Mining News

RAPAPORT... Harry Winston Searches for Acquisitions

Harry Winston Diamond Corporation is seeking acquisition opportunities to complement its Diavik mining operation, chief executive officer (CEO) Robert Gannicott told Rapaport News at the International Rough Diamond Conference in Tel Aviv. The company owns 40 percent of Canada’s Diavik mine in partnership with Rio Tinto, which operates the project. In his conference presentation, Gannicott restated that Harry Winston had first option to buy Rio Tinto’s 60 percent stake in Diavik and would exercise that right if the opportunity arose. Gannicott told Rapaport News that he does not expect the company’s negative third-quarter retail sales trend to continue.
 
The company’s retail sales fell 1.3 percent to $53.8 million in the three months ended October 31, 2007, while mining revenue rose 35 percent to $122.7 million. Harry Winston’s net income for the first nine months of the year fell 79 percent to $16 million, though total sales grew 21.4 percent to $491 million.


Rio Tinto Rejects BHP Offer

BHP Billiton (BHP) sweetened its offer to acquire the world’s third-largest diamond producer, Rio Tinto. The offer would have exchanged 3.4 of BHP’s shares for each Rio Tinto share, an increase of 13 percent from BHP’s previous offer in November 2007. The deal would have equated to a 45 percent premium on Rio Tinto’s stock price in November. BHP reiterated that the merger would provide benefits of $3.7 billion per year in earnings before interest, tax, depreciation and amortization (EBITDA). However, Rio Tinto’s board unanimously rejected the offer on February 6, stating that the plan significantly undervalued Rio Tinto’s portfolio of assets. On February 12, the company announced it sold Kennecott Greens Creek Mining Company and Kennecott Juneau Mining Company in Alaska to an affiliate of Hecla Mining Company for $750 million, as part of its plan to divest at least $15 billion in assets. Nine days later, the company agreed to sell its interest in Cortez Gold Mine in Nevada for $1.69 billion to its joint venture partner, Barrick Gold Corporation.


Gem Diamonds Letseng Mine Sales Increase 81 Percent

Sales grew 81 percent to $152 million at Gem Diamonds’ flagship Letseng mine in Lesotho. Production at the mine increased 30 percent to 73,916 carats for the year, the company determined.

Production rose at most of Gem Diamonds’ operations, and the company stated it has shown profits after its 2007 acquisitions. Gem Diamonds spent approximately $404 million on Kimberley Diamond Company (KDC) in Australia and operations in Botswana, Indonesia and the Democratic Republic of the Congo (DRC). The company’s flagship Letseng mine, which is 70 percent owned by Gem Diamonds and 30 percent owned by the kingdom of Lesotho, produced five diamonds greater than 100 carats during the year, including the 493-carat Letseng Legacy, which sold for $10.4 million.

The company also reported that it sold 76,873 carats of diamonds for $3.1 million, or $68,000 per carat, at its January 2008 Letseng tender, which included a 26-carat pink diamond for $2.6 million. Gem Diamonds noted that it would be ready to start commission of a second plant at Letseng in the first quarter of 2008, and expects to reach full capacity by the second quarter.

At the Third International Rough Diamond conference in Tel Aviv, Gem Diamonds chief executive officer (CEO) Clifford Elphick told Rapaport News that the company is making provisions to bring in its own generators. Elphick said that the electricity shortages in South Africa were not yet affecting the mine due to an agreement between the Lesotho government and South Africa’s power company, Eskom.

While Eskom’s supply to Lesotho was running along two lines, Eskom had agreed to conserve power on just one of them, while the electricity line feeding Letseng continued uninterrupted. But Gem Diamonds says it has no guarantees this will continue.

In a conference presentation, Elphick stated that Gem Diamonds held its first polished diamond tender in January, which allowed it to gauge the value of its own rough. The stones had been outsourced for polishing in Antwerp and sold there, Elphick explained, adding that Gem Diamonds plans to conduct polished tenders on a regular basis this year.


BHP Diamond Profits Drop 7.7 Percent

BHP Billiton posted a 7.7 percent drop in earnings from its diamond operations — before interest and tax — to $72 million during the first half of fiscal 2008. The company attributed the decline to lower value per carat recovered; increased exploration activity on diamond targets in Angola; and unfavorable exchange rate movements between Canada’s dollar and South Africa’s rand against the greenback.

