Sunday, January 24, 2021

African Diamonds, De Beers clash over AK6

African Diamonds Plc and its partner in the development of AK6ÔÇöDe Beers ÔÇô slouched into an open rancorous dispute this week and the dispute threatens the world’s largest diamond producer’s control over the sale of diamonds.
In an emotionally charged statement at the Botswana Resource Sector Conference, organized by Capital Securities, African Diamonds stated that it had “declared a dispute in terms of shareholders’ agreement” with De Beers after the world’s largest diamond producer reneged from the terms of mining licence that provide that diamonds from AK6 should be sold on a secondary market to develop Botswana as an international diamond centre.
“It is very sad that we had to declare a dispute and make it public,” the managing director of African Diamonds, James Campbell, said.

De Beers, which currently controls 40 percent of the world’s rough diamonds, is stalling on the development of AK6 and has cited regional power shortages and its stance against the auctioning of diamonds on an open market as the key reasons.

On the other hand, African Diamonds has openly disputed De Beers’ economics saying that even under the new calculations by De Beers of US $ 151 per carat, the mine would be economical given cost cutting measures that the shareholders have embarked on.

Botswana is considered as the least expensive diamonds mining country with cost per ton being between US $ 7- 10 compared to Russia where costs are as high as US $ 70 per ton. Further, the world’s average price for rough diamond per carat is as low as US 95.
“The power issue is a regional problem and it does not make any significant change in the project,” Campbell told Sunday Standard in an interview.

“De Beers has proposed to the board of the joint venture company (Boteti) that the economics of the project is being compromised by power supply issues and so should be delayed. This has been rejected by African Diamonds and Wati who have an independent study showing strong economic viability.

“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 a statement that was circulated around the world on Thursday.

The decision by African Diamonds to auction diamonds on the secondary market greatly challenges De Beers’ tradition that was founded in 1910 when it established Central Diamond Organisation now called Diamond Trading Company ( DTC) London. And the move is a great shift that is expected to fall in line with Botswana government’s ambition of being the world’s diamond centre.

Government mandarins told Sunday Standard that government would be happy to have a secondary market as long as it does not concern large volumes from a single operation.

Since the beginning of this month, government officials have been in international tours that covered Ramat GanzÔÇöto the Israeli Diamond Exchange ÔÇô near Tel Aviv, in a bid to develop something similar to that. And next month, officials will be flying to Dubai where they are expected to borrow some concepts of a secondary diamond market while at the same time they have given the AK6 partners up to August 12 to have resolved their dispute.
“This is an unexpected opportunity for African Diamonds and the people of Botswana to expand their interest in the AK 6 diamond mine.

We had expected to develop AK6 with De Beers but its agenda differs from ours. We are prepared to accept the terms of the Mining Licence of June 17, 2008 as offered by Botswana government. De Beers is not. We have offered to buy out De Beers at a generous price. However, De Beers, is not prepared to sell to African Diamonds to allow us to proceed immediately.

“It makes no sense to African Diamonds, to our local partner, Wati, or to the people of Botswana that the benefits from developing the mine should be denied,” the chairman of African Diamonds, John Teeling, said.
However, De Beers hit back saying that it is willing to buy out African Diamonds on the basis of the latter’s valuation.

“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 characterized as a “generous offer”.

At the time the market capitalization 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,” it added.

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