Rio's opportunity to fulfil a junior's dream

The win-win sale of the remainder of Rio Tinto's Canadian diamond mine to one of its old junior partners would mark a neat turning of the tables in the country's brief diamond mining history.

There is nice potential symmetry in the prospect that the $US1 billion of cash Harry Winston Diamond Corp will release by selling its diamond jewellery and watch division to Switzerland’s Swatch group might be used to acquire more of the diamond mine that paid for that business’ acquisition in the first place.

The sale of the 80-year-old luxury brand business for $US750 million plus $US250 million was announced overnight, with Harry Winston’s chairman and chief executive, Robert Gannicott, making it clear that ideally he’d like to use the cash to buy the 60 per cent interest Harry Winston doesn’t own in Canada’s Diavik Mine, now held by Rio Tinto.

It was off the back of the 40 per cent Harry Winston does own that Aber Corp, as it was then known, bought the downstream business in two tranches in 2004 and 2006 for a total of about $US250 million.

Rio, of course, put its diamond business, which includes Diavik, the Argyle mine in Australia and a 77.8 per cent interest in the Murowa mine in Zimbabwe, up for sale last year. It doesn’t consider the business is sufficiently large and its mine lives sufficiently long to be meaningful within its portfolio and therefore put its mines up for sale, along with other assets considered non-core.

It would be a logical move for Harry Winston (to be renamed Dominion Diamond Corporation) to acquire the Rio diamond interests, or at least the Diavik holding, after it bought BHP Billiton’s Ekati diamond mine in Canada’s Northwest Territories last year for $US500 million. It would create a very large Canadian-focused pure diamond producer if it could acquire both the Canadian mines the resource industry majors didn’t want.

It would also produce a neat punctuation point in the history of Canada’s diamond sector.

Aber Corp was founded by a Welsh-born mining engineer, Grenville Thomas, in 1980 and was focused on exploration in the Northwest Territories at a time when there was no suggestion that it might be a diamond province.

In 1991, a geologist, Chuck Fipke and his geologist/pilot partner Stewart Blusson, after an eight-year search, discovered kimberlite pipes near Lac de Gras in the territories containing the first diamonds ever found in Canada. Shares in what had been a penny dreadful, Dia Met Minerals, soared and triggered an extraordinary scramble as prospectors poured into the region. That find eventually became BHP’s Ekati mine.

Grenville Thomas was part of that rush, teaming up with three other men, including Gannicott, to stake out ground around the Fipke/Blusson find. They moved so quickly that they established one of the larger exploration portfolios of any of the junior explorers who flooded the region and three years later discovered what became the Diavik Mine on an island in Lac de Gras. Rio’s Kennecott Canada unit, part of a suite of mining assets it acquired from BP in 1989, joint ventured their exploration efforts with them from very early on.

There is therefore something circular and ironic in the prospect that a junior company Rio helped develop and generate the cash to acquire the Harry Winston business, at a time when new diamond projects were scarce and expensive and jewellery businesses were plentiful and cheap, may now take its diamond interests off its hands at a moment when buyers for diamond mines are scarce and luxury brands are valuable.

The possibility that the mines developed by two of the juniors who struck the "motherlodes" in that mad rush to peg out the territories in 1991 (De Beers was the only other party to develop a significant mine out of that period) might end up in one entity would also provide a tidy end to that particular strand of Canadian and mining history.

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