BHP Billiton announced on November 30, 2011, that it was reviewing its diamonds business, comprising its interests in the Ekati diamond mine and the Chidliak exploration project in Canada. Subsequently, on December 20, the company reported it had agreed to sell its 51% interest in the Chidliak project to Peregrine Diamonds, giving Peregrine, the project operator, 100% ownership of the project. Under the terms of the agreement, Peregrine will pay BHP Billiton C$9 million over three years and grant BHP Billiton a 2% royalty on future production from Chidliak.
Peregrine has the right to match any offer by a third party to purchase any of BHP Billiton’s 2% royalty, should BHP Billiton decide to sell. In addition, as part of the transaction, Peregrine has acquired BHP Billiton’s Canadian regional diamond exploration database, and BHP Billiton has agreed to dissolve Peregrine’s royalty obligations and BHP Billiton’s diamond marketing rights on certain Canadian mineral properties in which Peregrine has an interest.
The Chidliak project is located on southeast Baffin Island in Nunavut, Canada. Exploration has identified economic potential for 7 of 59 known kimberlites. Following the increase of its interest in the project to 100%, Peregrine said it would undertake a comprehensive analysis of its 2012 exploration program to determine how to most efficiently advance the project. Preparations for the 2012 bulk sampling program were put on hold until a final decision on the path forward is made, anticipated to occur in January 2012.
The Ekati diamond mine is located 310 km northeast of Yellowknife and 200 km south of the Arctic Circle in Canada’s Northwest Territories. It is owned by BHP Billiton (80%), Dr. Stewart Blusson (10%) and Charles Fipke (10%). The mine has produced an average of more than 3 million carats of rough diamonds per year over the last three years, with annual sales representing approximately 10% of global diamond supply by value.
In announcing the review of its diamonds business, BHP Billion said the review would focus on whether a continued presence in the diamonds industry is consistent with its investment strategy, which is to invest in large, long-life, upstream, and expandable assets while remaining a simple and scalable organization. “Ekati is a world-class operation, and Chidliak is a promising exploration opportunity; but many years of extensive exploration suggest there are few options to develop new diamond mines that are consistent with this approach,” the announcement said.