Sunday, May 22, 2011
Harry Winston looks to buy into diamond projects
Harry Winston, a company that both mines diamonds and sells them in its jewelry stores, is looking to acquire Canadian projects still in the development stage, its CEO said on Friday.
The company is also ramping up its own exploration program, as it looks to find more diamonds to meet booming demand for its signature jewels and watches in China, India and the Middle East.
Harry Winston, which owns a 40 percent stake in Canada's largest diamond mine, is not looking to buy or take a stake in another producing asset. Its focus is on development projects.
"What I'd like to find is something that hasn't yet been started up, but with a recognized resource," Chief Executive Bob Gannicott told Reuters. "Or a resource that we can measure and understand its true value."
"But I'd also be interested in taking on a really good exploration program if I liked what they'd already found," he said, noting that early stage projects are cheaper and carry more risk.
While the company is primarily interested in Canadian opportunities, Gannicott said Botswana and other stable regions in Africa are also on his radar.
"We'd also look at things outside of Canada," he said. "So long as they did not present a threat to the image of the brand."
Harry Winston, named after the jeweler who founded the company in 1932, operates both mining and retail arms.
On the mining side, the company is a joint venture partner with Rio Tinto on the Diavik diamond mine in Canada's Northwest Territories. The massive sub-Arctic mine is set to produce some 6.9 million carats this year.
Gannicott said that while there was no real limit on price the company would pay in a takeover or the purchase of a stake, the project would have to provide added value.
"We don't want to just buy more diamonds at any price," he said. "We've got to find something that's accretive to what we already own."
Most diamond juniors operating in Canada have market capitalizations of much less than C$500 million. Gannicott said the company, which has about $110 million in cash on hand, could use a share exchange to help fund a deal.
On Thursday, Harry Winston said it had entered a business relationship a group that is establishing a diamond investment fund.
Under the arrangement, Harry Winston will source polish diamonds, which the fund will pay for, and use those diamonds in its jewelry. The agreement does not affect the mining side of the business.
With no new known mega-projects left in the world, analysts say maximum global diamond extraction rates, or "peak diamond," have come and gone, with little chance of another massive discovery to replace aging mines.
But Gannicott isn't so sure.
"It would be kind of arrogant to suggest that there aren't going to be any new discoveries in the future," he said.
Rough diamond prices rose 45 percent in the past year and demand for the sparkling rocks favored by brides-to-be and Hollywood starlets is soaring, said Gannicott, making it essential to find new resources.
"The issue for diamond retailers will actually be getting access in a timely manner for the diamond they need for their business." he said.
To this note, Harry Winston is restarting its exploration program, focusing on land adjacent to the Diavik project. The company is also looking at greenfield opportunities, but Gannicott does not expect it to be easy.
"Diamonds are extremely difficult things to explore for," he said. "That's why they're expensive."
Harry Winston shares rose 3.47 percent to C$16.12 on Friday on the Toronto Stock Exchange. Shares of the company are up over 30 percent in the last 12 months.