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Harry Winston Diamond Corp is in advanced talks to buy Anglo-Australian mining giant Rio Tinto's 60-per cent stake in the Diavik Mine in Canada, the Financial Times yesterday reported, citing two industry sources. The Diavik Mine - Canada's largest diamond mine with the highest grade diamond ore bodies, is 60 per cent owned by Rio Tinto and the remaining 40 per cent by Toronto, Ontario-based Harry Winston. In March, Rio Tinto, the world's third-largest diamond miner, followed rival BHP Billiton in announcing that it would exit the diamond business by inviting bids for its portfolio of diamond mines. (See: Rio Tinto to exit diamond business) Rio Tinto, the third-largest diamond producer behind De Beers of South Africa and Russian state-owned Alrosa, operates three diamond mines that include its fully-owned Argyle mine in Australia, Diavik mine in which it holds a 60-per cent stake, the Murowa mine in Zimbabwe where it has a 78-per cent stake, apart from its fully-owned Bunder diamonds project in India, which in advanced stages of development. The value of Rio Tinto's diamonds business on its books is $1.2 billion, but analysts say that the business may fetch around $2 billion. Rio Tinto's stake in Diavik could fetch at least C$600 million, the sources told the papers and added that Harry Winston intends to issue debt to fund the deal. Rio Tinto, which produces around 15 per cent of the world's diamonds by volume, has seen its earnings from diamonds drop by 86 per cent to $10 million last year on revenue of $727 million, mainly due to lower production and higher costs at its open-pit Argyle mine, which is undergoing a $2.1 billion underground expansion. The Diavik mine is operated by Diavik Diamond Mines Inc., a subsidiary of Rio Tinto. Under the joint venture terms, Rio Tinto operates the mine and Harry Winston pays 40 per cent of the mine's operating and capital costs while receiving 40 per cent of the mine's diamond output. The Diavik Mine had 16.1 million carats of proven reserves and 42.8 million carats of probable reserves for nearly 59 million carats of total proven and probable reserves.
Diavik's superior grades make it one of the most valuable and profitable diamond mines in the world. Both companies have plans to extend the mines life to least 2022. Through its 40-per cent stake in the Diavik mine, Harry Winston receives and markets a 40-per cent share of the mine's rough diamond production. The company sells about 25 per cent of the diamonds in its share to Tiffany & Co. and the remainder on the Antwerp open diamond market through its subsidiary, Aber International. Harry Winston also has a luxury brand segment, Harry Winston Inc, a diamond jeweller and luxury timepiece retailer with stores in New York, Paris, London, Beijing, Shanghai, Tokyo, Hong Kong and Beverly Hills. In April, private equity firm Kohlberg Kravis Roberts & Co was considering to bid for Rio Tinto's stake in the Diavik mine and BHP Billiton's Ekati mine and merge both operations to achieve synergies. The two mines are located northeast of Yellowknife in Canada's Northwest Territories. BHP Billiton holds 80 per cent of the Ekati mine, while two geologists who discovered the site, Charles Fipke and Dr. Stewart Blusson, each hold a 10-per cent.
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