November 21, 1996
Friedland diamond play in China collapses
Failure to reach agreement with shareholders nixes deal
By Karen Howlett
The Globe and Mail
Robert and Eric Friedland's ambition to control China's biggest diamond mine through a born-again Vancouver exploration company has collapsed.
Mr. Friedland is a shareholder in DiamondWorks Ltd. and his younger brother Eric runs the company. Robert Friedland is also a shareholder in the second company in the collapsed deal, China Diamond Corp.
DiamondWorks announced Monday that it will not proceed with its proposed acquisition of China Diamond, a company incorporated in 1994 in the British Virgin Islands to acquire diamond properties in China and owner of a half interest in China's largest operating diamond mine.
Despite the setback, DiamondWorks says it plans to raise $30-million through a private placement and will now concentrate on searching for diamonds in Africa and the Northwest Territories.
China Diamond was to represent a key asset for DiamondWorks. The company changed its name last month from Carson Gold Corp. as part of a new strategy to abandon its search for gold in Venezuela and concentrate on hunting for diamonds in China and Africa.
Robert Friedland is one of the country's best-known stock promoters because of his involvement in Diamond Fields Resources Inc., the company that discovered one of the world's richest nickel deposits in Labrador's Voisey's Bay.
He would have held a 21-per-cent equity stake in DiamondWorks if a share exchange had gone through with China Diamond in which he is a "significant" shareholder, a spokesman for him said yesterday. Currently, he holds a 7-per-cent stake in DiamondWorks.
DiamondWorks said the deal fell apart because certain shareholders of China Diamond did not agree to allow DiamondWorks to keep its offer open until Jan. 31. DiamondWorks needed the extension because it had not yet received approval for the acquisition from the Chinese government, the spokesman said. The acquisition agreement was conditional on getting such approval.
DiamondWorks, which only a few months ago had been boasting about the acquisition's potential, played down this latest turn of events. "Our business plan always projected that the majority of our diamond revenues would come from our African assets, consisting of projects in Angola and Sierra Leone," Eric Friedland, chairman and chief executive officer, said in a statement.
In a news release last month, DiamondWorks said it would produce 240,000 carats in 1997--a figure that lumped together all of its diamond exploration interests, including the 44,000 carats a year from China Diamond, the only operating mine. The company said Monday it is still confident it can reach this target.
Robert Friedland's spokesman said the 44,000-carat production figure was for 1995 and that the open-pit Changma diamond mine was "down to its last year or two of operation." As a result, he said, company officials were not sure production would be that significant. Indeed, the company appeared to lay the groundwork for the collapse of the China deal.
In a news release last Friday announcing that it was adding the Northwest Territories to its search for diamonds, DiamondWorks said an independent evaluation had pegged its diamond resources and reserves in Africa at $3.2-billion. But it estimated China Diamond's reserves at just one-fifth that amount. Mining industry observers said these figures do not square with the fact that DiamondWorks earlier had appeared to value the Chinese interests at only slightly less than its diamond exploration interests in Africa.
DiamondWorks had agreed to issue 25 million shares in exchange for China Diamond, which is responsible for 60 per cent of China's diamond output as well as 3,100 kilometres of what the company earlier described as "prime diamond exploration and development ground in China's most productive diamond district."
Before the planned acquisitions in September, it had about 18 million shares outstanding. The company now has just over 50 million shares outstanding after issuing 33 million shares to a company called Branch Energy Ltd. to acquire its exploration interests in Africa. At $1.68 a share, that acquisition was equal to $50-million for interests that the company now says are worth more than $3-billion.
Robert Friedland's spokesman explained that the apparent discrepancy between the value of the two assets and the number of shares DiamondWorks was issuing stems from the fact that the China deal was negotiated first. "Africa was obviously a better deal for the company," he said.
What remains shrouded in mystery is the identities of China Diamond's shareholders, apart from Robert Friedland, and why they did not agree to the extension. The collapse of the China deal did not jeopardize a new financing, announced Tuesday, because the message that all was not well with getting the necessary approvals had already been "telegraphed" to investors, the spokesman said. Indeed, the market barely reacted. DiamondWorks' shares closed at $2 Monday on the
Vancouver Stock Exchange, down 20 cents on the day but well below their 52-week high of $3.50 on Sept. 9.
DiamondWorks said it plans to sell 15 million special warrants at $2 each to institutional investors through a private placement. It said the proceeds of $50-million will be used to advance development of its properties in Africa. This is DiamondWork's second financing in recent months. The company, which had a little over $4-million in cash at the end of August, raised $7.2-million in September in a private placement of shares at $1.35 each.
******Like these guys need more of our money? RS |
