MAC: Mines and Communities

DiamondWorks remembers its dead, in silence

Published by MAC on 2003-11-11

Despite the international focus over the past two years on the scourges caused by the extraction and trade of "conflict" or "blood" diamonds in West and Central Africa, one shocking fact remains. Some of those complicit in the recent wars even if supposedly on the "right" side are still active in the region. They have not been called to account for any misdeeds, while their lack of "transparency" is so wilful it makes De Beers look like an open book.

Heading this doleful list is DiamondWorks, originally formed from a merger between Robert and Eric Friedland's Carson Gold and the British outfit, Branch Energy controlled by Tony Buckingham. Until attacks by the rebel RUF in Sierra Leone and UNITA in Angola forced the company to withdraw in the second half of the last decade, DiamondWorks was set to become a major diamond producer. In the meantime, it was at the centre of an extraordinary and dense web of inter-related mining and "security" interests. These included the mercenary outfit, Executive Outcomes (since banned by the South African government), and its associate Sandline (thrown out of Papua New Guinea after planning to wrest Rio Tinto's Bougainville mine from the Bougainville Liberation Army on behalf of PNG prime minister, Julius Chan).

Now DiamondWorks is posting impressive profits on its oil exploitation in Zambia and plans to return to Sierra Leone for diamonds to the Koidu kimberlite fields which it received in part payment for its collaboration with the notorious Executive Outcomes.

There are doubtless many Africans who wish to question DiamondWorks and call it to account. And there are also the families of four men killed in a rebel attack on its Angolan Yetwene mine in 1998, who are still to receive adequate compensation - five years after their loss .

DiamondWorks remembers its dead, in silence

Will Purcell, Stockwatch Street Wire (Canada)

November 11 2003

Antonio Teixeira's DiamondWorks is posting strong profits from its oil supply business and is now reviving one of its diamond projects that should help the company's bottom line further still. The new profits come just five years after a pre-dawn attack at the company's Yetwene mine left several DiamondWorks employees dead and missing, despite what was supposed to be a ceasefire in Angola's long-standing civil war. For a time, DiamondWorks seemed destined to suffer the same fate as its unfortunate employees, but things have been much rosier of late for the company and its shareholders, as a series of recent deals have proven quite profitable. Sadly, things have been decidedly dismal for the families of the four employees who remain unaccounted for to this day. Although the authorities in three countries and the families now concede that the men are dead, their survivors are still waiting for a final settlement in accordance with the terms of the employment contracts, exactly five years after the strike on Yetwene.

Through the first three quarters of 2003, DiamondWorks has reported a net income of nearly $12-million (U.S.), on the strength of sales of just under $134-million (U.S.) over that stretch. Compared with the first six months of the year, things were not quite as rosy in the latest quarter, but that apparently was due to what DiamondWorks thinks are temporary problems with its Zambian oil supply arrangement. Despite the difficulties in negotiating a renewed Zambian deal, the company still managed to post a profit of $50,000 for the latest three months, and that is the fifth consecutive quarter that DiamondWorks managed to finish in the black.

That is quite a turnaround for a company that nearly bled to a financial death in the dark days that followed the rebel assault on Yetwene, and also in the three years that preceded the attack. In the three years prior to the end of November, 1998, DiamondWorks reported a cumulative loss of just over $53-million (U.S.), and added another $54-million (U.S.) loss in the three years that followed the Yetwene murders and kidnapping, which cost the lives of several men and nearly unravelled the company.

The steady stream of losses cut deeply into the book value of the company, which recorded its shareholder equity at just over $38.2-million (U.S.) just three weeks after Yetwene, late in 1998. Two years later, the figure had shrunk to a mere $4.7-million (U.S.), despite the addition of more than 110 million new shares through private placements and debt conversions. To make matters worse, the figure was later revised to indicate that DiamondWorks actually had $2.1-million more in liabilities than it had assets at the end of its 2000 fiscal year.

