Tuesday, November 29, 2011

BHP puts diamonds business on review for potential sale

GLOBALY diversified miner BHP Billiton said this morning it is reviewing its diamonds business, including evaluating a potential full or partial sale, to examine whether a continued presence in the industry fits with its business strategy.

BHP owns an 80 per cent equity stake in the EKATI Diamond Mine and a 51 per cent stake in the Chidliak exploration project, both located in Canada.

Although BHP said EKATI is a world class operation and Chidliak offers promising exploration opportunities, it said: "Many years of extensive exploration suggest there are few options to develop new diamond mines that are consistent with (its) approach" of focusing on developing large, long-life, and expandable assets.

The Anglo-Australian miner expects to complete its review by the end of January.

The announcement follows the Oppenheimer family's recent $US5.1 billion sale of its 45 per cent stake in South African diamond producer De Beers to miner Anglo American.
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Anglo sees diamonds being undersupplied in the future at the same time as demand from China, India and the Gulf States rises to equal that of the US, the world's largest consumer. The US accounts for 40 per cent of diamond demand.

Analysts said the sale of BHP's diamond business would make sense, as the EKATI mine is neither long-life nor a major contributor to the company's bottom line.

EKATI has a mining life closer to five years and accounts for less than 2 per cent of BHP's earnings before interest, taxes, depreciation and amortisation, or EBITDA, said RBC Capital Markets mining analyst Des Kilalea.

A London-based analyst, who wished not to be named, valued EKATI at $US1.8bn based on its short mine life and said potential suitors could include Rio Tinto, which owns the adjacent Diavik mine, and De Beers, which has two producing mines and a joint exploration project in the Northwest Territories.

EKATI is located 200 kilometres south of the Arctic Circle in Northwest Territories and produced an average of more than 3 million carats of rough diamonds a year over the last three years, or approximately 10 per cent of the world's annual diamond supply by value.

BHP said it will only consider a sale if it can ensure EKATI's environmental standards, safety and local community economic benefits.

"In the event that these criteria aren't met, BHP Billiton will continue to operate its world class diamonds business in a sustainable manner," it said.

BHP also owns a stake in Chidliak, a joint venture diamonds exploration project with Peregrine Diamonds, located on Baffin Island. Exploration at the mine, which has been operated by Peregrine since 2006, is ongoing with seven of the 59 known kimberlites having economic potential and the others still being assessed.

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