Corporation also has concentrations of credit
risk with respect to accounts receivable as the accounts receivable are due from
the Venezuelan Tax Department and occasionally from the Venezuelan Central
Bank.
  The
Corporation can be exposed to credit risk in the event of non-performance by
counterparties in connection with metal forward and option contracts. The
Corporation does not obtain any security to support financial instruments
subject to credit risk but mitigates this risk by dealing only with a diverse
group of financially sound counterparties and, accordingly, does not anticipate
loss for non-performance. Further, the Corporation minimizes its credit risk in
derivative instruments by entering into transactions with high-quality
counterparties whose credit ratings are high and by monitoring the financial
condition of its counterparties. The Corporation continually monitors the market
risk of its activities. The Corporation currently does not have metal forward
and option contracts.
  Dependence
on Key Employees
  The
Corporation’s business and operations are dependent on retaining the services of
a small number of key management personnel.  The success of the
Corporation is, and will continue to be, to a significant extent, dependent on
the expertise and experience of the directors and senior
management.  The loss of one or more of these people could have a
materially adverse effect on the Corporation.  Further delays in
obtaining the Permit may make it more difficult for the Corporation to retain
key employees. The Corporation does not have a senior management retention
program.
  29
  Compliance
with Sarbanes-Oxley Act of 2002
  Passed
by the U.S. Congress on July 30, 2002, the Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley”) requires companies to, among other things, have management
provide a report on the Company’s internal controls with respect to financial
reporting.  The Company has complied with this particular aspect of
Sarbanes-Oxley for its fiscal year ended December 31,
2007.  Management’s evaluation of, and report on, the Company’s
internal controls over financial reporting is set out in this Management
Discussion and Analysis under the section Controls and Procedures – Internal
Control over Financial Reporting. Based on this evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures were not effective and the Corporation has described the
plans to remediate the material weaknesses described therein.
  There
can be no assurance that the Corporation will be able to adequately remediate
its currently known weaknesses or that the Corporation’s internal controls over
financial reporting will be free of material weaknesses in future periods, which
could cause the market price of the Corporation’s common shares to decline and
could lead to shareholder litigation.  In addition, the discovery of
additional material weaknesses will likely result in the Corporation having to
incur costs to fix the internal controls for financial reporting as well as
costs to remediate any financial inaccuracies. Management is in the process of
remediating the material weaknesses discovered in fiscal 2007. The aggregate
final costs of addressing such weaknesses, however, cannot be assured. Any
remediation costs for the discovery of additional material weaknesses in future
periods are unknown.
  Common
Share Price Volatility
  The
market price of the common shares of the Corporation could fluctuate
significantly based on a number of factors in addition to those listed in this
document, including:
  ·
              the
      Corporation’s operating performance and the performance of competitors and
      other similar companies;
  ·
              the
      public’s reaction to the Corporation’s press releases, other public
      announcements and the Corporation’s filings with the various securities
      regulatory authorities;
  ·
              changes
      in earnings estimates or recommendations by research analysts who track
      the common shares or the shares of other companies in the resource
      sector;
  ·
              changes
      in general economic conditions;
  ·
              the
      number of the common shares to be publicly traded after this
      offering;
  ·
              the
      arrival or departure of key
personnel;
  ·
              acquisitions,
      strategic alliances or joint ventures involving the Corporation or its
      competitors; and
  ·
              gold
      price volatility.
  In
addition, the market price of the common shares of the Corporation are affected
by many variables not directly related to the Corporation’s success and are,
therefore, not within the Corporation’s control, including other developments
that affect the market for all resource sector shares, the breadth of the public
market for the common shares and the attractiveness of alternative
investments.  The effect of these and other factors on the market
price of common shares on the exchanges on which the Corporation trades has
historically made the Corporation’s share price volatile and suggests that the
Corporation’s share price will continue to be volatile in the
future.
  Potential
Dilution
  As at
March 28, 2008, the Corporation has outstanding options to purchase 12,388,088
common shares of the Corporation (including 1,094,333 options outstanding that
were not fully vested) and warrants to purchase 29,570,000 common shares of the
Corporation (including 12,250,000 warrants that do not
  30
  become
effective until after the receipt of the Permit). The issue of common shares of
the Corporation upon the exercise of the options and warrants will dilute the
ownership interest of the Corporation’s current shareholders. The Corporation
may also issue additional option and warrants or additional common shares from
time to time in the future.  If it does so, the ownership interest of
the Corporation’s then current shareholders could also be diluted.
  Enforcement
by Investors of Civil Liabilities
  The
enforcement by investors of civil liabilities under United States federal
securities laws may be adversely affected by the fact that the Corporation is
organized under the laws of Canada, that most of its officers and directors and
most of the experts named in this Annual Information Form are residents of
Canada, and that a substantial portion of the Corporation’s assets and the
assets of a majority of the Corporation’s directors and officers and the experts
named in this Annual Information Form are located outside the United States.
Furthermore, it may not be possible to enforce against the Corporation or its
directors, officers or experts, judgments contained in U.S. courts. The
Corporation believes that a monetary judgment of a Canadian court predicated
solely on the Canadian civil liability regime would likely be enforceable in the
U.S. if the Canadian court in which the judgment was obtained had a basis for
jurisdiction in the matter that was recognized by a U.S. court for such
purposes. However, the Corporation can provide no assurances to this
effect.
  Operating
Losses are Expected to Continue In the Near Future
  The
Corporation expects that it will continue to incur losses, and possibly incur
increased losses, until the Las Cristinas mine is operating at full capacity.
The Corporation’s profitability depends, among other things, on the gold price,
gold production and cash operating costs at its operations, interest expense and
general and administrative expenses.  Substantially all of these
factors are beyond the control of the Corporation.  There can be no
assurance that the Corporation will become profitable in the near
future.  The Corporation expects that this trend will reverse if and
when gold is produced from the future Las Cristinas mine in commercial
quantities at prices equal to or in excess of the prices assumed in the 20,000
TPD Feasibility Study.
  Future
Hedging Activities
  The
Corporation has not entered into forward contracts or other derivative
instruments to sell gold that it might produce in the future. Although the
Corporation has no near term plans to enter such transactions, it may do so in
the future if required for project financing. Forward contracts obligate the
holder to sell hedged production at a price set when the holder enters into the
contract, regardless of what the price is when the product is actually mined.
Accordingly, there is a risk that the price of the product is higher at the time
it is mined than when the Corporation entered into the contracts, so that the
product must be sold at a price lower than could have been received if the
contract was not entered. There is also the risk that the Corporation may have
insufficient gold production to deliver into forward sales positions. The
Corporation may enter into option contracts for gold to mitigate the effects of
such hedging.
  No
Payment of Cash Dividends in the Near Future
  Given
that the Corporation is currently in the development stage for its principal
property, the Las Cristinas project, the Corporation intends to retain its
earning to finance the growth and development of the business rather than pay
dividends to shareholders. The Corporation does not intend to declare or pay
cash dividends in the near future, nor has it done so since its inception. In
the event that the Corporation decides to declare and pay cash dividends in the
future, such a decision will made entirely in the discretion of the board of
directors and shall be dependent on factors such as the existing earnings,
capital requirements, future business opportunities, financing agreements and
market conditions for the Corporation’s shares and the underlying commodities
markets.
 
