Market Overview

Geologist Mulls Deal To Buy BHP's Canadian Diamond Interests


by Peter Kennedy, writing for Stockhouse

“We are evaluating our positions,that’s all I am prepared to say,’’ said Chuck Fipke, the geologist who found the Ekati mine in 1991..

The geologists who found Canada’s first diamond mine could yet emerge to scupper BHP Billiton Ltd.’s (NYSE: BHP, Stock Forum) plan to sell its interests in the Ekati mine to Harry Winston Diamond Corp. (TSX: T.HW, Stock Forum) for US$500 million (U.S.)

That’s because Charles Fipke and Stewart Blusson hold first refusal rights in addition to a combined 20% stake in Ekati, which is located in Canada’s Northwest Territories, about 300 kilometres northeast of Yellowknife.

When Harry Winston announced on November 13, 2012 that it has struck a deal with BHP, the agreement triggered a first refusal option that gives Fipke and Blusson 60 days to decide whether or not to acquire BHP’s interests on the same terms as those agreed to by Harry Winston.

In recent days, there has been speculation that Fipke and Blusson are considering teaming up to buy the BHP interests in partnership with Robert Friedland, the international financier who recently sank $10 million into Peregrine Diamonds Ltd. (TSX: T.PGD, Stock Forum), a company headed by his brother Eric Friedland.

But when Stockhouse reached him at his base in Kelowna, B.C., Fipke was keeping his cards close to his chest.

“We are evaluating our positions, that’s all I am prepared to say,’’ he said.

“Maybe we will do something, maybe we won’t."

A native of Edmonton, Alta., Fipke became a legend in the Canadian mining industry when he discovered the Ekati mine in 1991. The discovery marked a breakthrough for Canada as Ekati ranked as this country’s first commercial diamond mine.

According to BHP, Ekati has produced an average of over three million carats of rough diamonds per year, in the last three years. Annual sales currently amount to 3% of the world’s rough diamond supply by weight and 11% by value.

BHP is looking to offload the asset after reporting that production was down 32% in the third quarter of 2012 from a year ago.  It said this was due to temporarily restricted mining conditions and unscheduled maintenance. “While production is expected to recover in the December 2012 quarter, it is forecast to remain constrained in the medium term as the operation extracts lower grade material, consistent with the mine plan,’’ BHP said.

By acquiring BHP’s interests, Harry Winston will pick up an 80% stake in the producing Core zone as well as a 58.8% stake in the nearby Buffer Zone.

The balance of those assets are held by Fipke and Blusson.

While conceding that diamond prices have softened recently, Fipke takes the view that the future remains bright for the industry.

“A lot of people have money in China and India. Both of those countries like diamonds. So I wouldn’t expect to see a collapse.’’

Indeed rather than rest on his laurels, Fipke is hoping to develop a diamond mine on a James Bay, Ont., property held by Metalex Ventures Ltd. (TSX: V.MTX, Stock Forum).

Gem quality diamonds recovered from the U2 kimberlite pipe are similar to the ones being produced at De Beers Canada’s Victor mine, which is located about 100 kilometres further east, the company has said.

“We think that we have an excellent chance on this one,’’ he added.

Aside from diamonds, another Fipke company Cantex Mine Development Corp. (TSX: V.CD, Stock Forum) has also been busy exploring for Yukon gold deposits, similar to the ones that have made Carlin, Nevada a prolific area for gold mine development.

Back in September, the company said it has staked eight claim blocks covering 28,000 hectares after seeing the results of a heavy mineral sampling program in 2011.

Looking back on the Ekati, discovery Fipke recalls that he was initially greeted with nothing but skepticism.

“People just didn’t believe it,’’ he said.

Meanwhile, Fipke said he hadn’t heard the speculation about a possible deal with Robert Friedland. “If that is the case, it’s news to me, he said. “There have been no negotiations with him.” 

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Commodities Markets


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