UPDATE 3-African Diamonds rejects offer approach

Fri Aug 13, 2010 5:18am EDT

Related Topics

* AK6 mine partner Lucara Diamond seen as likely buyer

* Price was not acceptable - source close to talks

* Progress continues on financing options for AK6 mine

* Shares down 0.6 percent, after Thursday's 21 percent gain

(Adds comment from source)

By Julie Crust

LONDON, Aug 13 (Reuters) - London-listed African Diamonds AFD.L, an exploration company operating in Botswana, has rejected an unsolicited approach, saying on Friday the proposal was not one it could recommend to shareholders.

African Diamonds, responding to a 21 percent rise in its share price on Thursday, did not say who made the approach.

"The price was not acceptable," said a person close to the talks.

African Diamonds also said it was still working on options to develop the AK6 mine in which it has a 40 percent stake, and was in talks with a potential investor regarding additional financing facilities.

The company's shares were down 0.6 percent at 0915 GMT, valuing the company at about $53 million.

At full production, African Diamonds expects AK6 to produce around 700,000 carats annually and realise more than $175 million in revenue. Output was expected to ramp up to full capacity in 2012.

John Meyer, an analyst at Fairfax IS, said Toronto Stock Exchange-listed Lucara Diamond Corp LUC.V -- holder of a 60 percent interest in AK6 -- was the most likely buyer.

However, he also noted that diamantaires were looking to gain control of a greater proportion of the supply chain.

"It would not be out of the realms of possibility for a Russian group or one of the Indian cutters" to be interested, he said. "Indian cutters are competing with Chinese cutters for supply and this is one of the things that have driven up prices."

Producers have said that rough diamond prices have recovered from lows seen during the global recession. [ID:nLDE65Q0FA] [ID:nLDE66I07B]

Rival AIM-listed producer Firestone Diamonds (FDI.L) is in the process of aquiring Kopane Diamond Developments KDD.L in an all-share offer valued at $71 million. [ID:nLDE66K13A] (Editing by Matt Scuffham and Dan Lalor) ($1 = 0.6383 pound)

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