BHP Billiton has agreed to sell its Canadian EKATI diamond operation to Harry Winston Diamond Corporation (Ticker HW on TSX) for $500 million.
The $500 million deal for EKATI includes the current operating mine—which has a remaining mine life of just seven years to run—but also other permitted areas, and a “buffer zone” with development and exploration potential. It also includes associated sorting and sales facilities in Antwerp.
The EKATI mine, in northern Canada, has produced an average of around $750 million of rough diamonds per year over the last five years, representing 6 percent of the world’s rough diamond supply by value.
Miner BHP—which has been narrowing its portfolio to focus on larger, long-life assets—announced the sale almost a year after it first said it planned to pull out of diamonds and would sell assets including its 80 percent stake in EKATI, the cornerstone of its diamond business. BHP is a mining giant with a market cap of $190 B.
Harry Winston Diamond Corporation is tiny compared to BHP with a $1.1 B market cap. Harry Winston said in a statement that it would fund the cash deal with existing resources and debt, including a $400 million term loan and a $100 million revolving credit facility. Harry Winston Diamond Corporation has been involved in the Canadian diamond industry since the discovery of the Diavik Diamond Mine in 1994. Its experience and understanding of the operating environment and the market place for the diamond products, together with its well-established relationships with local communities and regional aboriginal organizations, are expected to serve the Company well when it assumes operatorship of Ekati.
HW is unique in that it owns two operating diamond mines (Ekati and 40% of Diavik Diamonds) and is active in the retail sector as well. Harry Winston Inc. is headquartered in New York City, currently operates 21 directly operated retail salons worldwide, four licensed salons worldwide, and has more than 190 points of international distribution for its exclusive line of timepieces.
The international diamond jewelry market is large, amounting to nearly US$60 billion annually at retail sales with growing demand in emerging markets, particularly in India and China.
The first volcanic pipe found in the Lac de Gras region was the Point Lake kimberlite, discovered by Chuck Fipke and Stewart Blusson who had been prospecting in the region for almost ten years, having found kimberlite indicator minerals as early as 1985. The Ekati mine was North America’s first large scale diamond mine. Ekati officially began operations on October 14, 1998, and was operated by BHP Billiton Canada Inc., a part of the BHP Billiton Group. Between 1998 and 2009, the mine has produced 45 million carats of diamonds out of six open pits.
Fipke and Blusson each still own 10% of Ekati. Now Harry Winston owns the remaining 80%.