Harry Winston Buys BHP Diamond Mine

On Nov. 13, Harry Winston announced plans to purchase BHP’s controlling interest in the Ekati diamond mine in Canada’s Northwest Territories for $500 million—a move that will greatly expand the company’s reach in the diamond mining business.

Harry Winston already owns 40 percent of Diavik, the other major mine in the Northwest Territories, as well as the noted retailer by the same name.

BHP had put the mine up for sale in November 2011 along with its share of another diamond project, which it sold a month later. The transaction is expected to close before the end of March 2013. Its completion will mark BHP’s official exit from the diamond business.

Ekati is considered the largest Canadian diamond mine, producing $750 million in rough a year—representing approximately 6 percent of world rough diamond supply by value. Current plans call for seven more years of production, but the company said there are additional resources that could become economic with increased diamond prices.

The mine was the first diamond producer in the Northwest Territories, opened in 1998 by a small producer, Dia Met. BHP purchased Dia Met in 2001.

The purchase includes not only Ekati, part of what’s called the Core Zone, but also associated diamond sorting and sales facilities in Yellowknife, the Northwest Territories, and Antwerp, Belgium. It also includes the Buffer Zone, an adjacent area hosting kimberlite pipes with both development and exploration potential. Winston paid $400 million for the Core Zone and $100 million for the Buffer Zone.

The purchase price for the acquisitions will come from cash resources on hand and from new debt financing that has been arranged with the Royal Bank of Canada and Standard Chartered Bank. The new facilities will comprise a $400 million term loan, a $100 million revolving credit facility, and a $140 million letter of credit facility in support of the Core Zone environmental reclamation bond.

Prior to this purchase, reports had appeared that Harry Winston was considering selling its retail arm, presumably to finance its expansion in the mining business. However, the company swiftly denied those reports, and just announced a refinancing for its retail business.

BHP Billiton Diamonds & Specialty Products president Tim Cutt said in a statement: “Harry Winston has long experience in the Canadian diamond industry and their commitment to study further development at Ekati could help extend the mine’s contribution to Northern Canada for many years to come.”

The Winston release includes one proviso: BHP Billiton does not own 100 percent of either the Core of Buffer Zones, and will first separately offer those interests to its current joint venture partners on the same terms it offered Winston. Those partners will then have 60 days to elect to acquire either or both of those interests.  

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