BHP gets out of diamonds at bargain price
BHP Billiton has finally exited the diamonds industry, after concluding a marathon sale negotiation for its EKATI diamond mine in Canada.
Almost a year after starting a sale process for the asset, BHP sold its 80 per cent stake to specialist diamond company Harry Winston for US$500 million ($623 million): a sum that appears to be a bargain basement price.
BHP said divestment of EKATI would result in a US$200m impairment to the carrying value of the asset, which will be reflected as an exceptional item in the company's financial results.
Minority partners in EKATI - the geologists who found the deposit - have 60 days to match the offer under their joint venture agreement, but the sale to Harry Winston is expected to be completed before March 2013, subject to approval from Canadian regulators.
Harry Winston had long been suspected as a likely buyer, and gave regular indications throughout 2012 that it was interested in striking a deal.
In April Harry Winson chief executive Robert Gannicott said his company was "certainly interested" in acquisitions so long as the assets were "well defined" and focused on Canada.
Gannicott repeated his interest in June, when he somewhat presciently noted: "I think BHP, before they get anything closed with anybody, it would likely be about the end of the year."
Harry Winston has exposure to all stages of the diamond industry: it owns mines, processing facilities and the stores in which its diamonds are eventually sold.
The company is a joint venture partner with Rio Tinto in the Diavik mine in Canada and legally has first right of refusal on purchasing Rio's 60 per cent stake there.
Unlike struggling commodities such as nickel, uranium and aluminium where BHP has considered reducing its exposure, the outlook for diamonds is quite positive given the growing affluence in nations such as China and India, which is tipped to stoke demand for luxury products.
But diamonds are a small industry compared with big bulk commodities such as iron ore, petroleum and coal, and BHP is keen to channel its focus onto its larger divisions.
"The divestment of EKATI is consistent with our focus on large, long-life, low-cost, expandable, upstream assets and together with the recent sale of our interests in Richards Bay Minerals and Yeelirrie, reflects our ongoing pursuit of a simpler business," said BHP's chief of non-ferrous Andrew Mackenzie.
BHP began its flight from diamonds in December 2011 when it sold its stake in the Chidliak mine in Canada and announced intentions to also sell its EKATI stake.
The market expected the EKATI sale to be completed within several months, but the process was thrown into a state of flux in March when Rio Tinto announced that it too was reviewing its diamond business and would consider a sale of its three mines.
Rio's process remains incomplete at this time.
Sydney Morning Herald