De Beers’ ticket

De Beers Consolidated Mines seems to have succeeded in its bid for Winspear Resources, having jumped its own offer for the company and secured the approval of Winspear’s board of directors. So the Northwest Territories’ third major diamond deposit, the Snap Lake kimberlite, appears to be passing into the strong hands of a large producing company.

This development marks a variation on the pattern of the two previous big diamond discoveries in the Territories — a Canadian junior bringing in a large foreign operating company to advance the deposit into production. Here, the junior is simply being swallowed by the operator. But De Beers’ acquisition of Snap Lake by takeover, rather than by making a deal with the junior, is a sign of the changes going on beneath the surface of the diamond industry.

De Beers wants to be a Canadian diamond producer, and it is clearly prepared to spend money in order to become one. There are reasons: the industry’s venerable cartel, the Central Selling Organization, is being dismantled, and De Beers, the CSO’s founder, owner, operator, banker and guiding spirit, is transforming itself into a brand name in the diamond industry.

A leading consideration in this transformation is the idea of politically “clean” diamonds from stable countries. De Beers’ own statements on “conflict diamonds” from Liberia, Angola and Sierra Leone, and its support for political moves against the illicit diamond trade, show that taking the moral high ground need not undercut a company’s commercial interests. That fact doesn’t taint what De Beers wants to accomplish; it simply means that De Beers has the opportunity to line up its social and corporate goals in a single strategy.

Whatever difficulties there may be with aboriginal land claims and permitting issues, the Canadian diamond industry offers the clean image De Beers is convinced its diamonds need. Ditto Australia, where De Beers is offering to take over Ashton Mining; so also Namibia and Botswana, two African countries where stable governments have long-term deals with De Beers for production and export.

Nobody can say De Beers has not paid its dues in the Canadian diamond search. The prosaically named De Beers subsidiary, Canadian Rock Company, entered Canada in the 1950s, and for years it and Selco were the only majors with any substantial diamond-exploration projects. De Beers, in its Canadian Rock and Monopros guises, found vast numbers of kimberlite and lamproite bodies and a few diamonds but never brought a mine into production.

Similarly, Selco, whose devotion to, and comfort with, geophysics made it the diamond explorer par excellence of the 1960s and ’70s, found its diamond projects swamped by corporate reorganization and the swing to gold exploration in the ’80s. When Selco departed the diamond scene and De Beers pulled in its horns, it appeared diamond exploration in Canada was a spent force.

With junior companies crowding the gold camps in northwestern British Columbia, Ontario and Quebec, it was left to prospectors and their backers to keep the flame burning.

By the time the first Northwest Territories discoveries were made, the dream had, to a large extent, died; Charles Fipke and Stuart Blusson had shopped their project around the country and there were no takers, even though Fipke’s work was accessible in the scientific literature.

But if Canadian mining companies were slow to realize the significance of the discoveries in the Territories, offshore companies were not; Broken Hill Proprietary and RTZ (now Rio Tinto) both saw the preliminary results for what they were, and made the early deals that brought big-company respectability to a junior-company land play. That foresight earned both companies a foothold in the Slave Province diamond camp that other large companies — including De Beers — cannot hope to rival without spending plenty of money.

This is precisely what brought De Beers to Winspear’s door. Monopros has interests in several advanced exploration projects — notably with Mountain Province Mining — and has no shortage of promising ground for grassroots exploration. It has been successful in making deals with junior companies and has kept its partners happy — a fact at odds with its popular image as a bloody-minded monopolist. But nowhere in Canada does it have a hand in a project at the same stage as Snap Lake.

The Winspear acquisition does not come without risks. The company’s “value recognition program,” in response to the De Beers takeover bid, spawned revised resource estimates and economic projections that made any observer wonder why this happy news had not come out before. De Beers is not buying a pig in a poke, any more than Barrick Gold bought one at Pierina or AngloGold at Geita; but advanced projects at the prefeasibility stage cost a lot to prove up, and almost as much to kill. Even the most prudent acquisition may, in the end, provide no payoff, and big ones are hard to live down. Only time (and money and hard work) will tell how the chips will fall at Snap Lake.

So while De Beers’ Winspear deal is an investment in a diamond project, it is as much an investment in credibility and presence. The $305-million price tag is enough to buy Winspear, but it is also the price of an admission ticket: De Beers could not afford to allow rivals like BHP and Rio Tinto to have the run of the Northwest Territories diamond industry. Buying Winspear to get Snap Lake represents De Beers’ determination that, whatever may have gone before, the company will not be shut out of a diamond camp it sees as strategic.