BHP Billiton breaks its diamond engagement – by Pav Jordan (Globe and Mail – November 14, 2012)

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

BHP Billiton Ltd. is out of the diamond business, fed up with prolonged dull prices for gemstones and few opportunities to improve profit margins.

The world’s largest diversified miner said on Tuesday it sold its controlling stake in Ekati, Canada’s first ever diamond mine, to diamond retailer Harry Winston Diamond Corp. for $500-million (U.S.), well below what analysts expected. Billiton’s diamond-marketing operations are also included in the sale.

The deal follows an 18-month lull in diamond prices that began after a darkening global economic outlook left speculators holding gems collected in anticipation of a stronger recovery after the 2008-09 financial crisis. Harry Winston itself, which owns a 40-per-cent stake in the Diavik mine near Ekati, saw average diamond prices drop 10 per cent in the latest fiscal quarter, when profit was cut in half. Rio Tinto PLC owns the remainder of Diavik, and has said it may also seek a buyer for its share in the mine.

More than just a sale, the Ekati transaction marks the end of an era for Canadian diamond mining, ushered in when BHP completed the mine in 1998 just as consumer backlash grew against so-called blood diamonds produced in war zones in Africa where much of the world’s diamond wealth originates.

Ore grades at Ekati have fallen in recent years, as it entered the home stretch of its mine life, an estimated seven years. The mine is seen as having further potential, however, if diamond prices rise and more exploration leads to new reserves.

BHP – a $180 billion international resources company focused on bulk commodities from coal to iron ore to copper – last year signalled it was looking for an exit from diamonds. The company said the industry did not fit with its strategy to invest in large, long-life and expandable assets. To be sure, the diamond business is minute beside its multibillion-dollar commodity units.

Ekati was discovered by lifelong friends Stewart Blusson and Charles Fipke, a prospecting duo who still own 20 per cent of the mine between them.

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