Sunday, January 22, 2012

Sierra Leone diamond miner set for HK listing

The diamond industry’s race to public markets is accelerating, with plans by Beny Steinmetz Group, the privately-held natural resources company, to float Sierra Leone’s biggest diamond mine on the Hong Kong stock exchange.

Beny Steinmetz, founder of the company, confirmed the “good possibility” that the Koidu diamond mine, expected to produce 500,000 carats this year, will be offered to Hong Kong investors in the second half of 2012. Tiffany & Co, the US jeweller, sources many of its diamonds from the mine.

A BSG spinoff called Octea, the new holding company for Koidu, will aim to raise $400m-$600m and achieve a valuation of $2bn-$3bn.

Octea is the latest example of how diamond producers are trying to capitalise on rising demand from Asia amid declining diamond supplies.

Anglo American agreed a $5.1bn takeover of privately held De Beers, the biggest diamond miner by sales in November. Alrosa, De Beers’ Russian competitor, has taken steps toward a listing.

Hong Kong has emerged as a favourite market to finance the expansion of diamond mines and jewellery outlets. Chow Tai Fook, the Chinese jewellery retailer, floated in Hong Kong last year. Graff Diamonds, the high-end London jeweller, is planning a Hong Kong listing. Both companies need capital to build retail outlets across Asia.

Mr Steinmetz said he thought Octea could achieve an “in-between valuation” straddling a luxury goods multiple and a mining company multiple. It would be the first diamond miner to list in Asia.

The fundraising would finance development of a new diamond field in Sierra Leone that would expand group production. Octea’s long-term plan is to produce 2.5m carats from Sierra Leone. That compares with De Beers’ production of 33m carats in 2010.

The Steinmetz family have been prominent in the diamond business for decades, although BSG has diversified to iron ore and oil and gas. Steinmetz Diamond Group is De Beers’ biggest customer, buying rough diamonds, cutting them and selling them to jewellery manufacturers.

But Octea will not include any part of Steinmetz, Mr Steinmetz said, adding that it did not make sense to integrate upstream and downstream components of the diamond business in one unit.

Octea marks Mr Steinmetz’s return to the public markets after Nikanor, the copper miner in the Democratic Republic of Congo that floated in London in 2006. It merged with Katanga Mining before Glencore took over the combined business after the financial crisis.

Mr Steinmetz says he is a special adviser to BSG but does not have any executive role at the company, which is owned by a foundation.

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