Kinross’s diamond investment pays off

Less than 18 months after injecting US$150 million in capital into Harry Winston Diamond Corp, and its part-owned Diavik mine, Kinross Gold Corp plans to exit at a very healthy return of over 170%.

The gold company has announced the sale of its 9% indirect stake in the Diavik mine back to Harry Winston, for US$220 million. This will be paid through US$50 million in cash, 7.1 million Harry Winston shares and a debt instrument of US$70 million, due in 12 months. The stake was purchased for US$104.4 million.

In addition, Kinross will sell its 19.9% stake in Harry Winston to investors. The stake was purchased at US$3/share totalling US$45.6 million. At Friday’s opening price of just over US$12.5/share, it is valued at US$190 million.

The investment was made in March 19, 2009, when diamond prices had slumped and producers were struggling financially. The proceeds were used to repay bank debt, for general corporate purposes and to fund Harry Winston's share of the capital costs to complete the underground expansion of the Diavik mine.

At the time Harry Winston said: “The Kinross transaction strengthens Harry Winston's balance sheet both to withstand the uncertainties of the current global economic environment and to be able to take advantage of opportunities that may become available during this turbulent period.”

The US$220 million price paid for the 9% stake in Diavik implies an overall value of US$2.44 billion for the Canada-based diamond mine.