Harry Winston, KKR, Apollo Said to Consider Bids for BHP

Harry Winston Diamond Corp. CEO Gannicott
Robert Gannicott, chief executive officer of Harry Winston Diamond Corp., said that BHP’s Ekati mine is “of some interest,” adding that the asset “is close to the end of its existing life.” Photographer: Norm Betts/Bloomberg

Harry Winston Diamond Corp. and groups led by KKR & Co. and Apollo Global Management LLC are in talks to buy BHP Billiton Ltd.’s Ekati diamond mine in Canada, said two people with knowledge of the matter.

The sale may fetch $500 million to $750 million and an agreement could be struck in about a month, said the people, who declined to be identified as the process is private. Apollo has teamed up with former Stornoway Diamond Corp. Chairman Eira Thomas to pursue Ekati, the people said.

The Northwest Territories’ Ekati project, which produces about 11 percent of the world’s diamonds by value, according to BHP’s website, is near the Diavik mine, 40 percent-owned by Harry Winston. The prices of the gems prices jumped 22 percent last year, as measured by the Rapaport Diamond Trade Index.

“You’d expect to see someone like Harry Winston, who has previously bought into projects, to be one of the more likely buyers of Ekati,” Hayden Bairstow, a Sydney-based resources analyst with CLSA Asia-Pacific Markets, said in a phone interview. “You really need to have a pretty big downstream presence, because it’s such an opaque market in terms of pricing, which BHP doesn’t really have.”

BHP’s Sydney-traded shares dropped 1.8 percent to A$34.98 at 12:22 p.m. local time. Harry Winston, which sells luxury jewelry and watches through a separate retail division, fell 2.7 percent to close yesterday at C$13.84 in Toronto.

‘Limited Growth’

BHP, the world’s biggest mining company, said Nov. 30 it may sell some or all of its diamond operations, saying they have limited growth. The Ekati mine, which is 80 percent-owned by BHP, is valued at $300 million to $500 million, Tim Gerrard, a Sydney-based analyst at Investec Securities Ltd., said Jan. 6.

Harry Winston Chief Executive Officer Bob Gannicott said on a Dec. 9 conference call that the Ekati mine was “of some interest,” adding that the asset “is close to the end of its existing life.”

Stornoway’s Thomas, a geologist who is also a director of Vancouver-based Lucara Diamond Corp., led the exploration team at her father Grenville Thomas’s company, Aber Diamond Corp., that discovered Diavik in 1994.

KKR and Apollo, both based in New York, have made investments in natural resources in recent months. A group led by KKR last year paid $7.2 billion for Oklahoma-based oil company Samson Investment Co. while Apollo agreed last month to acquire El Paso Corp.’s oil- and gas-exploration unit for $7.15 billion.

Melbourne-based BHP is being advised by CIBC World Markets, the people said. It wasn’t clear who KKR had teamed up with to bid for the Ekati mine.

Luxury Gems

Spokesmen for BHP, KKR, Apollo and CIBC World Markets declined to comment. Laura Kiernan, director of investor relations for Harry Winston, declined to comment by phone on March 13, citing company policy. Thomas couldn’t immediately be reached for comment.

De Beers, the supplier of about a third of the world’s rough diamonds, reported a 27 percent increase in sales last year on higher demand for the luxury gems in the U.S., China and India. China may overtake the U.S. to become the world’s largest market by end-2015, according to the Antwerp World Diamond Center.

‘Tough Asset’

BHP’s diamond and specialty products division had an asset value of $2.8 billion as of June 30, compared with $18.6 billion for its petroleum business, according to data compiled by Bloomberg. The unit’s first-half underlying earnings dropped 61 percent.

“Ekati is a pretty tough asset, it has made reasonable money at times but it’s pretty up and down, and it’s all BHP have in diamonds,” said CLSA’s Bairstow.

BHP said in January that a review of its diamond business could extend through to the first half of 2012. Chief Executive Officer Marius Kloppers said Feb. 8 there was no update on the sale and, in the absence of a buyer, BHP would “probably run that mine to closure ourselves in a manner responsible to the environment and community.”

BHP in December agreed to sell its 51 percent interest in the Chidliak diamond project in Canada and its regional diamond exploration database to its partner Peregrine Diamonds Ltd. Rio Tinto Group, which owns the balance of the Diavik mine, wrote down the value of its diamond business by $344 million in its second-half results.

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