DIAMOND PAGE — Archangel seeks to resolve dispute at Verkhotina project — Funding for Russian project suspended pending compliance of local joint-venture partner

Archangel Diamond (AAD-V) says it will take its dispute with its Russian partner to an international arbitrator if a resolution is not reached soon.

The Vancouver-based company is seeking to have the exploration and mining licence for the Verkhotina property in northern Russia transferred, insisting it has fulfilled all the necessary work requirements stipulated in the joint-venture agreement with its partner, Arkhangelskgeolobyacha.

Archangel, which has suspended further funding on the project pending a resolution, says those requirements are spelled out not only in the original joint-venture agreement, but also in an amending memorandum dated February 1994.

The history of the 400-sq.-km project can be traced to November 1993, when Archangel entered into an agreement with a state-owned enterprise of the Russian province of Arkhangelsk, which was subseqently privatized and renamed Arkhangelskgeolobyacha (AG). The two companies agreed to explore jointly a diamond tenement registered in the name of AG and valid for 25 years.

The Verkhotina Diamond Venture Agreement calls for Archangel to earn a 40% interest in the licence area by funding all exploration and evaluation costs until the decision is made to mine commercially.

Prior to entering the joint venture with Archangel, AG had identified eight diamondiferous kimberlite pipes on the property. While work conducted by AG and Archangel in 1994 and 1995 determined that four of these pipes were sub-economic, these work programs, which included airborne surveys, produced another 150 magnetic anomalies. Reconnaissance drilling on about half of these anomalies led to the discovery of a ninth diamondiferous kimberlite — Pipe 441, also known as the Grib pipe.

Based on a prefeasibility study by New York City-based Task Holdings, the Grib pipe contains 73 million tonnes of diamond-bearing material to a depth of 500 metres. The average grade is 70 carats per 100 tonnes, with a value of US$72 per carat.

In 1994, Archangel (with a 40% interest), AG (50%) and a private company, IBME (10%), incorporated Almazny Bereg (AB), a joint stock public company, under the laws of Russia. AB was subsequently listed on the Central Russian Universal Exchange. In April 1997, AG agreed to transfer the Verkhotina licence to this joint-venture company upon completion of the agreed-upon work program, and even stipulated in a letter that all conditions had been satisfied. Yet still no licence has been transferred.

“There is a faction within AG that wants to transfer the licence into its own diamond company, which is holding up the transfer,” explains Timothy Haddon, president of Archangel.

Haddon has put AG on notice that he is willing to do what is in the best interest of his company, all the while pushing to get the licence transferred to AB. Once this is achieved, Archangel’s rights will be protected under Russian securities laws, which were enacted in the last few years to protect the interests of foreign companies working in the country.

In 1997, the company initiated an US$8-million program that included bulk sampling (to recover a minimum 1,000 carats), geotechnical drilling and construction of a sample processing plant. Haddon says the suspension of funds is not expected to affect the timetable of the work program, provided a resolution is imminent.

He adds that if AG does not transfer the licence in the next 30-60 days, he will take the matter to the Stockholm Arbitration Court.