By Mick Elmore

Map of Laos & surrounding areas

For the latest on this story, see Couple Involved in Sapphire Mine Released from Lao Jail.
UPDATED: 12/10/01

BANGKOK, THAILAND - The Lao government has seized and nationalized the country's largest gem-mining operation, the sapphire mines operated by Gem Mining Lao PDR.

At press time, the Australian man who headed the security company hired by the mine remained in a Lao jail along with his wife, and the founders of Gem Mining Lao had fled to Thailand.

The intrigue has kept the Bangkok gem industry guessing about who did what to whom as accusations fly.

When sapphire mining in Laos first started showing promise in 1994, Danish national Bjarne Jeppesen and his wife Julie Bruns founded Gem Mining Lao PDR with a 15-year concession and the option for another 10 years. At the time they began mining in late 1996, they were working a 72-square-kilometer (28-square-mile) concession in Huay Xay, near the city of Bokeo in northern Laos.

Even then, there were hints of trouble on the horizon. Thai companies had previously been granted two-year leases on the sapphire area along the border, but the Lao government refused to renew those leases, suspecting the Thais of smuggling the gems out of the country. Laos had a reputation among the Thai gem community as a difficult place to work, and some traders hinted that Gem Mining Lao might not always enjoy a warm relationship with the Lao government.

Shortly after operations began, Jeppesen and Bruns were approached by a Canadian company called Asia Sapphires Ltd. to form a merger, which would allow them to be listed on the Vancouver Stock Exchange. Although Jeppesen and Bruns joined the board of Asia Sapphires, Jeppesen said that they did not transfer the ownership of Gem Mining Lao to the Canadian company.

An everyday street scene in Vientiane, the capital of Laos.

At first, the partnership appeared to be working well. In March 1999, Asia Sapphires opened a cutting factory, operated by Gem Mining Lao, in Vientiane, the capital of Laos. At that time, Gem Mining Lao had contracts with several high-volume gem companies. Jeppesen told Colored Stone they were mining in a 400-square-kilometer (154-square-mile) area, with plans to expand the operation.

After that, things began to fall apart. Exactly what happened is unclear, but Jeppesen told Australia's national newspaper The Australian he withdrew the partnership and resigned from Asia Sapphires in 1999 because he had been cheated out of his shares in the company.

The Australian press followed the trail of some involved in the deal, and found that they had a history of less-than-ethical practices. For example, Asia Sapphires shareholder and spokesperson Gary Shugg had a law firm in Melbourne until he was disbarred for three months for a total disregard for clients' funds, according to The Australian. The firm was closed in 1994.

It is also unclear why the Lao government became suspicious of Gem Mining Lao's business practices; it may simply have been an awareness of how easy it is to smuggle gems across national borders. For whatever reason, in April 2000, Lao Foreign Minister Somsavadh Lengsavad terminated Gem Mining Lao's mining concession, claiming that the owners had misappropriated funds.

In May, the couple fled Laos altogether after the government seized the mine and threatened them with imprisonment, Jeppesen said in Bangkok in December. The mine was abandoned and has lain dormant since.

The Victory Monument, or the Patuxai, a Lao landmark that was built in 1969 with American money.

On December 23, Laotian police arrested Kerry Danes, general manager of Suricor Lao, the company that provided security for Gem Mining Lao. Later the same day, they arrested his wife, Kay Danes, as she tried to leave the country. They claimed she was acting suspicious and found she had not claimed $52,000 hidden in her luggage. She told the Australian press that the money represented the couple's life savings.

Lao authorities allowed the Danes' two children to leave for Brisbane and join their older sister there with their grandparents.

In a written response to questions about the case, the Lao government public relations office listed eight laws they said were broken: hiding data concerning mineral extraction, taking 13 kilograms of sapphire from the storeroom without notifying the government, damaging the environment at the mining site, falsifying goods order forms, exchanging currency outside the banking system, falsifying tax information, carrying out mine feasibility studies without permission, and building a second washing factory without government approval.

It appears the charges were really meant for Jeppesen and Bruns, but the government claimed Danes took over management of the mining operation after the owners fled, so he is responsible.

In a written statement, the Lao government said Bruns and her husband had left the country, "entrusting [Danes] with the management of Gem Mining on their behalf." Danes had been providing security for the Vientiane office of Gem Mining Lao.

The story has been front-page news in Australia's national press, and the Australian Foreign Ministry has sought regular visits to the Danes as they wait in their jail cells.

Monks are common in Vientiane and in all of lowland Laos. Most males become monks temporarily, usually for up to three months.

Australia's ambassador to Laos, Jonathan Thwaites, was having difficulty arranging regular visits to the couple in January, but hoped the matter would be resolved quickly.

"For more than 45 years, we've been providing development cooperation to this country, and we've built up a reservoir of official good will," Thwaites told ABC radio in Australia.

But Lao authorities said Gem Mining Lao broke the law, and because Danes represents the company, the matter will go to the courts.

The Lao government still hasn't given up on arresting Jeppesen and Bruns, however. "Although they had fled the country, the Lao government still insisted and invited them twice so that they return to Lao PDR, but the invitations were not accepted as they should have been," a Lao government representative wrote.

What will happen to the mine now is still unclear.

Washington-based Radio Free Asia reported in January that Laos had started to nationalize Gem Mining Lao's assets.

Shugg told The Australian that Asia Sapphires Ltd. has contacted the government of Laos about negotiating terms to take over the mining project.

Jeppesen claimed that the members of Asia Sapphires were the ones who convinced the Laotians to close the mine, with the goal of later taking it over themselves. He reportedly plans to sue the Lao government for $100 million in the U.S. court system for breaking their 15-year contract, although his chances of success are small.

The Mekong River, which stretches along the Thai-Lao border, flows near the area of the Huay Xay mine.

Shugg said - referring to Asia Sapphires' bid to acquire the rights to the mine - that he is only doing what any businessman would do.

While Gem Mining Lao's saga is intriguing, Bangkok dealers say the impact on overall sapphire supply will be noticeable but not serious.

"It will definitely have an impact," said Tony Brooke, owner of Anthony Chacree in Bangkok. He added, however, that material will continue to come out of Laos, and things will bounce back fairly quickly.

"There is some surprisingly good-grade sapphire coming out of Laos. It is small but quite popular. The diamond-cut sapphire has become profitable," he noted.

Brooke said he has talked with a man who is already examining sapphire mine possibilities near where Gem Mining Lao PDR was operating, although he was not involved in the recent controversy.

David Glickman, a lawyer who has owned and managed gem company Lambert Holdings for decades, said he has been getting "a trickle" of rough out of Laos for several years. But he never dealt with Gem Mining Lao PDR, so he thinks there will be no interruption.

"It isn't a huge amount anyway. Just a trickle, really, of average commercial grade. Nothing exciting," he said.

In the end, Laos itself, one of the world's poorest countries, could be the biggest loser, because the negative publicity will drive away some of the foreign investment they desperately need. It will also firm up the country's reputation as a difficult place to do business - a reputation that may be well deserved.

Photos by Mick Elmore.