BHP also stated that net profit for the first half of 2007 fell 2.4 percent to $6 billion, due mainly to flooding at its coal mining operations in Queensland, Australia. Profits from operations were nonetheless up 3.9 percent to $9.4 billion as revenues rose 15.5 percent to $25.5 billion. BHP said it had record half-year results at its iron-ore, petroleum and manganese operations.


Anglo American Profits Up
 
Anglo American reported that profits rose 18 percent to $7.3 billion in 2007, boosted by strong performances in platinum, ferrous metals, base metals and industrial minerals, while group revenues fell 7.7 percent to $35 billion. Operating profits rose 3 percent to a record $10.1 billion, while underlying earnings also hit an all-time high at $5.76 billion, up 5 percent from 2006. The company posted strong performances from its platinum unit, where operating profits grew 12 percent to $2.69 billion due to higher prices and the weaker rand in relation to the dollar. Its base metals profits rose 11 percent to $4.34 billion. Ferrous metals’ operating profit increased 5 percent to $1.43 million. Coal’s operating profit fell 29 percent to $614 million, while gold’s contribution to Anglo American’s operating profit dropped 57 percent to $202 million due to its diversification from Ashanti. De Beers, which Anglo American owns a 45 percent stake in, reported a net loss of $521 million for the year and a 4 percent decline in rough diamond sales to $5.92 billion. De Beers contribution to Anglo American’s operating profit rose 5 percent to $484 million, according to Anglo American.


CityView Receives Right to Acquire Canzar

Cityview Corporation, an Australia-based holding company, received the exclusive right to acquire Canzar Resources, which owns 41 percent of three diamond concessions in Angola — Caufo, Luachisse and Nheffo. CityView paid $1.03 million for a 135-day option to buy Canzar at a price to be determined after an independent valuation of the company. ENDIAMA, Angola’s national diamond company, previously entered a long-term operating agreement with Canzar, guaranteeing a minimum profit of $12.5 million a year in the first four years of operation. ENDIAMA acknowledged Cityview’s option on the projects and confirmed that if any of the nominated kimberlites are not commercially viable, they will be replaced with other commercially viable kimberlites.


Motapa Ends Third Quarter with $9 Million Cash on Hand

Motapa Diamonds Inc, an exploration company with projects in Namibia, Botswana and Lesotho, reported cash and cash equivalent of $8.761 million — down $254,457. Another $845,000 was received as a cash call advance from Lucara Diamond Corporation toward costs on its Lesotho project during the third quarter of fiscal 2008, bringing the advances total to $2.745 billion.

Exploration expenditures for the quarter ended November 30, 2007 totaled $172,667. Corporate expenditures — excluding stock option expenses — were $159, 209, based roughly on personnel costs of $74,589, conferences and promotional expenses of $16,686, and audit and other compliance-related costs of $37,863. Motapa recognized an incentive stock option expense of $279,836 in the current quarter.

The company’s exploration activities included excavating and processing an initial bulk sample from the Lesotho kimberlite. Plant site grading and access road construction were completed, mining operations began and plant commissioning is underway.

For the Namibia project, funded by Namdeb Corporation, partial results from mineral samples are being reviewed. The Botswana drilling project, funded by Stornoway Diamond Corporation, was suspended due to rains precluding access to the six remaining drill targets.


Rockwell Sells Over $4.3 Million

Rockwell Diamonds Inc held its first sale of the year and sold about $4.3 million in goods with an average per-carat price of $2,316. Prices for top quality rough increased approximately 10 percent from the November sale. Two stones, including a white 25-carat diamond, sold for $19,000 per carat.
 
Rough goods were produced at the Wouterspan, Holpan and Klipdam mining operations and the Makoenskloof bulk sampling project. Operating costs were approximately $1,364 per carat.

In spite of electrical power interruptions in South Africa, Rockwell reported that mining operations at Wouterspan, Holpan and Kilpdam continue. Rockwell confirms the situation will impact short-term costs and production, and the company predicts carat production will be approximately 30 to 40 percent below forecast. Management announced that it has initiated an aggressive program to reduce operating costs and cut unnecessary expenses.

Article from the Rapaport Magazine - March 2008. To subscribe click here.