Sparkling prospects for BHP
diamonds
By Stewart Oldfield
BHP could reap a $265 million profit from its first full year of diamond
production, boosted by rising industry prices and strong dealer
acceptance of its precious stones.
BHP is understood to be targeting sales of up to $US400 million ($620
million) this financial year from the Ekati diamond mine in Canada's
north west in which it has a 51 per cent interest.
The sparkling profit margins generated by the diamond business will
bolster BHP's expected $1.5 billion profit this financial year, built
around a surge in oil prices and an absence of crippling abnormals.
Mr David Horowitz, managing director of IDH Diamonds, BHP's
diamond marketing consultant based in Antwerp, Belgium, said
industry prices had risen about 15 per cent since the beginning of the
year, thanks in big part to a recovery in Asian demand.
The Ekati diamonds were selling at about $US150 a carat, above the
market average, he said.
Mr Horowitz said Ekati diamonds were generating strong dealer interest
on the open market because of their consistent size and quality, despite
the immaturity of the mine.
The open market's support for the Ekati product will test BHP's
commitment eventually to supply 35 per cent of its production to De
Beer's Central Selling Organisation.
Competitors such as Ashton Mining now sell all of their output on the
open market but BHP decided to play it safe, signing an agreement with
De Beers in July to supply its London-based CSO.
"They don't need that. They have people here (in Antwerp, Belgium)
able to demand 100 per cent of production," Mr Horowitz said.
The Ekati mine, which generates sales comparable to Ashton's Argyle
mine in Western Australia's Kimberley, is mining a single diamond pipe,
Panda, and will expand to include other pipes, according to a 1997
feasibility study over the next two years.
Ekati is also expected to expand its mine to include a lower grade but
sizable Leslie pipe which will boost its present reserves.
Ekati's ramp-up coincided with the start of the recovery in the $US8
billion global diamond business from January.
The chief executive of Ashton Mining, Mr Doug Bailey, said the
outlook for diamonds was positive.
There would be a need for new mines if the present growth in demand
continued, he said.
"Whether it continues and for how long depends on how Asia, and
especially Japan, comes out of recession," he said.
In the quarter to August 31, BHP generated sales of $67 million and
operating profit of $55 million with Minerals president Mr Ron
McNeilly saying that BHP had established an excellent foothold in the
market.
"The project will deliver significant profit and cash flow to the bottom
line," he said.
The success of BHP's diamond operations and the commitment of chief
executive Mr Paul Anderson to establishing his company as a mega
minerals player augurs well for the expansion of the fledgling business.
BHP is understood to have sheltered its diamond operation from the
worst of its $100 million cuts to its annual exploration budget.
The company has entered an arrangement with diamond explorers, Dr
John Gurney and Mr Larry Otte, to examine opportunities in Africa.
PHIL
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