By Michelle Smith — Exclusive to Diamond Investing News
“Ekati is a world class operation and Chidliak is a promising exploration opportunity, but many years of exploration suggest there are few options to develop new diamond mines that are consistent with this approach,” the BHP press release stated.Less than a month later, the company revealed that it had agreed to sell its Chidliak interest to Peregrine Diamonds (TSX: PGD) for C$9 million and a two percent royalty on future production. Completion of the deal gave Peregrine 100 percent ownership of the project. It also obtained BHP's Canadian diamond exploration database. Rio said the diamond market outlook is very positive, with demand growing strongly and a lack of new discoveries limiting supply. Both Rio and BHP have expressed their desire to streamline and shed non-core assets and have been making moves to do so. Their diamond assets are portrayed as perhaps just an ill fit for their overall business strategies. But through their similarly-stated motives for re-evaluating these operations, the companies both communicate failure to recognize diamonds' worthy expansion potential. Mining analyst David Hargreaves said together Rio and BHP make up 15 percent of the world's output. “I think when De Beers ended its monopoly which was a 100 year turning point then they, in common with others [BHP and Rio], thought that this was something of a gravy train and that they'd jump in on it. But of course they didn't realise the complexities of it and particularly the country and political risk and they found out to their detriment also that the industry is highly selective in terms of the economy,” he said on Mineweb Radio, adding, “if things become rough then nobody wants diamonds for a while.” Some analysts suggest the two companies should combine their assets and list them to avoid competing for interest, which could slow down the divestment process for both of them. Furthermore, since Ekati and Diavik are in close proximity and are both mature mines at risk of declining production, combining assets is considered a strategy for potentially extending their lives.
While that option may sound fairly simplistic in discussion, the complexity of putting it into practice should not be underestimated. And, there hasn't been any indication from the companies that they are considering it.Speculation as to who may show interest in acquiring Rio Tinto's and BHP Billiton's assets includes private equity firms and other miners. Whether the potential divestment of these assets translates into an opportunity to further diversify the diamond industry or into a move back toward consolidation remains to be seen. However, industry insiders warn that it will take more than financial savvy and deep pockets to be successful in this arena. Harry Winston's chairperson and CEO, Robert Gannicott, described potential suitors as a “narrowed field.” “The mining part is pretty much the same as for anything else,” he told Mining Weekly, “but beyond that - to be able to process the ore properly, to be able to sort and sell and realise the full market price for diamonds is a specialist trade.” BHP Billiton and Rio Tinto are the second and third notable players in the past several months to express a desire to get out of the diamond industry. Further along in the process is the Oppenheimer family, who in November agreed to sell their 40 percent interest in De Beers to Anglo American (OTC Pink: AAUKY,LSE:AAL) for $5.1 billion. In doing so, the family is severing a connection to the industry that dates back almost a century. The South African Competition Tribunal has given its approval for the deal, which is expected to be completed later this year. Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article. Reassessment of Diamond Properties: A Trend? from Diamond Investing News