TSHEKEDI-LINKED DIAMOND DEAL CONTROVERSIAL

TSHEKEDI-LINKED DIAMOND DEAL CONTROVERSIAL

Former De Beers boss Gareth Penny has emerged as the next hot diamond industry topic after Lesedi La Rona. Not because he led an international corporation but for a controversial potential takeover of Firestone Operation (BK11 Mine) in Botswana, a company in which President Ian Khama’s younger brother, Tshekedi Khama has shares in. In all emerging arguments nothing has generated much heat like the terms of the deal, Staff Writers KEABETSWE NEWEL and KITSO DICKSON report.

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Monak Ventures (PTY) Ltd, a company owned by Tshekedi Khama, prominent businessman and architect Paul Paledi, one Polite Khutjwe and two international mining investors, Stuart Brown, Chief Executive Officer (CEO) of Firestone Diamonds and his Chief Financial Officer (CFO) Grant Ferriman, who also double as Firestone Diamonds Directors, own 10 percent stake in BK11 mine. The remaining 90 percent is owned by Firestone PLC.

However, it is Monak Ventures, Tshekedi’s company, which holds a mining license surrounding the BK11 Mine area. Tshekedi’s company benefits by the virtue of owning a mining license around that area and will continue to benefit even under new shareholders.
BK11 Mine has been on care and maintenance since 2012, owing to, according to management, weak diamond prices. When BK11 commenced operations in Letlhakane, Monak Ventures (which owns 10 percent in BK11 Mine) in which Minister of Environment Wildlife and Tourism Tshekedi is a Director, the then Minister of Minerals Energy and Water Resources and former Vice President Ponatshego Kedikilwe granted a mining License No. 2010/59L, to Monak to mine diamonds over the BK 11 Diamond Mine deposit for a period of 12 years with an option to renew. BK11 has been, however, closed since 2012. Its parent company, Firestone Diamonds, has been in a vigorous process to sell BK11 mine or rope in a strategic partner. Recently, BK11 is in a controversial sale, in which the terms seem dubious.

The controversial terms of Firestone Diamond Botswana takeover have come thick and fast, sparking a fair bit of confusion and controversy. Penny in partnership with Diacore Diamonds are expected to buy Firestone Diamonds interest in Botswana through Amulet Diamond Corporation, a Canadian special purpose vehicle. Amulet which was formed by both parties for the purpose of the Disposal by a group of private investors said this week that it has progressed with the construction of a bulk sampling plant at BK11 mine, owned 90 percent by Firestone Diamonds. Amulet will carry out the bulk sample programme of the BK11, which has been placed on care and maintenance since 2012.

Penny and partner Diacore Diamonds entered into a conditional option agreement for the potential disposal of its Firestone Botswana operations which took effect in June this year for a period of up to 14 months. During the Option Period, Amulet says it is funding the construction and operation of the bulk sampling plant and the carrying out of the bulk sample programme at BK11 mine. For now the transaction is not guaranteed, the Amulet spokesperson Frederika Pardoe told this publication. “Amulet will assess the BK11 deposit to determine whether to exercise its sole option to acquire Firestone Diamonds Plc’s Botswana Companies.”

Naturally, the diamond industry consists of 5 steps. That is the prospecting, mining, sorting and valuing, aggregation and eventually sales, though mining experts suggest that the real dough is not in the actual mining but its prospecting. Interestingly, BK11 was previously operational, and mining license given suggesting that the value and grading were known before. However, Penny and his partners will be allowed to sample diamonds from BK11 even before the sale transaction takes place. Pardoe, Amulet spokesperson said that the transaction is not guaranteed. It means while Amulet will be sampling and selling diamonds from BK11, it may after 12 months decide to pull out of the deal, even after profiting from diamonds sold through the controversial sampling process.

