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By John Helmer in Moscow

Despite a blackout of news from Archangel Diamond Corporation (AAD:CN), the Canadian mining junior will seek US court orders to oblige two key Russian executives to give testimony on oath in ADC’s claim that it has been unlawfully deprived of its stake in the multi-billion dollar Grib diamond pipe, in northwestern Russia.

The threats of a US court order to testify, and of legal sanctions for possible evasion of the subpoena or perjury, have been the most powerful weapons ADC has held in its decade-long attempt to recover its mining rights from the Russians named in the court claims. It has taken that long for the US courts to consider whether to exercise jurisdiction over the Russians — the ruling could come very soon.

Before diamond values crashed last year, De Beers had estimated the Grib deposit to contain 74 million recoverable carats, worth about $8.2 billion. It is the largest diamond mine ever discovered by a foreign mining company in Russia. Despite technical mining difficulties, the project is believed to have significantly better profitability prospects than new DeBeers projects in Canada, where book values have been heavily written down.

Financed by DeBeers, which holds a 59.4% stake, ADC held a conference last month with the presiding judge in the Denver, Colorado, District Court. The judge has called for the filing of third-party deposition notices, which may be signed shortly. Lawyers for ADC will not comment on the identities of those to be deposed. However, in an earlier phase of the US proceedings, 11 individuals were listed for interrogation. They included the former CEO of ADC, Timothy Haddon; Vagit Alekperov, the CEO of LUKoil, one of Russia’s leading oil companies; and Alisher Usmanov, a well-known owner of iron-ore mines and steelmills in Russia, and part-owner of the UK football club, Arsenal.

The named defendants in ADC’s claim are two Russian companies, Arkhangelskgeoldobycha (AGD), the current licence holder and miner of the diamond project; and LUKoil, the controlling shareholder of AGD. Alekperov and Usmanov are accused in ADC’s court claim of being participants in “a scheme of fraud, breach of express and implied contract, civil conspiracy, intentional interference with contract, breach of fiduciary duty, and unjust enrichment”. ADC is claiming $1.2 billion in compensatory damages for the loss of its investment and profits in the diamond project, plus triple punitive damages of $3.6 billion for the alleged racketeering conspiracy.

The Colorado court has been selected, because LUKoil does business there, and because ADC’s headquarters were there during the period covered by the court claims. Usmanov is described in the court documents as having “individually, or in cooperation with LUKoil and others, operated and controlled AGD during the time periods described herein.”

Alekperov and Usmanov deny the claims against them, and have challenged the jurisdiction of the US courts to compel them to testify. LUKoil and AGD deny ADC’s claims and allegations, and claim the Russian courts have vindicated AGD’s management of the licence and shareholding agreements. ADC counter-claims that the Russian court system allows “powerful Russian interests, such as LUKoil, [to] obtain corrupted and influenced results in commercial disputes with less powerful and Russian and foreign interests.”

That contention has been reinforced by the UK High Court, ruling independently last July in a case involving contested shareholding claims in the Russian bauxite, alumina and aluminium company, Rusal. In a ruling by Justice Christopher Clarke in favour of Michael Cherney, the claimant for a 20% stake in Rusal, the judge ruled “that, in this particular case, there is a significant risk that Mr Cherney will not obtain in Russia a trial unaffected by improper interference by State actors and that substantial justice may not be done.”

A year ago, Alekperov struck an agreement in Moscow with Nicky Oppenheimer, controlling shareholder of DeBeers, for a deal ending the court claim, and starting instead a joint venture in which LUKoil and DeBeers would develop the mine. That deal collapsed last December, after the Russian government failed to complete approvals of the joint-venture agreement, and to issue clear terms of a diamond cutting and polishing agreement, which the mining venture was obliged by the Kremlin to accept. Alekperov also refused to accept a cut in the $225 million payment DeBeers had initially agreed to pay LUKoil for its half-share of the JV.

After the deal had collapsed, ADC issued a termination notice in January. It also warned that “the Board of Archangel is now considering future options for the Corporation including financing options and a potential resumption of the litigation currently suspended.”

A LUKoil spokesman told Minesite it has no comment on the Denver court developments. Metalloinvest, the Usmanov holding, said is unprepared to comment for the time being.

ADC has issued no details of the resumption of the Colorado litigation, or of the reopening of an arbitration court claim by ADC, against the same defendants, in Stockholm, Sweden. News of that move was confirmed by a lawyer representing AGD in a Moscow newspaper on January 22.

An individual shareholder in ADC, John Diamond, has complained this month to ADC’s listing authority, the Ontario Securities Commission (OSC). The complaint was filed with the OSC on March 4. It charges ADC with “repeated failures of ADC to honor its disclosure obligations to its shareholders”. The OSC is requested to order ADC “to advise its shareholders of all material facts” concerning the litigation now under way again.

In sporadic trading, ADC’s share peaked at C$2 immediately after the joint venture with LUKoil was announced, and litigation suspended, last April. Since then it has drifted downwards, and except for a brief rally in October, after the Russian government appeared to give its approval for the venture to start, the share has headed towards zero value. It is currently at 0.6 of one Canadian cent; that represents a market value of C$5 million.

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