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Apollo Global Management LLC
Harry Winston Diamond Mines Ltd. agreed to buy BHP Billiton Ltd. (BHP)’s Ekati mine in Canada and its marketing operations for the precious stones for $500 million.
The sale is expected to be completed in the first quarter of next year, Melbourne-based BHP, the world’s biggest mining company, said today in a statement. BHP owns 80 percent of the mine, 200 kilometers (124 miles) south of the Arctic Circle in Canada’s Northwest Territories, and sales and sorting operations in Yellowknife, Canada, and Antwerp, Belgium.
The Ekati mine has produced more than $750 million of rough diamonds annually for the past five years, about 6 percent of world supply by value, according to Toronto-based Harry Winston. It’s Canada’s first and largest diamond-producing mine and Harry Winston’s acquisition comes one year after BHP said it was studying the sale of all or some of the unit.
“The sale brings to a close BHP’s interests in the diamonds sector and is in line with its stated focus on long- term, low-cost, expandable assets,” BMO Capital Markets analyst Tony Robson said in a note to clients. “The impact of the sale to the company’s valuation and earnings is negligible.”
BHP rose 0.2 percent to close 1,953.5 pence in London trading. It will take a $200 million impairment charge on the sale, the company said. Harry Winston, the only Canadian company to be both a gem producer and jewelry retailer, fell 2.3 percent to C$13.14 at 11:59 a.m. in Toronto.
The sale as well as the divestment of other smaller assets “reflects our ongoing pursuit of a simpler business,” Andrew Mackenzie, chief executive of BHP’s non-ferrous unit, said in the statement. The sale price compares with an Investec Securities Ltd. valuation in January of $300 million to $500 million.
Groups led by KKR & Co. and Apollo Global Management LLC (APO) were in talks to buy the stake along with Harry Winston, two people with knowledge of the matter said in March.
Harry Winston Chief Executive Officer Robert A. Gannicott said on a Dec. 9 conference call that the Ekati mine was “of some interest,” adding that the asset “is close to the end of its existing life.”
While the current mine plan is for an additional seven years of production, “there are additional resources which could become economic with increased diamond prices,” Harry Winston said in a separate statement today.
Rough diamond prices have slumped 15 percent this year as Asian purchases slowed and the euro region debt crisis eroded demand, according to data compiled by WWW International Diamond Consultants Ltd. Prices have risen by more than 20 percent in each of the past three years as producers struggled to keep pace with consumption.
“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,” Gannicott said in today’s statement.
Harry Winston also owns 40 percent of the Diavik mine, in the Northwest Territories, where Rio Tinto Group is seeking to sell its 60 percent stake. Harry Winston’s Gannicott said in June he was interested in Rio’s stake.
Ekati is split into two, the Core Zone, where it owns 80 percent, and the Buffer Zone, where it owns 58.8 percent. The owners of minority interests in Ekati have pre-emptive rights to BHP’s interests in both zones on the same terms within 60 days, BHP said.
Harry Winston has arranged a $400 million loan and a $100 million revolving credit facility from RBC Capital Markets, it said. It’s also agreed on a $140 million letter of credit for an environmental reclamation bond.
Harry Winston was advised by Rothschild, RBC and Standard Chartered Bank. BHP didn’t disclose its advisers.
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