Gem Diamonds bids for Kimberley (July 30, 2007)

Up-and-comer Gem Diamonds (GEMD-L) of the U.K. has tabled a friendly A70-per-share cash offer for Perth-based Kimberley Diamond Co. (KDC-L, KIM-A), valuing the Aussie junior producer at A$300-million.

The offer is a 33% premium to the previous day’s close, and will be funded out of Gem Diamonds’ existing cash reserves.

Kimberley’s best asset is its 100% stake in the struggling Ellendale diamond mine in Western Australia, an operation that produces gem and near-gem quality diamonds, including its signature fancy yellow ones.

During the first half of this year, Ellendale continued its ramp-up with the objective of achieving long-term, steady production. This “ramp-up” period has been ongoing since 2002, having produced 11 million tonnes of mined ore, recovered over 700,000 carats and generated A$165 million in sales.

“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,” said Gem Diamonds’ chairman and CEO, Clifford Elphick, in a statement.

Miles Kennedy, Kimberley’s executive chairman, said that 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.”

Kimberley also owns exploration ground near Ellendale and holds a 40% interest in the Australian-listed diamond explorer Blina Diamonds (BDI-A).

Founded only two years ago with a US$600-million initial public offering, Gem Diamonds now boasts a market capitalization of US$1.4 billion.

Gem Diamond already has the producing Letseng kimberlite mine in Lesotho, the recently acquired Cempaka alluvial mine in Indonesia, and a pipeline of development and exploration projects in Botswana, the Democratic Republic of the Congo, the Central African Republic and Angola.