DiamondWorks has had quite a transformation since those dismal days, and the book value of the company has grown rapidly over the past few years as a result, falling just short of $30-million (U.S.) a year ago. In fact, the $44-million (U.S.) book value that the company reported at the end of August is now higher than the level recorded late in 1998, just after the Yetwene attack.

The new prosperity makes the delay in bringing some finality to the Yetwene tragedy a painful wait for the survivors of the four men now presumed to be dead after nearly five years of silence from the perpetrators of the attack. The key part of any settlement is a provision in the employment contracts of the men, which entitled them to a life insurance policy that would pay an amount equal to five times their basic annual salary at the time of their death. Those contracts had been signed with Branch Energy Ltd., a wholly-owned subsidiary of DiamondWorks.

In its 2000 and 2001 financial documents, DiamondWorks acknowledged the matter of the missing men, stating that provision had been made in its financial statements to cover the liability that might arise in the event that the missing men, or their next of kin, were to make a claim against the company in accordance with the employment contracts. Curiously, the financial statements for the most recent year no longer contain such an acknowledgment, nor any mention of subsidiary Branch's obligations.

One of the complicating factors has been the series of management changes that have taken place through the years, as DiamondWorks struggled to stay alive. The company had initially been created from Carson gold in the mid-1990s by Eric Friedland, with his brother Robert Friedland a significant shareholder, but by the time of the Yetwene attack it was Branch's Tony Buckingham who was wielding the boardroom clout, through his voting control of nearly one-third of the company's shares.

The shares of DiamondWorks had peaked at $3.06 early in 1997, just months after the company shed its Carson Gold moniker, but the promotion lost much of its glitter with investors, and a share cost 50 cents by the fall of 1998. The mounting woes triggered by the Yetwene attack took a much greater toll on the stock, and a share cost just one sad cent by late 2000.

DiamondWorks went through a series of dramatic changes, as the company's need for new cash combined with its shrinking share price led to more changes of control. Brian Menell's Ekuseni Resources was the first to take a crack at rescuing the hapless Angolan diamond miner, but it was not until Tony Teixeira's Lyndhurst arrived on the scene that DiamondWorks managed to reverse its flagging fortunes, starting with a 1-for-20 rollback, followed by the company's acquisition of Mr. Teixeira's Otterbea International, which put DiamondWorks into the oil supply business.

DiamondWorks director, Delu Holender has been one constant over the past decade. He was appointed to the company's board in 1994, when he sold a number of Venezuelan gold properties to the company, back in the Carson Gold days. Nothing much came of the gold projects and Mr. Holender has always appeared to be an outsider on the board, but he has managed to cling to his director's chair through the series of changes, and he has remained a believer in the company's prospects, continuing to participate in private placements over the years. That dogged determination now seems to be paying off for Mr. Holender, as the new-found profits of DiamondWorks are a pleasant switch after the years of big losses, but the lingering Yetwene matter remains a dark blotch on his company's improving record.

Nevertheless, Mr. Holender seems hopeful that the matter will soon be settled. "We are in the final stages of discussion with the insurer to bring the matter to an end," he said. "I believe that the matter will now be settled on this basis and we can then close this chapter in the company's history before year end," he added. Mr. Holender stated that the company's insurers had just agreed to make a without prejudice offer to all of the families of the missing persons, in a full and final settlement of all claims that they may have, adding that they were now awaiting replies.

Karen Larsen, the wife of kidnapped metallurgist Doug Larsen, said that the families still had not received any offer from the insurer, or from DiamondWorks, although the presumption of death certificate for Mr. Larsen had been obtained in September of 2001, and the documents for two others, Wenefredo Amoguez and Roberto Bautista, had been obtained from the Philippines in early 2002.

Although it has been Mr. Teixeira's oil supply deals that have rescued DiamondWorks from the brink, the company still fancies itself as a diamond miner, with plans to place its Koidu property into production through the help of its equal partner, Magma Diamond Resources. The Koidu No. 1 pipe has been explored and sampled since the 1950s, while work on the No. 2 pipe and the dike zone began in the 1960s. About 165,000 tonnes of material are believed to have been mined from the No. 1 pipe, which averaged about 0.56 carat per tonne, along with nearly 110,000 tonnes from the second pipe, which yielded diamonds at an average rate of 0.24 carat per tonne.

