Diamond mine gets go-ahead

Johannesburg - De Beers and African Diamonds have agreed terms for a mining licence for the proposed AK6 mine with the Botswana government. Production is to start on April 2011.

The joint announcement made on Friday ends one of the most remarkable confrontations in the diamond industry, where junior partner African Diamonds effectively declared war on De Beers.

The dispute became public in July when African Diamonds - the junior partner holding 28% of AK6 - announced it was taking legal action against De Beers which owns 71%. The remaining 1% of the equity is owned by Botswana company Wati.

African Diamonds alleged De Beers was looking to stall development of the mine because it had not been able to agree terms with the Botswana government on the marketing of diamonds from AK6.

The Botswana government wanted these to be sold through an auction process in the country, separate from the De Beers Diamond Trading Company (DTC) marketing channel.

De Beers denied this, stating that its main concern was over the power supply to the mine, given future power supply constraints in southern Africa.

Marketing JV

According to a De Beers statement released on Friday, Boteti - the holding company for AK6 - has signed a heads of agreement with the Botswana government for the mining licence to be granted from October 10, for a period of 15 years.

One of the key terms is that the mine's production will be sold through DTC Botswana, a 50/50 JV between De Beers and the Botswana government.

The government has undertaken to supply power to AK6 from the national grid, but it has also agreed to waive the road levy on imported diesel fuel until 2013, should the mine have to supply power itself through diesel generators.

Significantly, the government has indicated it will not take equity in the project. It has the right to buy up to a 10% stake in the mine.

This is the second new diamond mine in which the government has decided not to invest; it also declined to buy into the Lerala mine recently opened by Australian-listed junior Diamonex.

According to De Beers, the mine will be built in a two-phase process and will require a total investment of about Pula 2.76bn (about US$380m) from 2009 to 2014.

Capital cost conflict

The estimated capital cost of the mine was another bone of contention between African Diamonds and De Beers, with African Diamonds claiming De Beers had inflated this.

According to African Diamonds MD James Campbell there is "still a lot of detailed work to be done" on the final capital estimate, and African Diamonds was working closely with De Beers on this.

De Beers said AK6 will produce an estimated 600 000carats/year during the first three years of its life, rising to 800 000carat/year over the remaining seven years.

"This equates to approximately 8.1m carats by the end of the 10-year life of the mine, with an average dollar per carat (revenue) to Boteti of approximately US$138," De Beers said.

African Diamonds chairperson John Teeling said: "We believe the agreed terms to be equitable to all parties, and we look forward to developing AK6 as quickly and effectively as possible."

- Miningmx.com

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