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Gem Diamonds eyes AK6 mine
Brendan Ryan
Posted: Fri, 08 Aug 2008
[miningmx.com] -- OWNERSHIP of the AK6 diamond mine in Botswana could be up for grabs from August 12 depending on the policy of the Botswana government and London-listed Gem Diamonds is showing keen interest.
James Campbell, MD of African Diamonds, told Miningmx he met with Gem CEO Clifford Elphick at the Botswana Resource Sector Conference held in Gaborone on July 24 soon after he dropped the bombshell about African Diamonds’ dispute with De Beers over AK6.
African Diamonds owns 28% of JV company Boteti which controls AK6 but is in dispute over development of the mine with De Beers which owns 71% of Boteti.
Campbell commented, “We had a general discussion with Clifford and some of the Gem directors. We get on well with Gem and have great respect for their talents and expertise. We recommended that they approach De Beers.”
Elphick could not be reached for comment.
August 12 is the date by which De Beers and African Diamonds must accept the terms of the mining licence offered by the Botswana government for the AK6 mine.
What happens next depends on the attitude of the Botswana government which has received a request from De Beers to extend the August 12 deadline as well as an application for a “retention licence” over AK6.
Campbell commented, “The Government has so far not responded to the requests made by De Beers for the extension period and the retention licence. If it does not make a decision by August 12 then, effectively, the mining licence falls away and AK6 becomes open ground again.”
If De Beers is granted a retention licence then it will be able to maintain ownership of AK6 for another three to five years without developing the mine.
According to a statement from African Diamonds, “De Beers used its majority stake in Boteti, the joint venture company developing AK6, to pass a resolution to apply for a retention licence.”
African Diamonds brought an urgent interdict in the Botswana High Court to prevent the application but lost. It is now proceeding with legal action against De Beers with a hearing due in September.
But this is a side issue compared with the impact a decision by the Botswana government could have as well as the fact that the overall dispute
between African Diamonds and De Beers will be settled through arbitration in Botswana.
A diamond industry analyst commented he believed the Government would most likely grant a short extension – say three months – and effectively tell African Diamonds and De Beers to sort out their differences in that period.
It would be unprecedented for AK6 to be declared open ground following the work carried out on the pipe which has proved up a mine capable of producing about one million carats of diamonds annually.
African Diamonds has made two offers to buy De Beers out of AK6 – the first at US$40m plus a profit participation and the second for US$100m convertible into African Diamond shares.
Campbell commented, “the clear message from De Beers is that they are not prepared to sell out of AK6 or not to us at any rate.”
According to African Diamonds chairman John Teeling, “Despite De Beers declaring AK6 to be non-viable, it is not prepared to
sell the asset.
“The US$100m offered by African Diamonds is a multiple of their expense to date, while the conversion rights would have enabled De Beers to enjoy a substantial part of the higher profits which would be made by African Diamonds operating the mine.”
What Elphick may have in mind is not clear but Gem had US$185m in cash on its balance sheet at the end of December.
He’s also done business successfully with De Beers before in Botswana buying the Gope project from them last year for $34.1m. Gem subsequently applied for a mining licence to develop a mine producing 1m carats/year.
AK6 would be a similar sized mine to Gope but easier to develop because mining starts from surface whereas some 80m of overburden has to be removed at Gope, Industry sources reckon AK6 would be an ideal asset for Gem to acquire.
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