Despite the previous sampling and mining programs, there is still some uncertainty about the grade of the Koidu kimberlites, and that could give the project an added boost. The most recent resource statement indicated that the No. 1 pipe contained a resource of nearly 1.7 million tonnes of kimberlite, with an average grade of 0.67 carat per tonne, or about 1.13 million carats. The No. 2 pipe holds about 3.15 million tonnes of rock, with an average grade of 0.28 carat per tonne, or about 870,000 carats. That latter grade estimate could be low however, as an earlier estimate pegged the diamond content at about 0.40 carat per tonne. The lower value appears due to an abundance of granite xenoliths and poor plant recoveries.

DiamondWorks plans to revise its resource estimates for Koidu in the coming months, and the company has high hopes that the actual grade at No. 2 will be significantly higher, as the amount of waste material embedded within the kimberlite appears to diminish with depth and its new plant should prove to be quite efficient. DiamondWorks also thinks that the amount of kimberlite at Koidu could be understated, based on the results of its latest delineation drilling program at No. 2. As well, there also appears to be a significant resource in the dike zone at Koidu, which also appears to be economic, and additional work in this region could add to the Koidu resource.

There is also some uncertainty about the value of the Koidu diamonds, although there seems to be little doubt that they are top quality stones. The diamonds from the No. 1 pipe could be worth something between $200 (U.S.) and $300 (U.S.) per carat, which would place the gross value of the Koidu No. 1 pipe at roughly $250-million (U.S.). The value of the diamonds in No. 2 remains an unknown quantity, although there are signs that they will carry a lower value than the No. 1 stones. Nevertheless, the Koidu project could add sparkle to DiamondWorks' new-found oil profits.

As well, DiamondWorks still hopes to revive some of its other old diamond projects. Mr. Holender said that its other gem projects were still on hold, due to the busy pace at Koidu, but the company would be returning to the other regions in due course. That could mean a return to its exploration efforts in the Central African Republic next year, he added. Mr. Holender also said that the company was maintaining contact at the political level in order to preserve the legal status of its projects in Angola.

Meanwhile, like Mr. Holender, Ms. Larsen and the other families also seem willing to close the sad chapter in the history of DiamondWorks, although they may have a completely different notion of just what a full and final settlement might be, after their five-year wait and the company's string of profitable quarters. Ms. Larsen said she would evaluate any formal offer and then decide whether to accept the settlement, or to sue for breach of contract. Nev Pope, the mother of geologist Jason Pope, is also becoming frustrated with the wait. "Not only am I seeking, on behalf of all the families, what is due according to the men's employment contracts, but interest to compensate the families for the hardships they've endured," she stated. Ms. Pope added that she was prepared to sue and freeze the company's assets in Sierra Leone, and the Koidu diamond mine would likely be high on her list.

DiamondWorks closed down eight cents on Monday, at $1.24.

Also relevant to DiamondWorks is the fact that Phil Goff, of the New Zealand Labour Party, and Minister of Foreign Affairs, Trade, Justice and Pacific Island Affairs has introduced for first reading in that country's parliament, the "Mercenary Activities Prohibition Bill", If enacted it would in future render illegal the activities of companies like Executive Outcomes, Sandline and those mining companies using their services. The following is a transcript of Mr Gofff's speech delivered on November 6th 2003

I move that the Mercenary Activities (Prohibition) Bill be now read a first time. I propose that the Bill be referred to the Foreign Affairs, Defence and Trade Committee.

This Bill contains legislation needed for New Zealand to become a party to the International Convention against the Recruitment, Use, Financing, and Training of Mercenaries, which entered into force in 2001.

The Bill establishes new criminal offences for activities involving mercenaries that are not currently punishable under New Zealand law.

The use of mercenaries in armed conflicts is an age-old phenomenon. In recent decades however, the international community has tried to curb this practice.

