MENU

Diamonds not BHP’s best friend

BHP Billiton (ASX: BHP) has announced today that it has sold its diamond business for US$500 million to Canadian company, Harry Winston Diamond Mines.

This continues the diversified miner’s strategy of focusing on low-cost, long-life expandable upstream assets mainly in iron ore, coal, copper, oil and gas and potash. It follows the sale of the company’s interest in Richards Bay Minerals (sand mining) to Rio Tinto Limited (ASX: RIO), and the Yeelirrie uranium project to Cameco Corporation.

BHP’s diamond division consisted of an 80% stake in the EKATI diamond mine in Canada, and its Diamonds Marketing business, and concludes the big miner’s association with diamonds. Rio Tinto announced earlier this year that it was reviewing its diamond operations and was open to the sale of its three mines.

Demand for diamonds is expected to grow, with affluent consumers in China and India tipped to increase their spending on luxury products. For big miners like BHP and Rio, with one and three mines respectively, the diamonds industry is very small compared to big bulk commodities markets. Illustrating the rarity of diamonds, Australia has just three diamond mines, The Argyle, owned by Rio Tinto, Ellendale owned by Kimberley Diamond Company and Merlin, which is currently owned by North Australian Diamonds Limited (ASX: NAD). Merlin is expected to enter production early next year, while Ellendale is estimated to only have a few years of production left.

BHP will take a US$200 million writedown on the sale, which suggests the assets were sold at a discount to their value.

Olympic Dam

BHP have also announced that the South Australian government have agreed to extend an indenture agreement covering the expansion of the Olympic Dam copper/uranium mine for another four years. BHP now has until October 2016 to begin work on the expansion. In exchange, the company has agreed to spend $650 million in South Australia over the next four years.

The major issue with Olympic Dam is that because of its geology, extracting the copper and uranium is highly capital-intensive – the expansion was expected to cost up to US$30 billion. BHP is hoping that new technologies will be found that allow the ore to be extracted at a lower cost, and that four years should give the company time to investigate other extraction alternatives.

Oil, copper, and gold continue to be in high-demand — and their popularity doesn’t look to be slowing. We’ve uncovered three companies poised to benefit from the rising prices of these commodities. Get our brand-new report — “3 High-Risk/High-Reward Resources Stocks” — FREE!

More reading

Motley Fool writer/analyst Mike King owns shares in BHP Billiton. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!