Sierra Leone's only pit diamond mine

Sierra Leone's only pit diamond mine has come far from its origins as wartime booty presented to mercenaries by a grateful military junta.

Seventeen years and several changes of ownership later, Koidu Holdings is selling gems in outlets such as U.S. jeweler Tiffany & Co. and considering a possible public listing, which could raise hundreds of millions of dollars to fund expansion.

While burnt-out houses surrounding the mine in the eastern town of Koidu serve as a reminder of the West African country's 11-year civil war, which claimed some 50,000 lives before it ended in 2002, Koidu's managers see the operation as a success story that augurs a better future for Sierra Leoneans.

"Conditions and the circumstances were completely different then from what they are today," said Chief Executive Jan Joubert, who is directing a $200 million expansion to more than quadruple output by July.

"The way we do things is an example of the way things could and should be done in Sierra Leone," Joubert told Reuters. The company has been owned since 2007 by billionaire Israeli diamond trader Beny Steinmetz's BSG Resources.

Joubert said a possible IPO was under discussion but declined to comment on media reports that Koidu is considering a flotation in Hong Kong, which would raise up to $400 million in the first listing there of an African company.

Industry analysts say a Hong Kong listing could attract strong interest from capital-heavy Chinese investors keen for exposure to Africa, even while the volatility typically associated with diamond shares puts off others.

"China is the fastest growing new consumer market for diamonds in the world," said Peter Major, mining consultant at Johannesburg-based Cadiz Corporate Solutions.

"And the Chinese are just a lot more prepared to invest in Africa than the Americans and the Europeans."

PAYMENT FOR FIGHTING REBELS

Koidu operates the country's only operating kimberlite diamond mine, which involves deep underground excavation into diamond-bearing rock.

Managers and local defenders say it is helping develop the community in the town, where Lebanese-owned diamond-buying houses dominate the streets.

Koidu Holdings currently provides 2,707 jobs, including 1,039 permanent positions and 1,668 contractors. That's out of Koidu's population of over 80,000 in 2004, when the UN and EU funded a census, and the population is likely to have increased since then.

Some locals say they have not seen their lives improved. "They have taken all the land where we used to get diamonds, and we have not got any benefit," said 44-year-old Khomba Fillie.

Sierra Leone's civil war was partially funded by "blood diamonds", which individual miners sifted from mud and gravel by using shovels or bare hands.

According to former junta leader Valentine Strasser, the Koidu concession was awarded in 1995 by the National Provisional Ruling Council junta as a part-payment to military contractor Executive Outcomes (EO), via its investment arm Branch Energy, for its help in fighting Revolutionary United Front rebels.

EO was composed largely of former South African military personnel who had fought border wars under the white minority government in Pretoria before the end of apartheid in 1994.

Strasser, who was deposed in 1996 and now lives with his mother outside Freetown, said he discussed the concession with Tony Buckingham, a British-born businessman and once a partner in EO. He now runs Heritage Oil, which has operations in Africa, the Middle East and Russia.

Strasser said Buckingham played a central role as a broker in the EO deal. A Heritage spokesman declined to comment.

Joubert, 43, and six of his current employees formerly worked for military contractor EO in Sierra Leone and Angola.

Joubert confirmed that Buckingham had been involved with EO and Branch Energy but said he did not know whether the award of the Koidu concession was in payment for services in fighting rebels.

In the late 1990s rebels destroyed equipment at the Koidu mine site.

Several changes of name and ownership took place before Koidu Holdings started operations in 2003, the year after the end of hostilities. It began production in 2004, with a plant that could process 50 tonnes of hour per hour and a lease covering 4.9 square kilometers.

Joubert said BSG Resources' total investment in Koidu Holdings projects so far exceeds $300 million.

Output has risen to 10,000 carats per month, and the mine sells 60 percent of its output to Tiffany's, which has also contributed $50 million to the current expansion.

Koidu plans over the next six years to invest an additional $1 billion in Sierra Leone, Joubert said.

SHOOTINGS AND RELOCATIONS

Despite its bullish prospects, the Koidu operation has been dogged by controversy and incident.

In December 2007 armed Sierra Leone police, who were paid a retainer by the company for security, killed two local people.

A nine-month suspension of operations followed. The company reassessed its activities and chose to build a new plant, with a capacity of 180 tonnes of ore per hour and an annual production target of 550,000 carats.

The $200 million expansion is in its final stages, with output increasing in May and reaching its target level two months later.

Local non-government organizations said that in the run-up to the 2007 incident Koidu Holdings dragged its feet in relocating people out of houses near shafts that blasting had made unsafe and in building new houses for them.

"They were doing them very slowly," said Patrick Tongu, district manager of the Network Movement for Justice and Development in Koidu.

Joubert rejected this position and said interference by NGOs had slowed the resettlement program.

The company said that as of March 1, 330 households were resettled, and the remaining 713 households would be moved by the second quarter of 2013. A total of 13,734 people are involved, according to the most recently concluded study.

The paramount chief, who sits on Koidu Holding's board in a non-executive position, sees benefits for the local people.

"First and foremost, it's providing employment opportunities for the people of this chiefdom and beyond and also transferring skills," Paul Ngaba Saquee V, once a truck driving instructor in the United States, told Reuters.

Not far away from Koidu, meanwhile, a gang of men shovel mud and sift it for diamonds under the merciless sun - the same kind of operation that funded rebels during the civil war.

"I have no job, only talent," said 25-year-old Alpha Koroma, who came from Freetown last year. "So I find myself in Kono (the district around Koidu) to find diamonds."