Monsters of Rock: Diamonds are forever for dealmaker O’Keefe
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Michael O’Keefe has a knack of being on the right side of deals, making a fortune off Rio’s (ASX:RIO) misfortune when he traded Riversdale Mining and its ill-fated Mozambique coal assets to the global mining giant.
He then went on to turn Champion Iron (ASX:CIA) into a major high grade iron ore player in Canada after securing the Bloom Lake iron ore complex off Cleveland Cliffs on the cheap during the downturn and had a stake in Resource Capital Funds led consortium Riversdale Resources, which sold Gina Rinehart a perhaps never to be developed coking coal mine in Canada for a cool $740 million.
Now the diamond company O’Keefe chairs has made a big splash by making an ambitious play to acquire a Canadian diamond mine described as “world class” in a US$136 million ($209m) deal.
Turns out, Burgundy Diamond Mines (ASX:BDM) – which owns the mothballed Ellendale mine in WA – wants to build an integrated luxury diamond brand.
The deal would see BDM raise $231 million in fresh equity via Aitken Mount Capital Partners and Bell Potter Securities to secure the top-10 global Ekati mine, which sold 4.2Mcts at US$117/ct in 2022 and delivered revenue and EBITDA respectively of US$494m and US$200m last year.
Burgundy will need to consider options to extend the life of the mine beyond its current six year, encompassing open pits at Sable and Point Lake and the Misery underground operations.
BDM will pay $32 million in shares with a deferred payment of $23m cash (US$15m) due in December 2023, and repay the majority of vendor Arctic Canadian Holdings’ ~US$100m ($154m) debt.
Located in Canada’s Northwest Territories, Ekati has an interesting past.
According to Arctic, exploration began around what would become Ekati in 1981 before the Point Lake kimberlite was discovered in 1991, delivering its first rough diamond under BHP (ASX:BHP) ownership in October 1998.
Sold by BHP to Dominion for US$553m in April 2013 as it carved out non-core assets, the mine was placed in care and maintenance before Dominion collapsed early in the pandemic.
The operation was restarted by Arctic in February 2021, leading to its sale today, boasting a probable ore reserve of 48.5Mt at 0.5ct/t for 26.1Mcts.
O’Keefe, Burgundy’s executive chairman, said the mine’s acquisition completed its planned business model.
“Having been involved with Burgundy since 2017, this exciting acquisition completes Burgundy’s vertically integrated business model; bringing some of the world’s most beautiful diamonds to market from discovery through to design,” he said.
“We are confident that both Burgundy and Ekati have a very bright future and we expect this transaction will create significant value for all stakeholders.”
CEO Kim Truter said the deal would make Burgundy the largest diamond producer on the ASX. While African focused Lucapa Diamond Company (ASX:LOM) presents another option for ASX investors, Rio Tinto (ASX:RIO) has held its last auction of diamonds from the now shut Argyle mine, famous for its fancy pinks.
“This is an exciting and transformational acquisition for Burgundy with potential to generate significant and growing returns for our shareholders,” Mr Truter said.
“The acquisition of Ekati is complementary to Burgundy; we’ve been purchasing rough fancycoloured diamonds from Ekati in recent years, then cutting and polishing them in our facilities in Perth to go into high-end jewellery designs, as part of our vertically integrated business model.
“We view this acquisition as a wonderful marriage between Burgundy and the Arctic Companies, delivering immediate and meaningful production to our portfolio, with potential synergies to leverage and efficiencies to capitalise on in the short term.
“As a result, Burgundy will become the largest ASX-listed diamond company and be well positioned for sustainable growth.”
Gold miners had a good day, with Newcrest Mining (ASX:NCM) up 3% to lead the large cap miners.
It was slim pickings anywhere else with energy and materials sectors falling 2.78% and 1.6% for the day.
It came despite strong moves across the commodity complex overnight, with bulks, base and precious metals all going higher.