By John Helmer in Moscow
Jonathan Oppenheimer, the embattled heir to Nicky Oppenheimer and to the struggling De Beers group, and Vagit Alekperov, chief executive and controlling shareholder of LUKoil, one of Russia’s leading oil producers, have started fighting again over the disputed Grib pipe; also known as the Verkhotina project in the northwestern Russian region of Arkhangelsk.
The diamonds at stake, unmined below the surface, were estimated a year ago to be worth $9.7 billion. Until the start of January, Oppenheimer and Alekperov were almost equal partners in a joint venture, signed last April, to develop a mine at Verkhotina. Now they are adversaries again, as Oppenheimer reshuffles his crew for a fight; and Alekperov signals that he is engaging a French company to start independent drilling at the minesite.
Oppenheimer has appointed one of his closest associates in the company to the board of Archangel Diamond Corporation (ADC). The announcement of Tony Guthrie to the ADC board was issued by ADC on January 23.
ADC’s Toronto listed share (ticker TSXV:AAD) lifted from 5 Canadian cents to 6.5 cents on the news. The Candian junior, controlled by De Beers, is the only foreign mining company ever to find, and try developing a diamond mine in Russia.
The ADC release is curt, giving no reasons for the shakeup of its board. “Archangel Diamond Corporation … has announced the resignation of Mr. Bruce Cleaver as Chairman of the Board and a director of the Corporation and Mr. Jonathan Dickman as a director of the Corporation. The Board expresses its appreciation for their services to the Corporation. Mr. Robert Shirriff, a current director of Archangel, has been appointed Chairman of the Board in place of Mr Cleaver. The Board has appointed Mr. Tony Guthrie and Mr. Steven Thomas to the Board to fill the vacancies created. Mr. Guthrie is a mining engineer and senior manager with De Beers Group Services in Johannesburg. Mr. Thomas is Chief Financial Officer of De Beers Canada in Toronto and is also Chief Financial Officer of Archangel.”
Dickman’s exit from ADC follows his resignation from the counsel’s office at De Beers last year.
The elimination of many mining veterans at the Charterhouse Street headquarters of De Beers leaves Guthrie as junior Oppenheimer’s mine operator. Guthrie is also chairman of Boteti Exploration, a joint venture between De Beers Prospecting Botswana, African Diamonds Plc and Wati Ventures Ltd, which initiated a new Botswana mine project at the AK06 diamond deposit last October.
Cleaver’s replacement had been anticipated, sources in Toronto claim, if and when ADC’s deal with LUKoil (ticker LKOH:RX) to restart the Verkhotina diamond mining project in Arkhangelsk were implemented. Cleaver, a lawyer who moved from the South African firm of Webber Wentzel Bowens to become De Beers’s director for commercial and legal affairs in 2005, was thought to be less relevant to an active diamond-mining project than to a project in litigation. Guthrie, or another of De Beers’s technical experts, was in line to take charge of the ADC board.
However, the Russian deal aborted early this month, after the Russian government imposed a cutting and polishing condition on its project approval, and LUKoil failed De Beers’s expectation that it would curtail ADC’s investment risk and financial exposure in the project. ADC announced on January 12 that the LUKoil agreement had failed. This returned De Beers and ADC to litigation against LUKoil and a Russian subsidiary company; parallel court cases have been under way for several years in the US state of Colorado, and also before the International Arbitration Tribunal in Stockholm, Sweden.
ADC’s claim sheet accuses LUKoil chief executive Vagit Alekperov, and Alisher Usmanov, Alekperov’s friend and partner, as having plotted to deprive ADC of its rights and the value of its investment in the Grib pipe, at Verkhotina. Usmanov, an iron-ore miner and steelmaker, has told the British media that he is not a defendant in the case, and that he is innocent of all charges.
Once ADC had annulled its agreement with LUKoil, De Beers has the option to renew the courtroom attack, and seek judicial orders for Alekperov and Usmanov to testify under oath, something they have tried to evade for years. A case conference has been scheduled in the Denver court on February 19.
If De Beers and ADC are serious about pursuing the court claims and multi-billion dollar damages for alleged racketeering, the appointment of Shirriff to replace Cleaver is understandable. It is not clear why Cleaver left the ADC board altogether.
Shirriff has been a Canadian Queen’s Counsel since 1972, and partner in the law firm of Fasken Martineau DuMoulin; he also serves on the Ontario Securities Commission (OSC). The latter role as a securities regulator put Shirriff in a potential conflict of interest a year ago, when trading in ADC shares was suspended for a lengthy period, and without explanation, by the Toronto Stock Exchange. Minority shareholders objected that Shirriff was an ADC director involved in the share suspension, and at the same time a director of the OSC, which was being asked to investigate the proriety of the share suspension. The OSC did not agree to a public investigation. Shirriff refused to answer questions, or disclose whether he held a share interest in ADC.
He is also a director of several other De Beers companies in Canada — De Beers Canada Holdings, De Beers Canada, and Diapros Canada.
The lawyer with the most experience of the fight against LUKoil was Dickman, who handled the case when it first started in 1998, and he was counsel at Norton Rose, advising ADC.
The perception in Canada and in London is that junior Oppenheimer is shuffling the deck to suit himself. Another of his appointments is the new Moscow representative, Jeremy Wyeth. Wyeth has been the senior vice-president of external and corporate affairs for De Beers Canada and vice-president of De Beers’s Victor Mine project in Ontario. The local press have called him “a hero, a mentor and a world-class man” for bringing that project to commissioning. Wyeth has also been chairman of the Ontario Mining Association since 2007.
Wyeth’s service for Oppenheimer, who has been chairman of the De Beers Canada board, has demonstrated ample cold-weather expertise. Neither man has experience of cold war Russian mining.
Alekperov’s LUKoil is also showing signs of strain. Its market capitalization has fallen by more than a third over the past year, and is currently at the $30 billion mark. Moscow brokerage sources report that in the last quarter, LUKoil lost $490 million; after a hedging gain in the same period, the net loss appears to have been just short of $100 million.
Notwithstanding, Alekpereov has apparently decided to capitalize swiftly on De Beers’s withdrawal from the Verkhotina project with a separate move of his own.
According to an announcement issued on January 28 by the Marseille-based drilling company Foraco, LUKoil and its diamond subsidiary Arkhangelskgeoldobycha (AGD) have just contracted to spend €10 million for twelve months of large-diameter drilling and bulk sampling at the Verkhotina site.
Foraco appears to be making its debut in Russia, and also in diamond prospecting. The company says it specializes in drilling for water, as well as for oil. No diamond project is listed on its website. Sub-surface water has been a major problem to date for designing a diamond mine in the Verkhotina area.
According to the French statement, LUKoil is picking up Canadian experience for the Arkhangelsk project. “We are delighted to expand our operations into Russia and look forward to working with AGD in bulk sampling the Grib site. Foraco has significantly increased its expertise in this specialized drilling technique through our recent acquisition of Northwest Sequoia Drilling and its excellent customer references in diamond bulk sampling projects in Northern Canada,” reports Daniel Simoncini, Chairman and Chief Executive Officer of Foraco. “The large diameter drilling skills and assets of Foraco’s European division combined with Sequoia’s unique expertise were key factors in securing this contract with AGD.”
Foraco is listed on the Toronto Stock Exchange, and has a current market capitalization of C$78 million. The news of its break into Russia, with LUKoil, lifted its share price by 53%.