Government says it has given the nod to sample on the basis that sampling is meant to firm up on the resource. However since it (BK11) is under care and maintenance, permission is sought from the Minister of Minerals Resources, Green Technology and Energy Security. Shandya Sitale, the Ministry’s spokesperson says, “Under the Mines and Minerals Act there is nothing wrong to sample in an operating mine as a way of firming up on one’s resource base.”

So Amulet will easily dig and export in the name of prospecting, and sending drilled cores for sampling in the period of option agreement. That is just the thing, several diamond mining firms have found a loophole in Botswana, and are shipping diamonds out of the country in the name of sampling. The Business Weekly & Review investigations established that under a normal sampling process, a government official should be present when these samples are packaged and should fly with company officials abroad to ensure that the contents of the samples are returned and declared accordingly. But here, government gives the mining company freedom to fly with packages that contain diamonds, and trust on them to properly declare, which they never do.

The packaged samples will often be immune to probing eyes of any curious Customs officials. Chances are that that these diamonds end up being sold outside Botswana. It is otherwise a cheaper way Amulet will profit from diamonds at BK11 without necessarily opening the mine, though Sitale insists Diamond samples are not sold, they are only sent out for economic evaluation of deposits. “All diamond sold in the open market or through tenders outside the country cannot be sold without the Minister’s approval.” “Companies that are prospecting for diamonds usually progress to mining phase when they find deposits that are economic to mine.”

On the flip side, miners argue that most companies never pass the prospecting phase, nor do they declare any samples from abroad, even though on the contrary Sitale says each time the diamond or other mineral samples are sent out of the country, permission is sought from the Minister. “Furthermore diamond exported from Botswana are accompanied by a Kimberly Process Certificate and also valued by the Government Diamond Valuers. The Inspectorate Division at the Department of Mines always carries out inspections on prospecting and mining companies.”

Since Amulet says the deal is not guaranteed it means they can decide to pull the plug on the mine leaving it closed, after sampling. The Business Weekly & Review sent a set of question to Diacore. The company responded through Pardoe said, “at this stage, we are unable to comment on whether sampling is a more cost-effective way of operating BK11. An assessment of how BK11 will be operated in the longer term will be conducted once further information from the initial bulk sampling programme is available and once a decision as to whether Amulet will exercise the Option has been made.”

Amulet could just decide not to buy the mine after option period elapses. The sampling comes at a time when the mine has been placed under care and maintenance for more than 5 years. Prospecting License for BK11 awarded to Firestone Diamonds in March 2007 followed by a Mining Licence in July 2010, meaning that information on the diamond grade, the type of deposit and mineral resources has already been established by Firestone.

In defence of the buyers Pardoe says “The diamond mining environment has undergone economic and technological changes since then. Amulet is therefore taking this opportunity to conduct a sampling programme to assess BK11’s future prospects in the context of the current economic environment and in light of new technology available to the diamond industry.”

If the deal sees light, Amulet will acquire the operations in Botswana for a total consideration of US$5.1 million (about P52.7 million) in cash. The completion of the disposal is subject to, inter alia, satisfaction of the following conditions within 12 months of the date of the exercise of the Option: the parties gaining approval from the Botswana Competition Authority; and the parties obtaining ministerial approval for the transfer of the controlling interest in Monak to Amulet.

According to that option then US$0.1 million would payable immediately with the balance, being US$5.0 million, to be placed in escrow no later than 10 days following the exercise of the Option.

Amulet will, during the Option Period and, in the event it exercises the Option, from the time it exercises the Option up and until completion of the Disposal, pay the ongoing cost of BK11’s care and maintenance programme up to a maximum of US$30,000 per month. Firestone will also be entitled to retain 10 percent of the proceeds from diamonds sold from the bulk sampling programme (after royalties and agreed expenses) during this period.

As at 30 June 2016, the aggregate net assets for the company was US$4.1 million and for the year ended 30 June 2016, it achieved an aggregate loss of US$2.0 million before foreign exchange losses on conversion from local currencies. Emily Fenton, Firestone Director declined to comment citing embargo by listing requirement.