 31
  Non
GAAP Measures – Total Cash Costs
 
 Total
cash costs per ounce are calculated in accordance with the Gold Institute
Production Cost Standard, (the “Standard”).  The total cash cost per
ounce data are presented to provide additional information and are not prepared
in accordance with Canadian or U.S. GAAP.  The data should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with GAAP.  The measures are not necessarily indicative
of operating profit or costs of operations as determined under Canadian or U.S.
GAAP.  The total cash cost per ounce calculation is derived from
amounts included in the Operating Expense line on the Statement of
Operations.  As this line item is unchanged under US GAAP, the total
cash cost per ounce figure is similarly unchanged using US GAAP results of
operations.
 
 Data
used in the calculation of total cash costs per ounce may not conform to other
similarly titled measures provided by other precious metals
companies.  Management uses the cash cost per ounce data to access
profitability and cash flow from Crystallex’s operations and to compare it with
other precious metals producers.  Total cash costs per ounce are
derived from amounts included in the Statement of Operations and include mine
site operating costs such as mining, processing, administration, royalties and
production taxes but exclude amortization, reclamation, capital expenditures and
exploration costs.
 
 Total
costs and total cash costs per ounce may be reconciled to the Operations Expense
as follows:
 
 $000
      (except per ounce data)
              2007
              2006
              2005Operations
      Expense per Financial Statements
              $19,629
              $26,244
              $22,118Add
      (less) : Revised Asset Retirement Obligations
              (1,009)
              599
              1,096Less
      Exploration Expenditures
              (1,574)
              (621)
              -Total
      Cash Operating Costs
              17,046
              26,222
              23,214Amortization,
      Accretion and Depletion
              1,220
              1,473
              1,946Total
      Operating Costs
              $18,266
              $27,695
              $25,160Gold
      Ounces Sold
              32,815
              48,570
              55,217Total
      Cash Cost Per Ounce US$
              $519
              $540
              $420Total
      Cost Per Ounce US$
              $557
              $570
              $456
 
 
 
 Bolivars,
      Thousands (except per ounce data)
              2007
              2006
              2005Operating
      Costs
              85,209,489
              57,045,950
              48,295,450Less:
      Exploration Expenditures
              (6,832,734)
              (1,335,150)
              -Total
      Cash Operating Costs
              78,376,755
              55,710,800
              48,295,450Amortization,
      Accretion and Depletion
              915,951
              3,833,450
              5,798,550Total
      Operating Costs
              79,292,706
              59,544,250
              54,094,000Gold
      Ounces Sold
              32,815
              48,570
              55,217Total
      Cash Cost Per Ounce in Bolivars, Thousands
              2,388
              1,147
              875Total
      Cost Per Ounce in Bolivars, Thousands
              2,416
              1,226
              980
  
 32