No sooner had De Beers and Archangel Diamond Corporation (ADC) revived last Friday, September 4, their US litigation plan of attack against LUKoil and its senior management, headed by Vagit Alekperov, than Alekperov issued an unprecedented statement saying he is thinking of selling the diamond deposit.



Until now, Alekperov has insisted, both privately and publicly, that he would never sell the mining rights to the diamond deposit at Verkhotina, in the Russian northwestern region of Arkhangelsk.



According to US court documents, Alekperov, together with his one-time friend and business partner, Alisher Usmanov, was responsible for the takeover of the diamond mining license in 1998, two years after its discovery, through Arkhangelskgeoldobycha (AGD), a regional state geology organization, which was privatized, and ultimately taken over by LUKoil.

Alekperov told a Russian reporter in Usinsk (Komi republic) that AGD is "being prepared for possible sale". The Russian wire service Interfax carried the report today.

Asked to clarify what Alekperov meant, his spokesman said Alekperov was referring to the Grib diamond deposit.



"According to the conditions envisioned by the license, LUKoil will finish building infrastructure there - roads, electricity, concentration plant, etc - and in addition, the company will drill extraction wells of large diameter,” the source said. “The company will also conduct additional explorations at the deposit. The plan is to set up (diamond) extraction; but just in case, the project will be prepared for possible selling."

"The asset costs a considerable sum. But our company never said this asset is strategic," Alerkperov was quoted as saying.

Alekperov appears to be referring to LUKoil strategy, not Russian law. For the diamond deposit does come under the Russian statute and regulations for strategic mineral deposits. An earlier statute prohibits foreign miners from taking more than 50% of the equity in a Russian diamond mining venture, or operational control of a Russian diamond find.

In a mystifying reinterpretation of what has happened, Alekperov's spokesman claims that LUKoil and De Beers, along with its affiliate Archangel Diamond Corporation (ADC), "envisioned mutual extraction of diamonds at the AGD site in terms of a joint venture. But FAS (the Federal Antimonopoly Service) prohibited the transaction, saying they don’t want a foreign company to mine Russian diamonds. Thus the agreement was nullified."

In fact, the joint diamond mining venture between LUKoil, De Beers and ADC was approved by Prime Minister Vladimir Putin and the Control Commission for Strategic Resources in October 2008. Alekperov did not sell; rather, De Beers undertook to pay LUKoil $225 million for a 49% stake in the venture.

A rider was attached to the government approval, requiring cutting and polishing in Russia of the diamonds mined at Grib. But FAS officials denied they had anything to do with originating this condition, as they said they lacked the expertise to draft.

FAS repeatedly deflected all questions about the deal rider with the comment that they came from elsewhere in the government. LUKoil refused to clarify for itself, or its joint venture partner, what the condition required. After an inconclusive delay of several months, De Beers announced that it was abandoning the diamond project. It is unclear to this day whether LUKoil played a role behind the scenes in ousting De Beers.

Last week, ADC agreed to a financing scheme that will enable it to attack LUKoil in the Colorado state court for what the court papers charge as a "scheme of fraud, breach of express and implied contract, civil conspiracy, intentional interference with contract, breach of fiduciary duty, and unjust enrichment".

Alekperov's spokesman was asked to comment, and he responded with an acknowledgement that "the litigation is back." But he gave away how sensitive Alekperov is to the new US liability. According to his spokesman, "Alekperov never did, nor ever will testify in an American court. LUKoil has a team of lawyers who will participate in the legal process."