A new court filing in Denver, Colorado, lodged on July 31, reveals that diamond giant De Beers is in negotiations with shareholders of Archangel Diamond Corporation (ADC) to drop an attempt De Beers has been making to put ADC into bankruptcy, and abandon a Colorado court case against LUKoil and its Russian mining subsidiary, Arkhangelskgeoldobycha (AGD).

According to the publicly available document, the three shareholders who oppose De Beers - Bruce Marks, ADC's attorney in the LUKoil case; Clive Hartz, a former ADC board member; and James Passin of the FirebirdGlobal Master Fund - "are continuing their negotiations and additional time is necessary to complete those negotiations. The Petitioning Creditors and ADC have agreed to an extension of time until August 13, 2009, for ADC to respond to the Involuntary Bankruptcy Petition."

The court agreed to the extension, the second one granted since the three filed a bankruptcy petition in the Denver branch of the US Bankruptcy Court on June 26. The originating petition said that Marks's law firm was owed $135,000 in legal fees for the ADC case against LUKoil and AGD; Hartz was owed $50,000 in unpaid director's fees; and Firebird owed €76,547 ($107,709) for a business loan to ADC. Earlier, Hartz had resigned from the ADC board in protest after De diamond giant Beers had revealed its plan to liquidate ADC. Through its Luxembourg subsidiary Cencan De Beers holds 59% of ADC's shares; Firebird is the next largest shareholder of ADC with about 18%.

The bankruptcy application was filed in Denver, because the principal asset, which shareholders believe ADC still retains, is its legal case for compensation against the two alleged Russian raiders. AGD is wholly owned by LUKoil, one of Russia's leading oil producers and exporters. Two well-known Russian businessmen, Vagit Alekperov, the chief executive of LUKoil, and Alisher Usmanov, a metals and diamond mining magnate, are named in the US court papers as having participated with the two defendant companies in "a scheme of fraud, breach of express and implied contract, civil conspiracy, intentional interference with contract, breach of fiduciary duty, and unjust enrichment." ADC is claiming recovery of $30 million in investment, $400 million in its share of profits, and another $800 million in potential profits.

AGD and LUKoil, Alekperov and Usmanov all deny culpability, and have argued that the Colorado court has no jurisdiction over the claims. But recent rulings by Judge Anne Mansfield in the Colorado District Court have suggested that ADC is getting close to winning jurisdiction, and thereby forcing the Russians to trial for the first time since the conflict began in 1998. The recent court record suggests there is substantial evidence of LUKoil's operations in Colorado, and that ADC is at an advantageous point in the proceedings, and should not be forced to pull out by decisions taken in London by Jonathan Oppenheimer and Gareth Penny.

The diamond miner De Beers executives refuse to say why they ordered the liquidation ultimatum on May 12. That document, sent in the name of De Beers's Cencan subsidiary, proposed calling in a $10 million debt ADC was unable to pay, and a scheme of liquidation to follow. This offered up to $1 million to pay off ADC creditors, as well as "restructuring expenses and disbursements."

The conditions of the diamond miner De Beers offer, according to the text of the letter obtained by PolishedPrices included ADC's agreement to "Cencan owning 100% of the issued and outstanding shares of ADC, and ADC would cease to be a public company." The ADC board was told that De Beers wanted "to ensure that no ADC shareholder approval of the transactions contemplated by the Proposal is required." The board was also obliged to give its assent "without the need for an ADC shareholder vote."

If diamond giant De Beers changes its mind, funding for the court case will be assured. If it refuses, it is likely ADC, registered in Toronto, Canada, will follow LUKoil in claiming the Denver court does not have jurisdiction over the claims.

At stake is the Grib diamond pipe, discovered at Verkhotina, in the Arkhangelsk region of northwestern Russia, in 1996. Drilling, sampling and assaying by De Beers have estimated the value of the diamond deposit at between $8.2 billion and $9.7 billion at the diamond prices prevailing in the first quarter of 2008. ADC's stake in the original project was 40%.