Israeli billionaire Beny Steinmetz’s mining company is considering reviving a Hong Kong share sale for its Sierra Leone diamond unit almost two years after shelving the plan.
BSG Resources Ltd. expects to make a formal decision on whether to proceed with an initial public offering for Octea Ltd. within the next 12 months, Chief Executive Officer Brett Richards said in a May 28 interview in London. Octea may seek to raise as much as $500 million in an IPO valuing the company at up to $1 billion, a person familiar with the situation said, asking not to be identified as the plan is confidential.
Octea owns the Koidu diamond mine in Sierra Leone that supplies the stones to Tiffany & Co. (TIF:US), and had sought to raise as much as $1 billion in a Hong Kong share sale in 2012 before pulling it. Graff Diamonds Corp. halted a $1 billion IPO in Hong Kong in May of that year as Europe’s debt crisis roiled markets. Octea is seeking funds to expand its mines in response to growing demand in Asia.
“We will consider our options for project financing and there will be benefit in having access to capital markets,” Richards said May 28.
Closely held BSGR expects Octea to produce 550,000 to 600,000 carats this year and forecast that output would double by 2017 as it starts mining at its Tonguma and Boroma projects. Diamond producers are seeking to increase supply to benefit from rising prices as mining companies struggle to find new resources to replace aging assets.
BSGR had its rights to an iron-ore project in Guinea revoked last month after the country presented what it called evidence of corruption in awarding permits. Rio Tinto Group, the world’s second-biggest mining company, last month sued Brazilian iron-ore producer Vale SA, Steinmetz and his mining company, saying they conspired to steal rights to the project. Vale, BSGR and Steinmetz have denied any wrongdoing.
Rough-diamond prices have gained about 10 percent so far this year, according to data compiled by WWW International Diamond Consultants Ltd., after more than doubling in the past five as the U.S. economy recovered from the global financial crisis and China’s burgeoning middle class bought more of the gems.
Graff CEO Francois Graff said last year the company had no immediate plans to revise its share-sale plan. A spokeswoman for Graff declined to comment May 30 on the IPO plan.
Graff, which depends on just 20 customers for almost half its revenue, had sought a valuation of as much as 24 times estimated full-year earnings. Richards said Octea would seek a valuation closer to that of a typical mining company of about 5-to-6 times earnings.
Tiffany helped fund an expansion of the Koidu mine in return for a supply agreement in 2011. The region is renowned for the quality of the diamonds found there, including the 969.8 carat Star of Sierra Leone unearthed in 1972, the third-largest stone ever discovered.
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