The company’s board of directors made the announcement after being advised by two major private shareholders, Marlene Fipke and David Mackenzie, who together own a 38% stake, that they were willing to sell their shares. The two shareholders have agreed not to sell their shares privately for a time, while Dia Met sets in motion a full bidding process for the benefit of all shareholders.
Marlene Fipke, the largest shareholder, holds an approximate 25.5% stake in Dia Met, which was acquired as part of a divorce settlement last February from company founder Charles Fipke. Mackenzie, a Dia Met director, owns about 12.5% of the company.
President James Rothwell tells The Northern Miner that the board was forced to put the entire company on the block to ensure that all shareholders were treated fairly and have the opportunity to take advantage of any bid, should one come forward.
The board was faced with the possibility that one of these major shareholders would unload his or her position, says Gerald Prosalendis, vice-president of corporate development. The problem with this, he says, is that it could put the purchaser of those shares in a position effectively to discourage a full bid for all the company’s shares, and the board has judiciary duty to look after the interests of all shareholders.
The company has retained Credit Suisse First Boston as its investment advisor to aid in a full auction process. “We will go through a full and open process,” says Rothwell. Dia Met will set up a data room and have interested parties sign confidentiality agreements. Rothwell believes the process could take a couple of months to complete.
“We do feel the timing is good for this process,” he says. “There has been a consolidation going on in the industry. The diamond market is strong and we feel that the outlook is strong.”
Dia Met’s announcement comes at a time when South Africa’s
A new sales-planning system will ensure that the right diamonds are supplied to leading diamantaires so that they can be marketed and distributed as efficiently as possible. The result will be a greater focus by the industry on marketing and branding.
This new “preferred strategy” spurred the company’s entry into the Canadian diamond industry, with the $305-million takeover of Winspear Diamonds, the 67.8%-owner and operator of the promising Snap Lake underground diamond project in the Northwest Territories. The Snap Lake deposit, while still in the prefeasibility stage, represents a potential long-term supply of Canadian diamonds.
De Beers has made no secret about its desire to lay its hands on the “politically clean” Canadian stones. In January 2000, the Ekati mine began selling 35% of the run-of-mine production to De Beers under a 3-year agreement.
De Beers recently outbid London-based
As with Winspear in Canada, De Beers’ potential takeover of Ashton serves to expand its geographic base, while complementing the range of diamonds offered to customers.
Dia Met’s main asset is its 29% stake in Ekati, situated 300 km northeast of Yellowknife, N.W.T. Ekati is operated and 51%-owned by BHP Diamonds, a subsidiary of
The Ekati mine was brought into production in October 1998 at a capital cost of $900 million. In the year ended Jan. 31, 2000, the Ekati retrieved 2.51 million carats of diamonds from the Panda pit, of which 2.24 million carats were sold at an average price of US$168 per carat — 29% higher than originally predicted.
For the six months ended July 31, 2000, Ekati produced 1.35 million carats and sold 1.17 million carats at an average price of US$169 per carat. This compares with 1.33 million carats produced in the comparable period a year ago, with sales of 936,000 carats at US$163 per carat.
Dia Met earned $21.1 million (or 69 per share) in the half-year ended July 31, on revenue of $55.4 million, versus $10.1 million (33 per share) earned on revenue of $40.1 million in the corresponding period of last year. At the end of July, the company’s debt obligations totalled $166.7 million, down from $204.7 million at Jan. 31, 2000.
Under Ekati’s original mine plan, five kimberlite pipes — Panda, Misery, Koala, Sable and Fox — would be mined by open-pit methods, followed by underground mining of Panda and Koala. An earlier pipe, known as Leslie, had been dropped from the mine plan and replaced by Sable.
In total, 78 million tonnes of ore and 508 million tonnes of waste rock are scheduled to be mined over an initial 17-year mine life.
Combined, the five pipes contained proven and probable reserves of 65.9 million tonnes averaging a diluted grade of 1.09 carats per tonne at an average value of US$84 per carat, based on the 1997 feasibility study. The diamonds range in estimated value from US$26 per carat for the Misery pipe to US$130 per carat for Panda.
The mine plan calls for mill feed tonnage of 9,000 tonnes per day for the first nine years, doubling to 18,000 tonnes per day from 2008 onward. It is anticipated that the average cash operating costs over the 17-year period covered by the feasibility study will be in the range of US$22-27 per tonne. At current production levels, the operating costs are expected to average US$30-35 per tonne.
The Ekati mine plan has been amended to integrate three additional pipes — Koala North, Pigeon and Beartooth — into the mining schedule, increasing the projected life span of the operation to 18 years. BHP is awaiting final permits for the Sable, Pigeon and Beartooth pipes. Koala North falls within the existing permitted area. By not mining the Sable, Pigeon and Beartooth pipes, the mine life would be reduced by three years.
The eight pipes are all within the Core block of claims, where 88 kimberlite pipes have been discovered to date. On the outlying Buffer zone claims, which surround the core group, 37 kimberlites have been found. The Buffer zone claims are held 51% by BHP, 31.2% by
In August, Dia Met hired Rothwell, the former president of BHP Diamonds. The company has also formed a special committee to assess the merits of consolidating the company’s Class A and Class B shares into a single class.
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