UK-based Gem Diamonds Ltd has launched a $300 million grab for Kimberley Diamond Company NL, ending months of takeover speculation surrounding the Australian-based producer.
UK-based Gem Diamonds Ltd has launched a $300 million grab for Kimberley Diamond Company NL, ending months of takeover speculation surrounding the Australian-based producer.
Gem's cash bid of 70 cents a share for Kimberley, which operates the Ellendale diamond mine in Western Australia, has been unanimously recommended by the target's board.
The UK-based diamond producer's move follows rumours that the company had been building a position in Kimberley via European investors.
Gem confirmed today it had entered into arrangements to acquire about 14.9 per cent of Kimberley from a range of shareholders at the offer price of 70 cents a share.
"Kimberley represents a strong strategic fit within Gem Diamonds, both with the geographic diversification it contributes to the group as well as with its high-value fancy diamond production," Gem chief executive and chairman Clifford Elphick said.
Gem operates mines in Lesotho and Indonesia, along with development projects in Botswana, Democratic Republic of Congo, Central African Republic, and has an option over a concession in Angola.
Kimberley began mining at its Ellendale operation in 2002 and produces predominantly gem- and near-gem quality diamonds, including the rare fancy yellow diamond.
The operation has recovered about 700,000 carats worth $165 million since mining started.
Kimberley executive chairman Miles Kennedy said Gem would bring economic strength to ensure the longevity of the Ellendale operation.
"Gem Diamonds brings the required balance sheet strength to complete the production ramp-up at Ellendale and optimise production and marketing strategies to ensure the longevity of the operation," Mr Kennedy said.
Kimberley has been the focus of takeover rumours for months, with Mr Kennedy stating about a year ago that the company was vulnerable to a takeover because it was undervalued by the Australian market.
But questions remain over the future of explorer Blina Diamonds NL, which was spun out of Kimberley in 2004 and is 40 per cent-owned by the takeover target.
Gem may have timed its move on Kimberley to perfection, with brokerage RBC Capital Markets tipping diamond prices to increase as demand outstrips supply.
"The supply of newly mined gem-quality diamonds is likely to fall over the next three to five years as no major new mines are scheduled to come into production," RBC said in a May client note.
"This promises to support diamond prices, in particular prices of better-quality and larger diamonds."
Kimberley shares surged 16 cents or 30.5 per cent to 68.5 cents by 1353 AEST on the back of the news.
The full text of an announcement is pasted below:
Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds") and Kimberley Diamond Company NL (ASX: KIM/AIM: KDC) ("Kimberley") are pleased to announce that they have reached agreement on the terms of a recommended cash offer by Gem Diamonds for all the issued and to be issued share capital of Kimberley.
Gem Diamonds is pursuing an accelerated growth strategy both through acquisitions and the development of existing assets which include a portfolio of a producing kimberlite mine an alluvial mine, numerous development projects and a number of exploration assets with long-term prospects. Established in July 2005, as at 18 July 2007 (being the last business day before this announcement) Gem Diamonds had an equity market capitalisation of approximately US$1.4 billion.
Kimberley is an independent ASX listed diamond producer operating the Ellendale Diamond Mine in Western Australia. The Ellendale mine produces gem and near gem quality diamonds including Kimberley's signature stone, the rare and highly valuable fancy yellow diamond.
Cash offer of A$0.70 for each Kimberley share, representing a premium of approximately 33% to Kimberley's closing share price on 16 July 2007.
- Offer values Kimberley at A$300 million (circa US$263 million).
- The offer is unanimously recommended by Kimberley's directors who, in the absence of a superior offer, have agreed to accept the offer in respect of their own holdings.
- Gem Diamonds has entered into arrangements to acquire approximately 14.9% of Kimberley from a range of Kimberley shareholders at the offer price of A$0.70.
- Gem Diamonds will provide Kimberley with a A$10 million short term loan facility for working capital purposes.
- Gem Diamonds intends to leverage its financial strength and technical expertise to deliver on the full potential of Kimberley's assets.
- Production of high value fancy diamonds from Ellendale, Kimberley's primary mine, is strategically attractive to Gem Diamonds.
Commenting on the offer, Clifford Elphick, Chairman and CEO of Gem Diamonds, said:
"Gem Diamonds is pleased to announce this offer for Kimberley which enjoys the full support of the boards of both companies.
Whilst the Ellendale operation has faced challenges, I have no doubt that Gem Diamonds' technical expertise combined with its ongoing support of the current operational and technical management will ensure these challenges are overcome. Gem Diamonds' management is committed to the Ellendale staff and look forward to working with them to develop the mine to its full potential.
Kimberley presents a strong strategic fit within Gem Diamonds; both with the geographic diversification it contributes to the Group as well as with its high value fancy diamond production. Over time I am confident that these fancy diamonds will achieve higher prices when sold in combination with the high value Letšeng diamonds.
This will be Gem Diamonds' third acquisition since it floated on the LSE in February, and its largest to date.
Ellendale brings a third producing asset to the Gem Diamonds portfolio and takes Gem Diamonds a step closer to its ambition of becoming one of the world's leading diamond producers."
Commenting on the offer, Miles Kennedy, Executive Chairman of Kimberley, said:
"This recommended cash offer will reposition Kimberley's Ellendale Project within the broader portfolio of international diamond assets assembled by Gem Diamonds. Gem Diamonds brings the required balance sheet strength to complete the production ramp-up at Ellendale and optimize production and marketing strategies to ensure the longevity of the operation."
