BHP Billiton, a diversified ore mining and smelting company, is mulling to sell its diamond assets. The statement released by this corporation on Tuesday said that BHP is “reviewing its diamonds business, comprising the Group’s interests in the EKATI Diamond Mine and the Chidliak exploration project in Canada.”
BHP Billiton’s strategy is to invest in large, long life and expandable assets. EKATI is a world class operation and Chidliak is a promising exploration opportunity, but as it recognized by BHP, many years of extensive exploration suggest there are few options to develop new diamond mines that are consistent with this approach.
This review will, therefore, examine whether a continued presence in the diamonds industry is consistent with BHP Billiton’s strategy and evaluate the potential sale of all or part of the diamonds business. BHP Billiton’s review of its diamonds portfolio is expected to be completed by the end of January 2012.
According to BHP, it will only pursue those options that will preserve EKATI’s outstanding safety and environmental standards and protect the benefits that the mine has created for local communities. Potential transactions arising from the review will be subject to detailed analysis before a final decision is made. In the event that these criteria are not met, BHP Billiton will continue to operate its world class diamonds business in a sustainable manner.
Currently, Ekati is the only active diamond-mining operation of BHP Billiton (owned for 80%). Ekati is Canada’s first diamond mine developed since 1998. Its reserves are estimated at 4.8 million carats for open pit mining and at 2.6 million carats for underground mining. In 2010, Ekati’s output reached 3.81 million carats. BHP’s reports show a continuing deterioration in the average grade of diamonds hence reducing the miner’s output: in the third quarter of 2011 Ekati produced 457,000 carats of diamonds, down 35% year-over-year.
Earlier, there were media reports that Ekati was proposed to investment consultants as a potential acquisition target for ALROSA. However, this was not confirmed officially, while the company does not give any comments in this respect.
According to Sergei Goryainov, a diamond industry expert of Rough&Polished, Ekati is unlikely to attract ALROSA: at the current level of production its reserves will last only a few years. This asset will rather find a ready buyer among the second-tier companies having a small scale of business for which Ekati could be a good opportunity to boost capitalization – such as Petra Diamonds or Harry Winston.
Rough&Polished
