Harry Winston to Buy BHP’s Diamond Business for £314m

on Nov 15, 2012

Canadian jewellery retailer Harry Winston (TSE:HW) has agreed to buy the diamond operations of diversified miner BHP Billiton (ASX:BHP) in a $500 million (£314 million) cash-only deal, as the Toronto-listed group seeks to extend its resource base and increase its supply of rough diamonds, The Financial Times reported on 13 November 2012.

**Ekati Mine Sale**
BHP is selling to Harry Winston its 80 per cent stake in the main diamond producing part of Ekati mine in Canada and associated diamond sorting and sales facilities at Yellowknife in the Northwest Territory of the country, as well as its arm in Belgium — Antwerp. The deal, subject to regulatory approval, is expected to close by the end of the first quarter of 2013, with BHP’s joint venture partners in the project having 60 days to exercise a first right of refusal.

Ekati mine has produced about $750 million worth of rough diamonds a year over the past five years. While according to some estimates, the value of the sale of the stake was particularly small for BHP, some analysts remind that in August 2011 the Australia-based miner said that Ekati, which is Canada’s first diamond mine, would only be operationally viable for another seven years.

Analyst at Deutsche Bank Grant Sporre told The Financial Times: “This is a decent price given that it is a short life asset.”
**BHP’s Pursuit of “Simpler Business”**
The sale of Ekati mine come after last year, BHP launched a review of its diamond business to assess whether it was feasible to keep operating the division. Apparently, the miner decided to narrow its portfolio to focus on “large, long-life, low-cost, expandable, upstream assets”. Chief executive of BHP’s non-ferrous unit Andrew Mackenzie said the sale of the company’s diamond operations, as well as the divestment of other smaller assets, reflects its “ongoing pursuit of a simpler business.”

In December 2011, BHP agreed to sell a 51 per cent stake in the Chidliak diamond exploration project on Canada’s Baffin Island to Peregrine Diamonds. The company has recently also sold holdings in Richards Bay Minerals in South Africa and Yeelirrie in Western Australia.
**Harry Winston’s Further Push into Diamond Production**
While BHP moves away from its diamond business, Harry Winston, which is best known for upscale diamond jewellery and watch stores, is seeking further mining assets to secure supplies of the precious stone.

!m[Harry Winston sells up-market diamond jewellery and watches](/uploads/story/819/thumbs/pic1_inline.png)The company’s chairman and chief executive Robert A. Gannicott said: “Completion of this acquisition will bring the opportunity to marry our Canadian diamond sorting and marketing skills with an experienced mine operating and development team, a world class operating asset, and future growth potential. Together with our existing mining business, these assets will serve as our platform for sustained, disciplined growth in the upstream diamond sector.”
**Diamonds not Rio’s Best Friends Either**
BHP is not the only miner in the industry which is chipping away its diamond operations. For big miners like BHP and Rio Tinto (LON:RIO), with one and three mines respectively, the diamonds industry is very small compared to big bulk commodities markets. Rio is currently seeking to sell its 60 percent stake of the Diavik mine, which is located near Ekati. Harry Winston owns the remaining 40 per cent of the mine and is also pointed at by analysts as the most likely buyer of Rio’s majority stake.
While its Diavik mine sale has been officially announced, Rio said that the status of its diamonds review remained unchanged from when it was announced in March this year — the company is not an under pressure seller, and may opt to retain some assets, but is exploring all options for divestment.


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