Harry Winston Sells 22.5% of its Interest in Diavik Diamond Mine

Harry Winston Diamond Corporation announced on Thursday a $150 million investment in the company by gold mining and exploration firm Kinross Gold Corporation. This is an investment for an indirect interest in the Diavik diamond mine and a 19.9 shareholding in Harry Winston. The move gives Kinross a 9 percent holding in Diavik and a seat on Harry Winston's board.

The investment comes at a critical time for Harry Winston, injecting into the company funds ahead of large loan payments.

Kinross will purchase 15.2 million treasury shares from Harry Winston at a price of $3 per share. The price represents a 61.3 percent premium, with Harry Winston's shares trading at $1.86 just prior the announcement.

Kinross has agreed to subscribe for new partnership units representing a 22.5 percent interest in the limited partnership which holds Harry Winston's 40 percent joint venture interest in the Diavik Diamond Mine, for a net effective subscription value of $104.4 million

Talk of a possible takeover bid has been circulating for the past couple of weeks, as first reported by IDEX Online. At least two companies expressed an interest in Harry Winston following the drop in the value of the diamonds mined at Diavik, downgrade reviews by financial analysts and a continuing decline in share value. One of the companies expressing an interest in Harry Winston was apparently considering a hostile takeover.

It seems at this point that the Kinross purchase blocks a hostile takeover, at least temporarily.

A request made to Harry Winston on Wednesday to comment on the bids was declined.

According to the terms of the agreement, Kinross has the right to maintain the equity level by participating in future equity financings

In addition to repaying bank debt, Harry Winston will use the proceeds to fund its share of the costs to complete the underground expansion of the Diavik mine. The expansion will expand the mine's life beyond 2022.

Harry Winston will continue to market the 40 percent share of diamond production from the Diavik mine, including the portion attributable to Kinross' interest.

"We welcome this important investment by one of the world's leading mining companies," said Bob Gannicott, Chairman and CEO of Harry Winston. "We look forward to developing our relationship with Kinross as we build our company and consider new opportunities for future growth."

As analysts have expected, Harry Winston decided to suspend dividend payments for the time being due to its financial situation.