BHP sells Chidliak diamond stake

Reuters | Tue, 20 Dec 2011 18:01

[miningmx.com] -- BHP Billiton, the world's largest miner, will sell its majority stake in the Chidliak exploration project in northern Canada to partner Peregrine Diamonds, less than a month after announcing a review of its diamond assets.

BHP, which has said it wants to focus on large, scaleable assets, said on Tuesday Peregrine would pay BHP C$9m over three years and grant the mining giant a two percent royalty on future production from the operation.

The miner said it was still reviewing its interest in EKATI, the cornerstone of its diamond business, and would retain its 80% stake if a suitable buyer is not found.

Analysts and industry sources say Rio Tinto is the most likely buyer for that mine - which makes up a tiny fraction of BHP's worth but whose sales represent around 11% of global rough diamond supply by value - given the proximity of Rio's own Diavik mine.

One source familiar with the process said this week, however, that it was still a "tough sell", given the challenges of a project in Canada's northern reaches and with both De Beers and Russia's Alrosa, the industry heavyweights, seen unlikely to weigh in.

BHP is also keen to sell to a miner able to work with the region's environmental and community sensitivities, not least as it pushes ahead with its multi-billion dollar Jansen potash project in Saskatchewan, Canada.

BHP said last month it would review its diamond assets and examine whether its presence in the diamond industry is consistent with its strategy of investing in expandable assets.

The diamonds and speciality products division - which includes its titanium minerals and potash projects as well as diamond mining - contributed roughly 2.5% of 2010 operating profit.

Analysts at BMO Capital Markets value BHP's 80% stake in the EKATI mine at $2.7bn, just over 1% of the company's value.

Chidliak, a promising exploration project on Canada's Baffin Island, has been operated by Peregrine, the minority partner with a 49% stake, since 2006.