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Johannesburg - De Beers subsidiary Archangel Diamond Corporation has formally pulled out of its proposed Russian diamond deal.
The diamond giant said on Monday in a statement that Archangel had exercised its rights to terminate its proposed acquisition of a 49.99% stake in Arkhangelskoe Geologodobychnoe Predpriyatie (AGD) from Archangel's partner Lukoil.
Toronto-listed Archangel, which is 58% owned by the De Beers Group, warned in December that it might pull out of the agreement that would have seen it buy half of the Verkhotina diamond project in northwest Russia for $225m (R2.5bn at Tuesday's exchange rate).
In terms of the agreement signed in April of last year, Lukoil would have held the remaining 50.01% in the project.
The project would have given De Beers access to the diamond-rich Grib pipe in Russia which lies about 1 000km north of Moscow.
Discovered in 1996 by a partnership between AGD and Archangel, the Grib diamond pipe, on the Verkhotina licence area, is thought to be the world's largest undeveloped kimberlite mine containing about 67m carats of diamonds.
The deposit has, however, led to a decade-long legal battle between De Beers and Lukoil over the licence rights.
Archangel's agreement with Lukoil to acquire half of the project was expected to bring the legal battle to an end.
But Archangel has indicated that it was terminating the share purchase agreement because two conditions precedent had not been fulfilled.
These were approval under the Russian Federation law on foreign investment in strategic assets, and approval under the Russian Federation competition law.
The company also cited adverse economic conditions as contributing to its decision.
Archangel said investors would be aware that "severe and adverse" economic conditions have had a dramatic impact on exploration and mining projects on a global basis.
"These conditions are also seriously affecting the diamond industry, including current and planned diamond mining operations," Archangel said.
And while the dropping of litigation would allow Lukoil to entertain offers from other international diamond miners, it may not be free to do so yet.
De Beers said Archangel was considering future options for the corporation including financing options and the potential resumption of the currently suspended litigation.
- I-Net Bridge