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BlueCheese4u -> Key suitors back out from BHP Billiton's Ekati diamond mine auction (6/16/2012 12:06:27 PM)
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Key suitors back out from BHP Billiton's Ekati diamond mine auction
16 June 2012
BHP Billiton, the world's biggest mining company is finding it difficult to sell its Ekati diamond mine in Canada as buyers shy away from buying and investing further in the mine that has a life span of only nine years.
Private equity firm Kohlberg Kravis Roberts (KKR), which had earlier shown interest in buying Ekati, has now backed out from the bidding process, while De Beers, the world's largest diamond miner, which was considering a bid, has pulled out fearing antitrust issues.
De Beers, majority owned by London-based diversified miner Anglo American, had entered the auction process, but yesterday said that it would not bid. The company did not give reasons for backing out, but analysts opine the acquisition of Ekati mine by De Beers would surely raise antitrust concerns.
In November 2011, BHP Billiton had announced that it would review its diamond assets and examine whether its presence in the diamond industry is consistent with its strategy of investing in expandable assets.
The sale is also part of the miner's strategy to exit the diamond mining business, which accounts for around 2.5 per cent of its annual operating profit.
A month later, it sold its entire 51-per cent stake in the Chidliak exploration project in northern Canada to joint venture partner Peregrine Diamonds, for $8.7 million. (See: BHP Billiton to sell Chidliak project to Peregrine Diamonds)
The Ekati mine, in which BHP Billiton holds an 80-per cent stake, and two geologists who discovered the site, Charles Fipke and Dr. Stewart Blusson, each hold 10-per cent each, produces about 11 per cent of the world's diamonds by value, and may fetch the Anglo-Australian miner around $750 million to $1.25 billion, according to analysts.
The Ekati diamond mine located in Canada's Northwest Territories includes open pit and underground operations. Between 1998 and 2009, the mine has produced 45 million carats (8,000 kg) of diamonds.
Analysts had earlier said that Rio Tinto, which holds a 60-per cent stake in the nearby own Diavik mine, would be the most likely buyer. Harry Winston Diamond Corp holds the remaining 40 per cent in the Diavik mine.
But Rio Tinto itself is planning to sell off its diamond business. Rio Tinto, the third-largest diamond producer in the world behind De Beers of South Africa and Russian state-owned Alrosa, operates three diamond mines, the fully-owned Argyle mine in Australia, the Diavik mine in Canada in which it holds a 60-per cent interest, the Murowa mine in Zimbabwe, where it holds 78 per cent interest, and the fully owned Bunder advanced diamonds project in India.
The value of Rio Tinto's diamonds assets on its books is $1.2 billion, but analysts say that with its pink diamonds Argyle mine in Australia, the assets could fetch around $2 billion.
Rio Tinto, which produces around 15 per cent of the world's diamonds by volume, has seen its earnings from diamonds drop by 86 per cent to $10 million last year on revenue of $727 million, mainly due to lower production and higher costs at its open-pit Argyle mine, which is undergoing a $2.1 billion underground expansion.
Rio Tinto's diamond production fell 15 per cent to 11.7 million carats, while revenues increased 7 per cent to $727 million in 2011, while BHP Billiton's diamond production declined 18 per cent to 2.5 million carats and revenues rose by 12 per cent to $1.1 billion in the same period.
Seeing a lukewarm response for the Ekati mine, BHP is considering to hold on to its stake in the mine, although private equity firm Apollo Global Management, Harry Winston Diamond and diamond exploration company Stornoway Diamond Corp are still in the bidding process.
http://www.domain-b.com/companies/companies_b/bhp_billiton/20120616_mine_auction_oneView.html
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