[2008-07-29]  Africa Diamonds to Take De Beers to Arbitration
African Diamonds (AFD) is taking De Beers to arbitration over its plans to delay preparations to start mining the Boteti diamond deposits near Orapa.

The two are partners in the AK6 project. "It makes no sense to African Diamonds, our local partner Wati or to the people of Botswana that the benefits from developing the mine should be denied," AFD chairperson John Teeling said yesterday in a strongly worded statement read at the Botswana Resource Conference. "We have declared a dispute and will go to arbitration in Botswana," he added. Meanwhile De Beers has rejected the African Diamonds position.AFD managing director, James Campbell said that De Beers proposed that the project is not viable, owing to doubts over power supplies but refused to sell its stake. After finding the terms of the mining licence that the government offered last month favourable, AFD said that it offered to buy out De Beers' majority stake at a 'generous price'. The offer was rejected.


"We had expected to develop AK6 with De Beers, but its agenda differs from ours. De Beers, while not being prepared to proceed with the project on the grounds of viability is not prepared to sell to African Diamonds to allow us to proceed immediately."

De Beers owns 71 percent of the Boteti project while African Diamonds holds 28 percent and Wati, a private Botswana company, owns the remaining one percent.

One of the terms of the Mining Licence that the Botswana government which holds a 15 percent stake in De Beers required was that the diamonds from AK6 be auctioned in Botswana. African Diamonds believes that revenue from an auction process may be up to 40 percent greater than estimated by De Beers. This could equate to US$50 a carat or US$50 million a year at full production. De Beers group has, in reaction, written an equally stinging statement refuting the allegations by African Diamonds. De Beers rejects the African Diamonds' approach as inexperienced and bordering on the irresponsible.

"...it is important to note that the claim that significantly higher prices could be achieved by auctioning diamonds in Botswana is fundamentally false and demonstrates a worrying lack of experience with diamond distribution and valuation" states De Beers.

However African Diamonds maintains that their approach is viable and attractive. "We will build an efficient, effective, reliable mine cheaper than the De Beers model. The economics are not in doubt," Teeling said. De Beers has proposed to the board of the joint venture company that the economics of the project are compromised by power supply issues and so should be delayed.

This was rejected by African Diamonds and Wati on the grounds that they have an independent study showing strong economic viability.

"While De Beers would like to see AK6 come into production as soon as possible the substantial 30% reduction in supply of power by Eskom to Botswana over the next three to four years, has resulted in the reduction in power available to Botswana's consumers, which includes mining projects like AK6. The critical phases of the development of the AK6 mine are in 2009 and 2010, when power is expected to be most restricted. Current projections show that the shortfall in power supply is not expected to be resolved before the middle of 2012, at the earliest" argues De Beers.

De Beers further asserts that it has the most experience in diamond mining and further indicates that it is disappointed by African Diamonds assertions. "As the majority shareholder and operating partner in Boteti, De Beers is enthusiastic about the potential of AK6 and remains fully committed to seeing it come into production" it says. It maintains that the project remains unviable, warning, "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".

Meanwhile African Diamonds has invoked a dispute clause in the Shareholder Agreement, which includes arbitration on any dispute. The protected negotiations between the partners has been going on since last year and was supposed to be concluded by August 12, this year.

The proposed mine is 15km southeast of the Letlhakane village. It is expected to produce its first gem diamonds next year. It is said it will produce one of the best quality diamonds in the country similar to that of Letlhakane mine. It is meant to produce 600, 000 carats by 2010. Thereafter production will pickup to between 1.2 and 1.5 million carats per annum.



Source: ALLAFRICA