These attempts reflected growing concern that the use of foreign mercenary forces could impede the exercise of the right to self-determination and violate the fundamental rights of individuals, including the right to life.

New Zealand has long opposed the use of mercenaries. The involvement of mercenaries as an additional party to a conflict impedes peaceful resolution of that conflict.

During the Bougainville crisis, the Papua New Guinea government considered the use of foreign military personnel. New Zealand opposed this, arguing that the crisis would be resolved only through a comprehensive peace process. The mercenaries were withdrawn and the ensuing peace process did prove successful.

By passing this bill and becoming party to the Convention, New Zealand will demonstrate its belief that the use of mercenaries is unacceptable as a method of conflict resolution and that this issue needs to be tackled at the international level.

The Convention identifies particular conduct involving mercenaries that should be proscribed. This includes the conduct of the mercenaries themselves and those who recruit, use, finance or train them.

The Convention also includes measures aimed at increasing international cooperation so that individuals who commit the specified acts can be brought to justice.

The Bill's definition of "mercenary" reflects the definition in the Convention. It encompasses two types of mercenaries, both of which have the objective of making a profit from participating in conflict.

The first type of mercenary is a person who is recruited to fight in a foreign, armed conflict. This definition is based on a provision in the First Protocol to the Geneva Conventions. In this context, the monetary incentive must be measurable, with the person being paid substantially more than members of the armed forces of the parties to the conflict for corresponding duties.

The second type of mercenary is a person who is recruited to participate in a "concerted act of violence" in another country (for example, aimed at overthrowing the government). Again the person's main objective in performing the act must be to make a significant financial gain.

The definition of "mercenary" is not intended to catch those persons who join foreign armies on the same basis as locally recruited staff, or those persons who are motivated to fight overseas by personally held convictions rather than profit.

The definition also would not catch New Zealanders recruited into the legitimate armed forces of their countries. Nor would it encompass those working overseas for companies or non-governmental organisations in security related activities, as long as those activities do not include fighting in a civil conflict.

These definitions reflect the international consensus on those who should clearly be regarded as "mercenaries". There are, however, calls for the definition to be extended to reflect current realities, including the increasing involvement of mercenaries in criminal activities, such as illicit trafficking, including arms and drugs, and even selective assassinations. Consideration to extend the scope of the Convention has been the subject of recent recommendations by the UN Special Rapporteur on Mercenaries. However, in this Bill the definition of a mercenary remains as currently prescribed in the Convention.

The Bill creates five new offences, each with maximum penalties of 14 years imprisonment.

The approach taken in the Bill is to model the new offences on similar existing offences where possible. For example, the offences relating to recruitment and financing are similar to those in the Terrorism Suppression Act 2002.

The Bill also creates two offences relating to the training of mercenaries as a precondition to, or after, recruitment.

The Bill aims to catch those who intentionally train people to be mercenaries in order that they can sell their fighting skills to other countries for profit. It does not therefore cover those in the New Zealand armed forces who train our troops or who, as part of their duties, go overseas to assist with the training of armed forces in other countries. It also would not catch ex-New Zealand soldiers who assist with up-skilling the armed forces of a particular country.

What is caught, however, is the situation where those being trained are part of an "army for hire", prepared to go anywhere and fight in any war or overthrow any government for money.

Extraterritorial jurisdiction is taken in certain situations, for example, allowing prosecutions of New Zealand nationals or of others alleged to have committed a Convention offence who are found in New Zealand but for some reason are not extradited.

Other provisions include those relating to cooperation with other states in their criminal investigations and proceedings, and are similar to those in the Terrorism Suppression Act.

These new offences will discourage New Zealand's use as a base for mercenary activities. The broad jurisdiction, allowing prosecution here for acts done overseas, will help to ensure that mercenaries do not regard New Zealand as a 'safe haven'.

This Bill will put New Zealanders on notice that they cannot under our law agree to be recruited to fight and kill simply because it is lucrative to do so.

This Bill therefore reaffirms New Zealand's longstanding position that it does not condone the use of mercenaries.

I commend this Bill to the House.

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