By John Helmer in Moscow
A bid to revive the Russian mine prospects of Toronto-listed Archangel Diamond Corporation (ADC), and head off liquidation by De Beers, failed over the weekend with the disclosure that a US and UK hedge fund operated by Elliott Management Corporation and Elliott Advisors was withdrawing its offer to buy a controlling share in ADC and clear its debts to De Beers.
An announcement by ADC, issued to the market on June 15, says: “Archangel Diamond Corporation… announces that it has received notice from the investor group under the non-binding private placement term sheet announced June 4, 2009 that the investor has determined not to proceed on the terms contemplated in that term sheet and has, therefore, terminated it.”
Despite the fact that negotiations between the investor group, De Beers and ADC have been under way for some time, ADC has not publicly identified Elliott as the bidder. This is Elliott Management Corporation, which is headquartered in New York, and was founded by a lawyer, Paul Singer, in the 1970s. The hedge fund has been reported to be managing almost $13 billion in investor funds, but the company website provides no information. A subsidiary, Elliott Advisors, based in London, has also been involved in the De Beers buyout bid.
No reason has apparently been given by Elliott for withdrawing its interest in ADC, which did not publicly confirm the offer until June 4, three days after Polished Prices.com reported it.
At that time, ADC reported that it had “entered into a non-binding term sheet with an arms’ length party in connection with a proposed non-brokered private placement of common shares in the capital of the Corporation at a price not to exceed CDN$0.05 per share for aggregate proceeds of US$13.75 million. The funds made available through the private placement will be used to settle current debts of the Corporation, provide funds to continue pursuit of its legal claims in Stockholm and Colorado and necessary working capital.”
ADC also acknowledged that the takeover would not go to a full shareholder vote, but would be adopted by De Beers, which holds 58% of ADC’s shares through its Cencan subsidiary. “As the proposed non-brokered private placement will constitute a “change of control” for the purposes of the policies of the TSX Venture Exchange the transaction will be subject to the approval of a simple majority of the current shareholders of the Corporation. Archangel anticipates obtaining, and therefore the private placement is conditional upon, approval by way of the written consent of its majority controlling shareholder, Cencan S.A., in lieu of a special meeting of shareholders.”
It was also conceded that “completion of this proposed private placement will otherwise be subject to satisfactory due diligence by the proposed subscriber; the negotiation, execution and delivery of definitive agreements; and applicable regulatory approvals.”
In May, De Beers had announced a plan to liquidate ADC by calling in a Cencan loan of almost $10 million, which ADC could not pay. ADC disclosed at the time that Cencan had demanded repayment “within three business days”. ADC then conceded that it had “exhausted all financing options and does not expect to be able to raise the funds to repay Cencan by this deadline.”
Announcement of the Elliott deal led to a brief rally in ADC shares. These were trading at 5 Canadian cents and jumped to 12 cents by June 8. There has been speculation that disclosure orders issued last month by the Colorado state court in Denver substantially increased the chances of success for ADC in its decade-long attempt to recover its stake in the Grib diamond pipe in northwestern Russia, a multi-billion dollar reserve.
The orders were against one of the defendants in the ADC claim, LUKoil, one of Russia’s leading oil producers and exporters, which is controlled by Vagit Alekperov. The alleged role that he and his then partner, Alisher Usmanov, played in ADC’s loss of project rights is spelled out in the US court papers, and also in a parallel arbitration proceeding under way in Stockholm.
Proving that LUKoil came within the jurisdiction of the Colorado court has been the the precondition for a trial to commence on ADC’s charges of contract violations and wrongdoing. A ruling in favour of trial by the Colorado court would oblige Alekperov and Usmanov to face questioning on oath by ADC’s US lawyers.
Following the latest disclosure on June 15, the ADC share fell to 7 cents at the close yesterday.