John Helmer
17 April 2008
Johannesburg — IT WAS the classic Ernest and Harry Oppenheimer ploy, for which the De Beers founding fathers were once famous in Africa.
Nicky Oppenheimer played a revival of "take me to your chief" at the Kremlin on Tuesday in an expensive, risky bid to open De Beers' first diamond mine in Russia. His Russian partner, Vagit Alekperov -- controlling shareholder and CE of LUKoil -- the largest commercially owned Russian oil group, took Oppenheimer to meet President Vladimir Putin, an Alekperov spokesman told Business Day.
The objective of the brief meeting was to secure Kremlin endorsement of an ambitious scheme for LUKoil and De Beers to plan a new diamond mine together in the Arkhangelsk region, more than 1000km north of Moscow.
Preliminary assays and estimates indicate that the value of diamonds to be recovered exceeds $7bn.
But first De Beers and LUKoil had to end the virtual state of war that has existed between them for a decade.
De Beers said Oppenheimer had signed an agreement with Alekperov to resolve litigation over the Grib pipe, discovered in 1996 by Archangel Diamond Corporation, now a De Beers affiliate, and a Russian geological group called AGD, now owned by LUKoil.
Archangel and AGD were joint venture partners in finding and developing the deposit, until AGD refused to transfer the mining licence to the joint venture company in which Archangle held a 40% stake, AGD 50% and a minority shareholder aligned with Archangle the remaining 10%.
Oppenheimer told Alekperov at yesterday's ceremonies that De Beers had bought assets in Russia in the past, but had no experience of developing and operating a mine in Russia.
While the amount was not disclosed, De Beers and Archangle will be paying much more for the mining opportunity.
Oppenheimer and Alekperov agreed to co-operate on a Grib feasibility study and a mining plan, and that until these were completed, De Beers and LUKoil would lock in their positions and not sell their stakes to anyone else.
The one exception to that proviso allows the Russian government to arrange a state buy-in for the project, probably through the state-owned diamond miner and Alrosa, a global rival of De Beers.
Archangle, suspended on Toronto's bourse since October, confirmed the out-of-court settlement.
The deal is described as the acquisition by Archangel of an interest in Arkhangelskoye Geoldobychnoe Predpriyatie, a Russian open joint stock company wholly owned by LUKoil group and the holder of the licence to explore and mine the Verkhotina licence area.
The AGD interest in the project licence, which DeBeers and Archangle will receive, will not exceed 49,99%. LUKoil will keep the remaining interest in AGD.
Once executed, "the litigation and arbitration proceedings relating to the ownership of the Verkhotina licence will be terminated".
In detailed court papers publicly available, Archangle had charged Alekperov and partner Alisher Usmanov with masterminding a series of contract violations that stopped Archangle from exercising its operating, investment and stakeholding rights in the Grib discovery.
It has been De Beers' strategy that, if the US courts accepted jurisdiction to try the claim, Alekperov and Usmanov would settle, rather than allow themselves to be cross-examined on the evidence.
The limited disclosure reveals that De Beers has improved on its stake in the project, lifting Archangle's stake from 40% to 49,99%.
This suggests that Archangle and De Beers acquired the interests of 10% stakeholder Michael Krel, who had been aligned with Archangle.
Russian law prohibits foreign-owned mining companies from holding a majority stake in a domestic diamond mine.
In the 1990s, De Beers had owned another Arkhangelsk diamond licence, for the Lomonosov field, but sold it to Alrosa; it operates as the Alrosa subsidiary, Severalmaz (Northern Diamond). A Severalmaz source said that he would welcome investment by De Beers in a new diamond mining operation less than 50km from the Severalmaz site.
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