Asteria Colored Diamonds

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Leibish & Co

Tuesday, November 13, 2012

Harry Winston to Pay $500 Million for Ekati Diamond Mine

Ekati Diamond Mine
Photo credit: Jason Pineau, through Wikipedia
Harry Winston Diamond Corp. said Tuesday that it has entered into share purchase agreements with BHP Billiton Canada Inc. and other affiliates to acquire all of BHP Billiton’s diamond assets, including its controlling interest in the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Northwest Territories and Antwerp, Belgium.

The Ekati Diamond Mine, located in the Northwest Territories of Canada, consists of the Core Zone, which includes the current operating mine and other permitted kimberlite pipes, as well as the Buffer Zone, an adjacent area hosting kimberlite pipes having both development and exploration potential. The agreed purchase price, payable in cash, is $400 million for the Core Zone interest and $100 million for the Buffer Zone interest, subject to adjustments in accordance with the terms of the share purchase agreements.

“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,” said Robert A. Gannicott, Harry Winston chairman and CEO. “Together with our existing mining business, these assets will serve as our platform for sustained, disciplined growth in the upstream diamond sector.”

Harry Winston, known for its luxury retail salons throughout the world, also supplies rough diamonds to the global market through its 40 percent ownership interest in the Diavik Diamond Mine, also located in the Northwest Territories. The company was looking to sell its retail assets, according to media reports, which it denied. Harry Winston also was reportedly in talks to buy the remaining interest in Diavik from its partner in the venture, Rio Tinto Diamonds. Talks between Harry Winston and BHP Billiton for the Diavik Diamond Mine were first reported in August.

The Ekati Diamond Mine, approximately 310 kilometers northeast of Yellowknife in the Northwest Territories of Canada, includes both open pit and underground operations and is Canada’s first, and largest, diamond producer, having begun production in 1998.

The Ekati Diamond Mine has produced an average of approximately three quarters of a billion dollars of rough diamonds per year over the past five years, Harry Winston said in a statement. Over that period sales from the Core Zone represented approximately 6 percent of world rough diamond supply by value. The current phase of production at the Ekati Diamond Mine includes ore sourced primarily from the lower grade, but high carat value, Fox open pit supplemented by underground production from the lower portion of the Koala kimberlite pipe and from the Koala North pipe. Although production in the next two years is forecast to be lower than the average achieved over the last five years, it is expected to return to higher levels as the mine transitions to higher grade, but lower carat value, ore from the Misery and Pigeon open pits. The current Ekati mine plan calls for a further seven years of production, but there are additional resources which could become economic with increased diamond prices.

The Core Zone and the Buffer Zone are subject to separate joint venture agreements. BHP Billiton holds an 80 percent interest in the Core Zone and a 58.8 percent interest in the Buffer Zone, with the remainder held by the Ekati minority joint venture parties. Harry Winston has agreed to purchase BHP Billiton’s interests in each of the Core and Buffer Zones. Pursuant to the joint venture agreements, BHP Billiton will first separately offer to the joint venture parties its interest in each of the Core and Buffer Zones on the same terms as those agreed to by Harry Winston. The joint venture parties will then have 60 days to elect to acquire either or both of those interests. Any interests that the joint venture parties do not elect to acquire within that time period can then be transferred to the Company in the following 60 days.

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