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By John Helmer in Moscow

Mining entrepreneur Mike Nunn says First African Diamonds, a company he owns, was illegally expropriated, and that he is taking the DRC government to arbitration in Geneva.

President Joseph Kabila’s review and reorganization of controversial diamond-mining licences and concessions in the Democratic Republic of Congo (DRC) apparently took a new direction this past week, with approval of a Russian proposal to develop the Sengamines project. Until April of this year, this has been under the control of South African mining entrepreneur Mike Nunn and First African Diamonds Ltd. (FAD), a company he owns.

Nunn has told Mineweb that FAD was illegally expropriated, and he is taking the DRC government to arbitration in Geneva.

Alrosa says that it has agreed to start diamond prospecting in the DRC, at Kabila’s request. But Alrosa sources say that details of the undertaking, and of a meeting Alrosa chief executive Sergei Vybornov had last week with Kabila, should be kept secret. It is Vybornov’s second meeting with Kabila this year; the first occurred, with comparably little disclosure, in March.

According to a new release, Vybornov met with Kabila on September 12 in Kinshasa. The official statement reports: “The discussion resulted in the decision that, in the framework of its cooperation with the DRC, ALROSA will carry out detailed exploration of a diamond deposit in the south of that African country.” A source close to Vybornov refused to identify the deposit. “In agreement with the Congo side,” he told Mineweb, “we do not say more than is disclosed in the press release we’ve published. We will be back to this question, but later.”

Alrosa first opened talks with Kabila and the Congolese when Vybornov’s predecessor, Alexander Nichiporuk, visited Kinshasa in April 2005. Alrosa’s involvement in the DRC at that time also involved controversial links to two Israelis, Arkady Gaydamak and Dan Gertler.

Gaydamak was active in introducing Nichiporuk in neighbouring Angola; Gertler in the DRC. Gertler was then personally close to Kabila, and through a company he and others ran, Canadian-registered Emaxon Finance Corporation, Gertler held the marketing concession for 88% of the DRC’s diamond exports. Alrosa’s interest in Gertler was intended to buttress the break the Russian company had made with Lev Leviev, the biggest of the Israeli diamantaires, with whom, until then, Alrosa had been partnering for the sale of diamonds from the Catoca mine in Angola.

According to a letter on an Alrosa letterhead, dated June 22, 2005, Nichiporuk purportedly made an offer to buy a 54% shareholding in the DRC’s Sengamines mine and licences for about $60 million. The text proposes a down-payment of $8 million “to cover current justified outstanding expenses”, and $60 million payable over the time it would take for Alrosa to bring the mine into production and sell its diamonds, with a calculation of $1 for each carat sold. The proposal also allowed Alrosa three years from the start of its agreement for start-up of production.

The document was later judged to be a forgery. However, Alrosa has confirmed that it had been studying a number of diamond assets in DRC, including Sengamines.

In 2006, Nichiporuk’s initiative in the DRC, as well as Angola, came under attack from his rival, Sakha region president, Vyacheslav Shtirov, who accused him of shorting investment in Sakha, and favouring Africa instead. Shtirov’s campaign to oust Nichiporuk intensified through the year, and led, in February 2007, to his replacement by Vybornov.

A year elapsed before Vybornov ventured in Nichiporuk’s footsteps in central Africa. He first met Kabila at an undisclosed location in the DRC on March 18, this year, following stops in Namibia, where he met President Hifikepunye Pohamba, and also Angola, where he met President Jose Eduardo dos Santos. The communiqué issued after the Kabila meeting said Vybornov’s talks focused on “issues related to cooperation between ALROSA and the DRC in diamond exploration and energy sector”.

The shareholding ownership and control of Sengamines has been contested for several years, and was the subject of a United Nations report in 2002, which was subsequently corrected. Export sales in the three-year period, 2001-2003, according to a report from Antwerp, averaged just under 80,000 carats per month, at a very low average value of under $15 per carat. In that period, marketing was taken over by AP Diamonds, run in 2003 by Geoffrey White for Oryx Natural Resources, a company whose African operations and shareholding have also been the subject of much controversy.

The Emaxon agreement to take over marketing of DRC diamond production was reported to have commenced in April 2003. Arguments have followed over the terms of the deal, and the diamond valuations and revenues realized by the agreement. The US publication Newsweek quoted a Congolese official as claiming that during 2007, the monthly sales average fell from a high of $16.75 per carat to a low of $12.99.

In 2006, Nunn and FAD signed a purchase agreement for an 80% stake in Sengamines, while Societe Miniere de Bakwanga (MIBA), the DRC state diamond producer, held 20%. The deal required returning Sengamines to exploration status, in order to assess the potential of the concession. The two partners agreed to change the name of the operating company to Entreprise Minière de Kasa’ Oriental SARL (EMIKOR). Nunn then opened negotiations with international diamond miners to help him finance a new mining plan. De Beers was one of his targets; Alrosa was another. But Nunn did not sign a major deal.

Nunn is in the DRC this week, but he told Mineweb through a spokesman that FAD has invested about $20 million in Sengamines, “with half of this being used to settle debts accumulated by the former management, and duly done in accordance with specific requests made by the DRC Government when approving FAD’s involvement in the project. FAD has also invested in maintenance and exploration work as well as other costs related to the project.” In addition, FAD says it has undertaken “a comprehensive feasibility study as well as maintained the property and continued with all social upliftment and community support programs.”

On March 29 of this year, at the traditional overview for shareholders which Alrosa leaders give each year at Mirny, both Vybornov and Alrosa board chairman, Deputy Prime Minister Alexei Kudrin, explained that what they are doing in Angola and DRC is a hedge against the rising costs and technical risks of underground mine production in Russia.

On April 14, Nunn’s spokesman told Mineweb, “a group claiming to be Government representatives, accompanied by heavily armed police and army arrived at Sengamines and forcefully and illegally expropriated the property, equipment and assets without justification, explanation or legal supporting documentation. FAD representatives were given 48 hours to leave the property and were stopped from taking any company documents. The plant, machinery and assets which have been illegally confiscated are estimated to have a value of approximately $65 million based on company records of investments made by the previous owners and subsequently by FAD.”

FAD followed on April 22 with a notice from its lawyers, Simmons and Simmons of Paris, informing the DRC government that it was declaring force majeure at the project. FAD says that “on numerous occasions [it] communicated with the DRC Deputy Minister of Mines to resolve any differences and to continue the evaluation and development of the project, and has received various verbal reassurances in this regard. FAD has also made several requests for an audience with the Minister of Mines and with President Kabila to clarify the DRC Government’s expectations of FAD in respect of Sengamines.”

According to his spokesman in Johannesburg, Nunn “has long been an investor in the DRC, as well as a great admirer of president Kabila. Mike has been an enthusiastic supporter of South African investment into the DRC and has been involved with several SA Government missions to the DRC, introducing and SA politicians and businessman to promote investment in the DRC. FAD is bitterly disappointed at this treatment after investing in Sengamines at the specific personal request of President Kabila during his presidential election campaign, after an introduction by [SA] President [Thabo] Mbeki.”

The source added that joining Nunn and FAD in its arbitration challenge in Geneva is AMIL, described as a subsidiary of the Qatar Investment Authority, the $60 billion sovereign wealth fund of the Qatar state, based in Doha.

In the DRC, in addition to the active measures taken to annul Nunn’s First African Diamonds deal, and replace it with a new source of finance and mining expertise for Sengamines, there has also been a fierce challenge to the five-year old Emaxon marketing deal. Also in April of this year, MIBA officials announced they had terminated the Emaxon marketing right, and would conduct open auctions of rough instead.

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