Burgundy Diamond Mines (ASX: BDM) is buying debt-burdened Arctic Canadian, owner of Canada’s largest gem workings, the Ekati mine, to become one of the world’s biggest diamond operations.
The purchase price is $136 million, composed of $21 million in stock, $15 million in cash, and Burgundy will cover $100 million in debt owed by Arctic Canadian, it said in a news release on Tuesday. The Australian company will also assume a further $69 million of debt owed by the Calgary, Alberta-headquartered miner in an agreement with creditors.
Arctic Canadian says the deal will recapitalize Ekati allowing it to keep some 1,100 jobs in Canada’s Northwest Territories. Perth, Australia-based Burgundy, which runs that country’s only diamond cutting and polishing facility, says the acquisition will make it a vertically integrated operator from mining to selling finished stones.
“The acquisition of Ekati is complementary to Burgundy,” the Australian company’s chief executive officer, Kim Truter, said in the release. “We’ve been purchasing rough fancy-coloured diamonds from Ekati in recent years, then cutting and polishing them in our facilities in Perth to go into high-end jewelry designs.”
Arctic Canadian, a private company owned by DDJ Capital, Brigade Capital and Western Asset Management, has been making a turnaround after former owner Dominion failed two years ago. The Ekati owner earned revenue of $494 million last year and adjusted earnings before interest, taxes, depreciation and amortization of $200 million on sales of 4.2 million carats, Burgundy said.
The revenue is an increase of more than half compared to 2021, the miner’s president and chief executive officer, Rory Moore, said in an interview with The Northern Miner in December.
“This transaction is a significant positive development for Ekati and for the North,” Moore said in a separate news release this week. “I want to acknowledge and thank our current owners for facilitating the restart of operations at Ekati in early 2021. The hard work of our people has led to a return to steady state profitable operations.”
The agreement, which must be approved by Burgundy shareholders, likely in April, also contains incentives for Ekati production. It allows for payments of $7.5 million next year and in 2025 if the previous year’s earnings are more than $200 million.
Burgundy plans to issue stock at an as-yet undetermined price to raise as much as $150 million for the purchase. The deal calls for Burgundy to pay the $21 million in stock when the placement is done and the $15 million in cash in December.
Arctic Canadian had outlined a plan to expand production at its holdings about 300 km northeast of Yellowknife using a novel underwater mining system on kimberlites at the bottoms of lakes. It plans to test the system at the depleted Lynx deposit in 2024 before deploying it on the deposits of Sable Deep, Fox Deep and Point Lake Deep.
The operation will also be extending the life at Ekati’s Misery underground mine, mining out Sable and begin developing the Point Lake open-pit project this summer, Moore said in December.
“I am optimistic about the future of Arctic Canadian,” its chief financial officer, Kristal Kaye, said in the release. “This equity-based investment by Burgundy will greatly improve the financial foundation of the company and our goal of extending mine life at Ekati while continuing to provide employment opportunities for many people in Northern communities.”
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