Wanetsha Mosinyi
12 November 2009
The future of the AK6 diamond project was put on a firmer footing on Wednesday with the announcement that Canadian-listed diamond junior, Lucara Diamond Corp, would be acquiring De Beer's 70 percent stake in the project for US$49 million (P322.4 million).
Both De Beers and BSE-listed African Diamonds have confirmed the transaction that brings an end to the wrangle that ensued last year when the two former venture partners engaged in a public spat over the project.
As part of the transaction, African Diamonds - which currently holds 28 percent of AK6 - have the 120-day call option it had to acquire an additional 10.268 percent interest in consideration for US$7 million (P46.5 million) plus interest at eight percent per annum.
If African Diamonds exercises the call option, Lucara will retain a 60 percent stake, with African Diamonds holding 38.65 percent and Wati Ventures 1.35 percent. African Diamonds and Lucara also have an option to acquire the 1.35 percent interest from Wati Ventures for US$0.7 million.
AK6, which is located in the heart of Botswana's world-class diamond district of Boteti, currently hosts 51.8 million tonnes at an average grade of 22 carats per hundred tonnes at a modelled diamond value of US$151 per carat. De Beers Botswana said in an e-mailed statement that the sale, which is subject to a number of conditions including the consent of the Botswana Government, became an option once the global economic crisis constrained the project to a smaller mining plan.
De Beers, which before the onset of the global recession last year said AK6 was a significant project that would add to its overall production as demand outstripped supply, has now changed its tune to "smaller mines do not fit into De Beers' global production portfolio, which is focused on large-scale projects that deliver superior rates of return and the right production volumes". Of the sale of its shares to Lucara, the mining giant says: "This transaction enables other operators to bring a Botswana mine into production for the benefit of the country."
De Beers added it would now focus its resources in Botswana on large-scale projects that "give us a better strategic fit" and said it would announce a major $500 million expansion project at Jwaneng Mine next month.
"This is a win-win solution for diamond mining in Botswana," said the Chairman of De Beers Botswana, Stephen Lussier, in a statement. "Smaller operators will have the opportunity to bring AK6 into production, helping to reinforce Botswana's position as the world's leading diamond producing country,"
In the latest development, Lucara has also agreed to provide a US$2-million convertible loan to African Diamonds to fund their portion of the updated feasibility study and working capital. The loan is convertible into shares of African Diamonds at a conversion price equal to 85 percent of the 5-day volume weighted average share price prior to the date of conversion.
To fund the AK6 acquisition, Lucara has entered into a guarantee and loan facility with an insider of the company in the amount of US$49 million. As a condition of the guarantee and loan facility, the lender will receive consideration of 12,191,200 shares of Lucara, of which 5,202,436 will be subject to shareholder approval.
Lucara expects the diamond mine to move into production within 18 months as an open pit operation, though this is likely to be dependent on rough diamond prices and securing finance for development. Lucara has also agreed to provide a US$2 million convertible loan to African Diamonds to fund their portion of the updated feasibility study and working capital.
"We are extremely excited about this acquisition and are looking forward to working with African Diamonds on the development of the AK6 project," said the President and CEO of Lucara, William Lamb.
African Diamonds said in statement that studies it commissioned showed that it would cost US$63 million to establish the mine at 2 million tonnes a year output and that mine development was expected in mid-2010, with production in late 2011.
The current life of the mine by opencast is 12 years, but the deposit contains a further seven million carats between 372 and 758 metres.
"There are only positives resulting from this development," said the Chairman of BSE-listed Africa Diamonds,John Teeling. "We believe that AK6 is a world-class diamond deposit. It needed to be developed as quickly and efficiently as possible to benefit all stakeholders. This will now happen."
Teeling said with its high value diamonds - including the big, rare and beautiful Type II nitrogen-free stones - the AK6 mine would come on stream at the right time when the economics were compelling. "Prices are rising, demand in the Far East is growing, while supply is at best flat," he said.
The sale of De Beers' shares puts the future of AK6 on a firm footing after being in limbo for some time. African Diamonds ended up taking De Beers to court, accusing the diamond giant of "deliberate stalling" for proposing to delay the project because it could be compromised by power supply problems.
But African Diamonds argued that it could build the mine more cheaply, operate it more efficiently and obtain significantly higher diamond prices than those estimated by De Beers.
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