ASX-listed Burgundy Diamonds has struck a $136-million deal to acquire the Ekati diamond mine, in Canada’s Northwest Territories.
Burgundy on Tuesday announced that it had entered into an agreement with Artic Canadian Holdings to acquire all of the common shares of the company, as well as all of the common shares of Arctic Canadian Diamond Marketing, which is responsible for managing the supply chain, sorting, preparation, marketing and sales of the Ekati rough diamonds.
The $136-million consideration will comprise of $21-million shares in Burgundy, a deferred $15-million cash payment, which is due in December this year, and Burgundy repaying $100-million of outstanding debt.
In addition, Burgundy has agreed to a potential earn-out payment to the vendor of $7.5-million in cash in the first quarter of 2024 if 2023 earnings before interest, taxes, depreciation and amortisation (Ebitda) of the Arctic companies equals or exceeds $200-million, and $7.5-million in cash in the first quarter of 2025 if 2024 Ebitda of the Arctic companies equals or exceeds $200-million.
The Ekati operation sold 4.2-million carats in 2022, delivering revenues of $494-million and adjusted Ebitda of $200-million.
The current mine life of Ekati, including the addition of a new openpit development at Point Lake, runs to 2028. Exploration and project evaluation activities are ongoing, including the development of innovative mining techniques that could be used to extract the deeper resources from the Sable openpit, Fox openpit and Point Lake openpit. If successful, the mining of these deeper portions of existing orebodies would extend the life of Ekati.
Following the completion of the transaction, Burgundy would become the largest ASX-listed diamond company, and one of the largest listed diamond companies globally.
Burgundy CEO Kim Truter said the acquisition would complete the company’s vertical integration and would rapidly grow the end-to-end diamond business with providence throughout the diamond chain.
“This is an exciting and transformational acquisition for Burgundy with potential to generate significant and growing returns for our shareholders. The acquisition of Ekati is complementary to Burgundy, 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 jewellery designs, as part of our vertically integrated business model,” said Truter.
“We view this acquisition as a wonderful marriage between Burgundy and the Arctic companies, delivering immediate and meaningful production to our portfolio, with potential synergies to leverage and efficiencies to capitalise on in the short term.
“As a result, Burgundy will become the largest ASX-listed diamond company and be well positioned for sustainable growth.”
To fund the proposed acquisition, Burgundy will undertake a conditional placement to raise up to $150-million. The issue price of the placement is yet to be determined and the placement is subject to shareholder approval with a meeting scheduled to take place in late April.
Burgundy is also proposing to offer existing shareholders the opportunity to participate in a non-underwritten share purchase plan.
The Ekati transaction is subject to a number of conditions, including shareholder and noteholder approval, the completion of the capital raise, the completion of the debt repayments, and other customary closing conditions.