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RAPAPORT... Harry Winston Diamond Corporation agreed to purchase all of BHP Billiton's diamond assets for a total of $500 million in two separate transactions. The combined deal includes BHP's controlling interest in the Ekati diamond mine in Canada as well as the associated diamond sorting and sales facilities in Yellowknife, Northwest Territories and Antwerp, Belgium. BHP has been shopping around its diamond assets for more than a year. Harry Winston already owns a 40 percent share of the Diavik mine, which is about 62 miles or 100 kilometers to the southeast of Ekati.  The Ekati diamond asset consists of the operating mine and other permitted kimberlite pipes, defined as the ''core zone'' along with adjacent pipes that have development and exploration potential, called the ''buffer zone.'' Harry Winston agreed to a $400 million cash payment for the core zone interest and $100 million for the buffer zone interest, subject to adjustments in accordance with the terms of the share purchase agreements.
Robert A. Gannicott, the chairman of Harry Winston, said, "Completion of this acquisition will bring the opportunity to marry our Canadian diamond sorting and marketing skills with an experienced mine operating and development team, a world class operating asset, and future growth potential. Together with our existing mining business, these assets will serve as our platform for sustained, disciplined growth in the upstream diamond sector."
Ekati operates both open-pit and underground projects and is Canada's first, and largest, diamond producer, having begun rough diamond production in 1998. During the past five years, rough diamond sales from Ekati's core zone represented approximately 6 percent of world rough diamond supplies by value. The current phase of production at Ekati includes ore sourced primarily from the lower grade, but high-carat value, Fox open-pit supplemented by underground production from the lower portion of the Koala kimberlite pipe and from the Koala North pipe. Although production in the next two years is forecast to be lower than the average achieved during the past five years, Harry Winston expects Ekati to return to higher levels as the mine transitions to higher-grade, but lower-carat value, ore from the Misery and Pigeon open pits. The current Ekati mine plan calls for seven years of production, but there are additional resources which could become economic with increased diamond prices, according to the company.
The core and buffer zones are subject to separate joint venture agreements as BHP holds an 80 percent interest in the core zone and a 58.8 percent stake in the buffer zone. The balances are held by the Ekati minority joint venture parties. BHP Billiton will first separately offer to the joint venture parties its interest in each of the zones at the same terms. The joint venture parties will then have 60 days to elect to acquire either or both of those interests. Any interests that the joint-venture parties do not elect to acquire within that time period can then be transferred to Harry Winston.
If the core zone transaction is not completed, Harry Winston will be entitled to a termination fee of $30 million by BHP Billiton. Closing of the transactions is currently expected to occur before the end of March, 2013.
Harry Winston plans to use cash resources on hand coupled with new debt financing for the agreement, which has been arranged with The Royal Bank of Canada and Standard Chartered Bank. The new debt facilities will include a $400 million term loan, a $100 million revolving credit facility, of which $50 million will be available for purposes of funding the Ekati acquisition, and a $140 million letter of credit in support of the core zone's environmental reclamation bond.
These new facilities replace a $125 million facility with Standard Chartered Bank, which will be repaid and terminated on closing. Rothschild acted as lead financial advisor and, RBC Capital Markets and Standard Chartered Bank acted as co-advisors to Harry Winston in connection with this transaction.
As of 10 a.m. in New York, shares in Harry Winston slipped almost 3 percent to $13.08, following this announcement. BHP's shares were down less than 1 percent to 1,934.50 pence in London.
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