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By John Helmer in Moscow

De Beers has accepted a new plan which makes litigation in a Denver, Colorado, courtroom against LUKoil the centrepiece of the diamond-miner’s survival strategy; and the prospect of multi-million dollar compensation the Toronto-listed company’s most valuable asset.

A new document, filed this week in the US Bankrupty Court in Denver (case number 09-22621-HRT), sets out the terms of the agreement to revive the court case against Russians charged with contract violations and fraudulently withholding the mining licence rights for the Grib pipe in northwestern Russia of Archangel Diamond Corporation (ticker: AAD:V). De Beers owns 56% of ADC’s shares. In legal jargon, the new plan converts an involuntary bankruptcy scheme under Sect 7 of the US bankruptcy code into a section 11 voluntary arrangement. The first scheme had been proposed in July by ADC’s principal lawyer, Bruce Marks (pictured right), and two minority investors, Firebird Global Master Fund, a US investor, and Clive Hartz, an Australian. They acted after De Beers had threatened ADC with foreclosure on a loan of almost $10 million, and the abandonment of the two legal claims ADC has been waging — in the Coloroado District Court, and in the Stockholm international arbitration tribunal.

Jonathan Oppenheimer and Gareth Penny have not explained to ADC’s shareholders why they have attempted to abandon ADC’s 10-year Russian litigation, and close ADC down without shareholder or creditor approval. Hartz, who had served for many years on the ADC, resigned from the board in protest at the De Beers move; he has been incommunicado ever since.

After several weeks of negotiations, it is now clear that De Beers has changed its mind, and accepted a deal that leaves the financially embattled family concern with no new obligations, and a free ride on the opportunity to compel LUKoil to pay for the assets that have been appropriated. Drilling, sampling and assaying by De Beers have already estimated the value of the Verkhotina diamond deposit at between $8.2 billion and $9.7 billion at the diamond prices prevailing in the first quarter of 2008. ADC’s stake in the original project was 40%. Through a cutout in Luxembourg, De Beers holds a control stake of 54% in ADC, plus a $10 million loan that was called for repayment in May. ADC’s claim papers in court seek recovery of $30 million in investment, $400 million in ADC’s share of profits, and another $800 million in potential profits.

Russian corporate figures have recently acknowledged that the legal tide appears to be turning against them in the UK and US. This started with a July 3, 2008, ruling by the High Court in London that claims against powerful Russian figures are unlikely to be fairly tried in the Russian courts, and that jurisdiction for trial in the UK is fair and proper. This ruling, in a multi-billion dollar share fraud claim by Michael Cherney against Oleg Deripaska, was upheld in a landmark decision of the UK Court of Appeal five weeks ago, on July 31.

In ADC’s case, the Colorado bankruptcy court documents reveal that Firebird will advance at least $1 million for the primary purpose of continuing the case against LUKoil. Because the Colorado court has issued discovery orders that have turned up increasingly solid, and embarrassing evidence, of LUKoil’s business in the state, the likelihood that the court will accept jurisdiction and order LUKoil to trial has grown. That means that after a decade of manoeuvering, LUKoil, its mining affiliate Arkhangelsgeoldobycha (AGD), LUKoil chief executive Vagit Alekperov (pictured centre), and his business associate Alisher Usmanov, will face the prospect of having to testify in a US court, with US penalties for non-compliance or perjury. The court claim against LUKoil and AGD is for an alleged “scheme of fraud, breach of express and implied contract, civil conspiracy, intentional interference with contract, breach of fiduciary duty, and unjust enrichment”.

LUKoil has denied culpability, and tried to insist on Russian court jurisdiction for the case. Alekperov and Usmanov have issued public statements denying personal liability or responsibility. Asked to comment on the revival of the court case, a LUKoil spokesman told PolishedPrices.com: “all the people responsible and authorized to comment are travelling.” A company response has been promised for Monday.

The newly negotiated plan sets up a trust into which Firebird’s revival cash will be deposited, and into which court-ordered compensation, or a settlement agreed by LUKoil would be paid. The latest court filing in Colorado also means that despite the Canadian registration of ADC, and the location of De Beers’s managers and board directors in Canada, Oppenheimer and Penny have accepted the jurisdiction of the US courts over ADC’s future. ADC’s shares have been trading over the past year between 3 cents and $1.40. Yesterday, the price was 6 cents.

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