[miningmx.com] — BHP Billiton is looking to exit the diamond business as the contribution of the division to the overall performance of the group remains insignificant, with limited options available to grow.
The company announced on Tuesday it was reviewing its diamonds business, comprising of its 80% interest in the Ekati mine as well as the Chidliak exploration project – both in Canada.
“BHP Billiton’s strategy is to invest in large, long life, upstream and expandable assets while remaining a simple and scalable organisation,’ read a company statement. “.many years of extensive exploration suggest there are few options to develop new mines that are consistent with this approach.
“This review will, therefore, examine whether a continued presence in the diamonds industry is consistent with BHP Billiton’s strategy and evaluate the potential sale of all or part of the diamond business.’
The company said the review would be completed by end-January, and that it would continue to operate the assets should it not find a suitable buyer.
The business forms part of BHP Billiton’s Diamonds and Speciality Products division, which also includes titanium minerals and potash. The division contributed only around $1.5bn to BHP’s total revenue of $71bn in 2011, accounting for underlying EBIT of $587m out of $31.9bn.
RBC Capital Markets analyst Des Kilalea said the announcement didn’t come as a surprise.
“The probability of them growing that business is unlikely,’ he said. “What they’re saying is that they can’t grow it (diamonds) to a business that will make a contribution to the group, so they now choose to spend that money elsewhere.’
BHP has been investing heavily to expand its exposure to potash, being granted approval in July to build the $1.2bn Jansen project in Saskatchewan, Canada. Tim Cutt, president of BHP Billiton’s Diamonds and Speciality Products division, recently moved offices from Vancouver to Saskatchewan.
“It will make a lot more sense for BHP if that management team can now solely concentrate on growing the potash business,’ Kilalea said.
He said the pricing of Ekati would be critical given it has life of mine of seven years. Whoever snapped it up would also have to spend a lot on further development. BHP itself approved a $323m expansion project in May.
The mine produced 2.5 million carats in the year to end-July, down 18% on 2010’s 3.05 million carats. In 2008, BHP exited the Alto Cuilo diamond exploration project in Angola, which it operated in partnership with Petra Diamonds.
