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. Last Updated: 07/27/2016

Diamond Licensing Argument Reignited

Stirring up a long-running license feud, Canadian company Archangel Diamond Corp. has filed a request with the International Tribunal in Stockholm, Sweden, which arbitrates international disputes between companies, to restart court proceedings against its Russian joint venture partner, Arkhangelskgeoldobycha, or AGD.

Archangel Diamond wants AGD to turn over its venture, Almazny Bereg, a diamond-mining license granted by the Russian government in 1994. Due to restrictive legislation at that time, the license was handed to AGD with the understanding the Russian side would pass the license over to the joint venture later. AGD has not yet done so.

"We have been faced with a stream of spurious demands and requirements, which AGD has insisted the corporation should meet before the license is transferred," Timothy Haddon, president and CEO of Archangel Diamond, said in a statement.

At stake is the right to explore and mine gems worth $2 billion to $5 billion in the diamond-soaked region of Arkhangelsk in the Russian north.

To dig up these riches, three companies - AGD, Archangel Diamond and offshore firm IBME - set up Almazny Bereg in 1994. AGD has a 50 percent stake in the venture, while Archangel Diamond has 40 percent and IBME 10 percent.

But work has ground to a standstill as the partners wrestle over the transfer of the state license to Almazny Bereg-2, a second joint venture set up specifically to receive the license. Almazny Bereg-2 was to be formed with the same ownership structure as the first venture, but AGD was to have four of the seven board posts as opposed to two out of five at Almazny Bereg.

AGD said Tuesday the problem was differences over how the joint venture would be operated.

"Parity in the relations of the partners in the venture were not agreed," said Alexander Vladimirov, deputy general director of AGD. "The Canadian company insisted that funding for the venture must be either coming fully from them, or equally from both sides."

However, under new amendments to the Russian Law on Natural Resources, the partners would no longer have to set up Almazny Bereg-2 to receive the license. A transfer can be made if "the share of the former legal entity - a user of natural resources - forms at least 50 percent in the share capital of the new legal entity," according to Article 17 of the amendments, which came into force from the beginning of this month.

Vladimirov said AGD now wants Almazny Bereg to be modified to what would have been the structure of Almazny Bereg-2 - a venture under which AGD would have four of the seven seats on the board of directors.

He said his company Monday sent Archangel Diamond an invitation to restart negotiations.

The Canadians initially instigated arbitration proceedings with the International Tribunal over the license transfer two years ago. The company halted its case in July 1999 after signing an agreement with AGD to resolve the dispute in 180 days. Those 180 days ended Jan. 11.