De Beers, African Diamonds clash over mine
The two clashed over a number of issues, among them the timeframe to develop the mine, the marketing and selling of diamonds and African Diamonds’ offer to acquire the 71 percent stake held by De Beers.
In a statement, African Diamonds said it is ready to develop the mine while De Beers says the project economics and sustainability are impacted on by the ongoing Southern African energy shortfall.
African Diamonds said it had “declared a dispute in terms of shareholders’ agreement” with De Beers after the world’s largest diamond producer allegedly reneged from the terms of mining licence that provides that diamonds from AK6 should be sold on a secondary market to develop Botswana as an international diamond centre.
“African Diamonds has made an offer to De Beers to acquire its entire interest in AK6. Despite claiming non-viability on AK6, De Beers is not prepared to accept a generous offer which more than covers their expenditure to date,” African Diamonds said.
In the joint venture operation, African Diamonds has 28 percent and Wati, a local private company, owns one percent of the joint company, Boteti.
John Teeling, chairman of African Diamonds, said in a press statement they expected to develop AK6 with De Beers but their agendas differ. He said they would build an efficient, effective, reliable mine cheaper than the De Beers model.
“We have declared a dispute and will go to arbitration in Botswana,” he said.
African Diamonds said it is also prepared to accept the terms of the mining license of 17 June 2008 as offered by the government, but De Beers is not.
However, De Beers, which currently controls 40 percent of the world’s rough diamonds, cites regional power shortages and its stance against the auctioning of diamonds on an open market as the key reasons for stalling the development of AK6.
“While De Beers would like to see AK6 come into production as soon as possible, the substantial 30 percent reduction in supply of power by ESKOM to Botswana over the next three to four years, has resulted in the reduction of Botswanas consumers, which includes mining projects like AK6,” reads a statement from De Beers.
According to De Beers, the critical phases of the development of the AK6 mine are in 2009 and 2010, when power is expected to be most restricted.
“Developing a mine while knowing that there is not enough power available would contravene our responsibility to build a sustainable mine, ultimately impacting shareholders, employees and other stakeholders,” it says.
Regarding the marketing and selling of diamonds, African Diamonds said that one of the terms of the mining license requires the diamonds from AK6 to be auctioned locally.
“African Diamonds recently approached De Beers with an offer to purchase its 71 percent stake in Boteti for US $ 40 million plus a profit participation, which African Diamonds characterised as a ‘generous offer’. At the time the market capitalisation for African Diamonds was US$120 million. On this basis, De Beers may consider an offer for African Diamonds’ shares (representing 28 percent) on a similar valuation methodology. De Beers assumes that the African Diamonds directors would recommend this offer to shareholders,” De Beers said in a statement.
“We also note that African Diamonds apparently believes that Boteti should breach contracts with De Beers by breaking its market agreement entered into at the formation of the joint venture. De Beers has met its obligations with regard to the agreement by fully funding the exploration and valuation expenditures for AK6. As an important shareholder in African Diamonds, De Beers considers the attitude exhibited by the management of African Diamonds to be a matter of concern,” added the statement.