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UPDATE 1-Harry Winston eyes growth in northern Canada
April 5, 2012 / 7:27 PM / 5 years ago

UPDATE 1-Harry Winston eyes growth in northern Canada

* Company looks at acquisitions in Northern Canada
    * CEO says field of miners/buyers has narrowed
    * Confirms right of first refusal for Rio's Diavik stake
    * Sees strong rough diamond prices ahead
    * Shares fall 5 percent in Toronto

    TORONTO, April 5 (Reuters) - Harry Winston, jeweler
to the rich and famous, is looking for new opportunities to mine
diamonds in northern Canada, where it already owns a large stake
in a project operated by Rio Tinto Plc, one of the
world's largest miners.	
   Toronto-based Harry Winston confirmed it has right of first
refusal for Rio Tinto's 60 percent interest in their joint
Diavik diamond mine in Canada's Northwest Territories, but it
would not comment further on Rio's statement it might sell its
stake.	
    Harry Winston Chief Executive Robert Gannicott, in a
conference call with investors on Thursday, said the jeweler is
interested in projects that have well-defined resources, with a
focus on pre-production stage properties.	
    "Obviously we're interested in any assets like that that are
relevant to our sphere of expertise, which has certainly become
northern Canadian-focused," said Gannicott.	
    Rio Tinto said last month that it is considering selling its
diamond business to focus on more profitable metals. But
analysts say the asset is likely beyond Harry Winston's reach.	
    "In my view I think it would be a challenge for them," said
Edward Sterck, a mining analyst with BMO Capital Markets. "Their
existing finances are not sufficient to buy out Rio's stake."	
    Because Harry Winston does not have experience operating a
mine, he added, a development-stage project would be a better
acquisition as it would give the company time to build up an
operations team. 	
 	
    Rio's review follows a similar announcement by BHP Billiton
 and strongly suggests the sector -- dominated by De
Beers and Russia's Alrosa -- is heading toward its most
significant shake-up in more than a decade. 	
    With four major diamond operations on the block between Rio
and BHP, the market is abuzz with talk that smaller miners,
jewelers and private equity funds could catapult themselves into
the diamond industry's major league.	
    But Gannicott sees diamond mining as a very specialized
business, where the processing, sorting and marketing side is
just as important as digging ore out of the ground.	
    "It's not something that is easily undertaken by someone who
is just a financial investor who wants to be invested in the
diamond business," he said. "It looks to me like a narrowed
field." 	
    Shares of Harry Winston were down 5 percent at C$13.78 at in
late afternoon trading on the Toronto Stock Exchange.	
    	
    ROUGH DIAMONDS	
    The Diavik mine produced 6.7 million carats in calendar 2011
and output this year is expected to rise to 8.3 million carats.
The company said it will not a release a long-awaited
life-of-mine plan until after Rio's review, as project
parameters could change.	
    The life-of-mine plan will give the market more clarity on
future costs and operating rates.	
    Harry Winston, which gets 40 percent of output at Diavik,
sold 2.1 million carats of rough diamonds at an average price of
$137 per carat. That compares with 2.6 million carats at an
average price of $106 per carat the year before. The company
elected to hold some inventory in anticipation of rising prices.	
    Rough diamond prices tumbled in the second half of 2011, as
new production from the Marange fields in Zimbabwe threatened to
flood the market. By January, demand was returning to the market
and prices were higher, the company said.	
    Late on Wednesday, Harry Winston reported a 17 percent
increase in quarterly profit, boosted by rough diamond sales and
prices. Sales at its retail business lagged because of fewer
high-value transactions.

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