* BHP sells controlling stake in EKATI mine for $500 mln in
* Sale sees BHP exit diamond industry
* Takes a $200 mln non-cash writedown as result of sale
* Harry Winston shares fall 2.23 pct to C$13.15 on TSX
By Clara Ferreira-Marques
LONDON, Nov 13 BHP Billiton has agreed
to sell its Canadian EKATI diamond operation to Harry Winston
for $500 million, as the luxury jeweller bets on rising
prices that could extend the life of Canada's oldest diamond
Miner BHP - which has been narrowing its portfolio to focus
on larger, long-life assets - announced the sale almost a year
after it first said it planned to pull out of diamonds and would
sell assets including its 80 percent stake in EKATI, the
cornerstone of its diamond business.
One of several jewellers that have gone into mining to
secure access to diamonds, Harry Winston has long been named as
a potential suitor for EKATI - it already partners rival Rio
Tinto at nearby Diavik, with a 40 percent stake.
The luxury jeweller had been expected to focus its attention
on Diavik after Rio said earlier this year it was following
BHP's lead and would consider the sale of its diamond assets.
Harry Winston has a right of first refusal on Diavik.
Harry Winston's decision to buy EKATI in a debt-funded
deal, after months of negotiations, is expected by industry
sources to put off any deal for Diavik, given the company's
modest $1.1 billion market value - but not necessarily for good.
"It would make sense to consolidate mining assets in the
region, and Harry Winston are best placed," Charles Stanley
analyst Kieron Hodgson said.
"Rio have to come to a conclusion on what they want to do
with their mining assets globally. (If they sell Diavik), Harry
Winston knows the assets well, but there is no need to rush.
EKATI, meanwhile, is a good addition to their stable."
Harry Winston said in a statement that it would fund the
cash deal with existing resources and debt, including a $400
million term loan and a $100 million revolving credit facility.
The jeweller, founded by its namesake Harry Winston in 1932,
was the first to lend million-dollar baubles to Hollywood stars
to wear on the red carpet. The company now operates retail
salons around the world.
"I think the danger for Harry Winston is they may alienate
some of their investors who are holding the stock for exposure
to the retail division," said Edward Sterck, an analyst with BMO
Capital Markets. "That exposure is diluted with the expansion of
the mining division."
Shares of Harry Winston were down 2.23 percent at C$13.15 on
Tuesday afternoon on the Toronto Stock Exchange.
The deal also pours cold water on market hopes of a merger
between BHP and Rio's diamond assets - a tie-up considered in
the past which would have propelled diamonds into the FTSE 100.
Analysts and industry sources had long said a spin-off of Rio's
assets was more likely.
The $500 million deal for EKATI includes the current
operating mine - which has a remaining mine life of just seven
years - but also other permitted areas, and a "buffer zone" with
development and exploration potential. It also includes
associated sorting and sales facilities in Antwerp.
The EKATI mine, in northern Canada, has produced an average
of around $750 million of rough diamonds per year over the last
five years, representing 6 percent of the world's rough diamond
supply by value.
BHP said on Tuesday it took a $200 million non-cash
writedown as a result of the sale, but it also pointed to an
original investment of $848 million. That has generated income
of approximately $2.8 billion, excluding proceeds from Tuesday's
sale - a rate of return of around 20 percent.
Other suitors had included private equity group KKR and
diamond producer De Beers, which eventually held back from an
offer, sources familiar with the matter said. Analysts'
estimates of price for EKATI had varied widely, from $500
million to more than $1.5 billion.
BHP's other diamond asset was sold in December; a majority
stake in the Chidliak exploration project in Canada sold to
partner Peregrine Diamonds.
BHP, which analysts forecast would get less than 1 percent
of earnings from EKATI this year, ended the day up 0.2 percent.