KKR Interested in BHP & Rio Assets to Form +10% Diamond Supplier

(IDEX Online News) – Kohlberg Kravis Roberts & Co. (KKR), one of the leading candidates to purchase BHP Billiton's Stake in Ekati, wants to form a diamond major that also includes Rio Tinto's diamond assets, the Sunday Times reported today.

As IDEX Online first reported, KKR is one of just a few company's that are participating in the current bidding round for BHP's 80 stake in Ekati.

Together with KKR, a private equity firm, are Harry Winston Diamonds and Stornoway, which have examined a bulk sample of run-of-mine diamonds from the mine to get a better understanding of the mine's potential.

The negotiations include price biddings, with KKR leading with a $750 million bid, the Sunday Times reported without saying where it got the information.

If KKR wins the bids for all assets, it will be able to form a new major supplier of rough diamonds, one that offers 10 percent – 15 percent of the global supply of rough.

In their last annual reports, the diamond units of Rio and BHP reported revenues of $727 million and $1.01 billion (respectively), producing 11.7 million carats and 2.51 million carats.

Jointly this translates to combined revenue of $1.74 billion and production of 14.21 million carats. By comparison, DTC's revenues were $6.5 billion in 2011 and Alrosa's $4.5 billion. The two produced each twice as much as Rio and BHP combined.

A strong third company may increase competition among buyers for rough at a time when supply is shrinking, resulting in runaway rough prices. This may be especially true if the new entity, should it be formed, will choose to offer its goods in an auction system.