Aber is suddenly on top of the diamond world

In the tight-knit world of the global diamond business, Aber Diamond Corp., Toronto, says it is now the world’s biggest publicly traded pure diamond company-even though it has yet to mine a single gem, Reuters reported.

South African giant De Beers, which controls 65% of the world’s trade in uncut diamonds with sales of $4.8 billion annually, held that position for a century but was bought out by a consortium led by Anglo American and delisted on June 1.

The road was further cleared last week when Australian mining group, BHP Ltd bought out Canada’s first diamond company, Dia Met, both partners in the Ekati mine, Canada’s first commercial diamond mine.

Aber has a 40% stake in Canada’s second commercial diamond mine, Diavik, with Britain’s Rio Tinto, the main operator of the mine located in the frozen barren lands of Canada’s Northwest Territories.

The mine is four months into construction and expected to start producing diamonds in late 2002 or early 2003. It is one of the world’s biggest undeveloped diamond properties, located at Lac de Gras, about 185 miles northwest of Yellowknife, the capital of the Northwest Territories.

“We now have the opportunity to position ourselves as being something different from a mining company,” Bob Gannicott, Aber’s chief executive, told Reuters.

The rapidly changing diamond business is opening new opportunities for diamond producers like Aber to expand into the lucrative world of diamond branding.

Aber believes it has a niche market in the United States-the world’s biggest consumer of diamonds on Canada’s doorstep.

Gannicott is now mulling a move into the diamond retail business but says there are no plans to branch out into other mining sectors like base metals or gold.

“Diamonds are it, preferably Canadian diamonds. There are so many big boys playing in this that we don’t want to go in there and get beaten up.”

Canada is slowly emerging as a big player in the diamond industry and is expected to be among the world’s top producers by 2010 after Botswana, South Africa, Russia and Australia.

Aber expects to earn C$150 million ($99.4 million) a year from its rough diamond sales, initially at $79 per carat, with total production expected to be about 7 million carats a year-more than 5% of the value of world diamond output.

“For the first time you can sense there is a real timeline,” said Gannicott of the Diavik project which has been in the planning stages since 1991 when Aber staked 8 blocks of mineral claims in the Lac de Gras area.

But with no major shareholder, analysts say Aber is a takeover target as consolidation mania sweeps the mining industry.

The company is 14% held by U.S. luxury retailer Tiffany & Co Inc and 13.5% owned by Canadian gold royalty company Franco-Nevada Mining Corp Ltd. with 54,531 shares outstanding and a market cap of C$900 million ($592 million).

The company has a sales agreement to sell a minimum of $50 million a year of its best diamonds to Tiffany for 10 years-tapping into the $58 billion global jewelry business of which Tiffany accounts for 1-2%.

Similarly, De Beers has tied up with LVMH Moet Hennessy Louis Vuitton , the French luxury goods firm.

Gannicott said Aber was also closer to a joint venture agreement with Overseas Diamonds, a rough diamond trader and supplier of polished diamonds to the jewelry trade, which will handle the diamonds that are not bought by Tiffany.

To service the marketing arrangements, Aber plans to establish a diamond handling and sorting office in Toronto, where it is headquartered. That will allow Aber to directly service its main markets with sorted diamond products.

Aber’s share price has risen 21% since the beginning of the year, outperforming Dia Met whose share price dropped 2% in the same period before it was bought.