The Faraj List of Exploding Stock-Part 5.06

From today's Sunday Business Post.

Could be an interesting January...

01 January 2006 By Eamon Quinn

African Diamonds is preparing its corporate defences against an anticipated takeover attempt by the back door from Firestone Diamonds, a rival Irish-controlled resources company. The battle centres on potentially lucrative interests owned by African Diamonds in diamond mines in the southern African state of Botswana.

According to market sources, Firestone has approached institutional shareholders in London to canvass their support ahead of an annual shareholders' meeting at African Diamonds, scheduled to take place later this month.

If the takeover approach does occur, it will lead to an extraordinary battle between two Irish resources companies over valuable diamond interests. The tussle will also directly involve the giant diamond company De Beers.

Firestone advisers have approached African Diamonds in recent weeks, seeking to gain representation on the board of African Diamonds, according to market sources. The approach was rebuffed.

African Diamonds is part of John Teeling's portfolio of resources and energy companies run out of north Dublin and the board includes non-executive director David Horgan. The company was floated two and a half years ago on London's Alternative Investment Market, and its shares also trade on the Botswanan stock market.

African Diamonds struck a joint venture agreement with De Beers in 2004 to develop licenses in Botswana and to exploit a significant discovery of kimberlite pipe, the rocks from which diamonds are extracted.

The attitude of De Beers if Firestone launches a formal bid approach will be crucial to the outcome of any tussle. De Beers is expected to support the existing management at African Diamonds at the upcoming annual meeting.

Firestone is controlled by James Kenny senior, Philip Kenny and other family interests.

The company also has significant interests in Botswana, the main source in recent years of kimberlite and quality diamonds. Like African Diamonds, Firestone also has a joint venture with De Beers in Botswana.

Last October, Firestone acquired almost 4.9 million shares, or 7.3 per cent of African Diamonds, by offering one Firestone share for every 2.6 shares held in African Diamonds. Firestone told the market at the time that the acquisition was “strategic'‘, and that it was not planning to make an offer for African Diamonds.

However, it remains unclear how Firestone could gain control over African Diamonds without the explicit support of de Beers. According to African Diamonds, de Beers has pre-emption rights over the shares held by directors of African Diamonds which effectively gives the giant company control over the ownership of a significant slice of African Diamonds.

Sources said that Firestone may attempt to buy the shareholdings of former directors of African Diamonds.

Teeling and other senior directors at African Diamonds hold 12-15 per cent of the shares between them and, with other stakeholders, may be able to rely on the support of interests controlling another 5 per cent of the company.

A former director of African Diamonds, Mark Scowcroft, may also be influential in any future battle for control of the company.

Scowcroft is believed to be based in Botswana and South Africa. He told the stock market in November that he owned 5.2 million shares, or 7.8 per cent, of African Diamonds.

Shares in African Diamonds rose by 11.5 per cent in 2005. The company is valued at stg£38.8 million (€56.6 million). Firestone, which is valued at stg£73 million (€106.5 million), rose by 18 per cent last year.