Global Policy Forum

Diamond Miner Halts Stock Listing Plans


By Alan Cowell

New York Times
June 13, 2000

In an abrupt twist to a tangled tale, a diamond-mining company with ties to the governments of Congo and Zimbabwe was forced today to shelve plans to list its shares on the London Stock Exchange less than 24 hours before the stock was to begin trading. It was not clear when -- or even if -- the company, Oryx Natural Resources, would be able to restart its planned stock offering.

The decision followed a threat by Oryx's London financial adviser, the accounting firm Grant Thornton, to resign if the company, which is registered in the Cayman Islands, proceeded with an all-stock, $75 million merger with Petra Diamonds Ltd., a Bermuda-registered concern run from Johannesburg. Petra is already listed on London's junior Alternative Investment Market. The deal was intended as a way for Oryx to take over Petra's listing and change the company's name to Oryx Diamonds Ltd.

The postponement was decided upon at a special shareholders meeting of Oryx, where approval of the transaction and the name change had seemed as if they were a foregone conclusion. Instead, meeting participants voted to delay the transaction indefinitely, and there were shouts of "outrageous," "unbelievable" and "blackmail" when a Grant Thornton representative declined to explain its decision in any detail.

Adonis Pouroulis, Petra's chairman and chief executive, said he did not understand why the adviser had threatened to quit. "We as a board, and personally, have no knowledge of why we are in the situation we are in today," he said at the special meeting.

The merger had been intended, essentially, to enable the company to sell stock in a venture to exploit a $1 billion, 25-year diamond concession in

Congo, awarded to Oryx in an area guarded by Zimbabwean soldiers allied to the Congolese government in its battle with rebel forces. The plan has been opposed by the British government, which is leading a campaign to outlaw the sale of "conflict diamonds" that help fuel African wars.

Oryx denies it would be trading in such gems and says the area where it plans to mine is peaceful. Last week, Oryx directors wrote to Britain's Foreign Office, asserting that "to align our concession with 'blood diamonds' is misleading." The directors also said that diamond fields in an adjacent concession were mined by a Belgian company, Sibeka, in which De Beers, the world diamond giant, has a minority stake, according to a copy of the letter.

De Beers, which has begun a publicity campaign to distance itself from "conflict diamonds," acknowledged that it had a 4 percent stake in the Belgian operation, run by a Congolese government agency. But a spokesman, Andrew Lamont, said the company had lost a marketing contract relating to the concession in 1996 and had not traded in diamonds from Congo for more than a year.

The planned stock offering by Oryx has become all the more contentious because of the two African governments involved. Congo's president, Laurent Kabila, is fighting a persistent rebellion that has drawn at least five African countries into a smoldering civil war. In Zimbabwe, President Robert Mugabe, facing elections this month that threaten his 20-year grip on power, stands accused by critics of ordering a far-reaching campaign of political intimidation that has taken more than 20 lives and led to the occupation of more than 1,000 white-owned farms. Zimbabwean officials have openly said that they are seeking mineral concessions to finance the military presence in Congo.

Global Witness, an advocacy group opposed to the sale of conflict diamonds, said the exploitation of Oryx's concession would "further entrench the Zimbabwean troops in their desire to stay" in the area. "This was definitely the main reason for keeping the Zimbabwean troops there," said Alex Yearsley, a spokesman for the group.

But Geoffrey White, the deputy managing director of Oryx, said the company planned to maintain its exploration and other operations in the concession area and might seek a listing on another stock exchange. He did not say where.

Grant Thornton, the financial adviser, said in a statement that a combination of press coverage of the merger and "discussions with the regulatory authorities" had led it to conclude that it "could no longer act if the acquisition" were to proceed.

Executives close to the deliberations behind Grant Thornton's decision said British regulators had been concerned about three main aspects of the deal: its valuation of the concession, situated south of Mbuji-Mayi in Congo's main diamond area; the question of ownership; and the company's explanation of the risks involved in mining there.

Oryx has acknowledged that the commercial risks of operating its concession reduce the value of the diamond deposits believed to be there by about 80 percent, to $208 million. But it denies that its title to the concession -- granted by a Congolese government decree -- is invalid.

British government ministers and regulators, however, have questioned the company's ties to the Kabila and Mugabe governments. According to diplomats and company records, Oryx has a joint venture in Zimbabwe called Oryx Zimcon linked to a Zimbabwean company called Osleg, which, in turn, has close ties to Mr. Mugabe's government and to the commander of the 11,000 Zimbabwean troops stationed in Congo since 1998.

Additionally, a minority shareholder in Oryx is another Zimbabwe company, Zidco Holdings, which is linked to two government ministers and is part of a business empire run by the ruling party, ZANU-PF, according to diplomats and executives. Oryx also has a profit-sharing arrangement with Osleg and a third company, Comiex, which is linked to Mr. Kabila's government.

Under rules of the Alternative Investment Market, listed companies must have a "nominated adviser" and their shares can be delisted if the adviser quits. Petra's stock was suspended from trading last Friday in accordance with the market's rules, and the company sought today to extend the suspension to prevent a potentially ruinous sell-off. Before the market closed on Friday, Petra shares rose 17.5 pence, or nearly 25 percent, to 88.5 pence, or $1.34, their highest level in more than 19 months.

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