De Beers offers A$522.1m for Australia's Ashton

De Beers, the South African group that controls half of the world’s diamond production, yesterday launched an A$522.1m (US$304m) bid for Australian diamond miner Ashton Mining.

De Beers said it would pay A$1.62 a share for Ashton which is a 20 percent premium to Ashton’s closing share price in Australia on Friday. Yesterday, Ashton shares were trading 29c up at A$1.64.

Ashton immediately rejected the bid as “inadequate” and “opportunistic” and urged shareholders not to sell.

The bid, if successful, would give De Beers a 40 percent stake in Australia’s Argyle diamond mine. Rio Tinto owns the other 59.9 percent of the mine which produced 29.7m carats of rough diamonds last year. Ashton also owns Australia’s Merlin mine and has a stake in the SDM mine in Angola.

De Beers effectively controls 43 percent of all diamond production in the world. It is now seeking to increase its market share in Canada and Australia. Earlier this month it launched a bid for Canada’s Winspear Resources.

De Beers said Malaysian Mining Corp, Ashton’s largest shareholder, had agreed to pare down its 49.9 percent stake in Ashton down to 30 percent. De Beers will need to win support of 50.1 percent of Ashton shareholders to snare control of its target. A bidders’ statement will be filed shortly and the offer will remain open for a month.

Paddy Kell, De Beer’s group finance director, said the company believed the offer provided “full and fair value” to Ashton shareholders. “The acquisition of Ashton, particularly its interest in the Argyle mine, will provide De Beers with additional geographic diversity and establish Australia as an additional component of our international operations,” he said.

Doug Bailey, Ashton’s managing director, cautioned shareholders not to act until further advised. Ashton said its directors would send a detailed response after the company receives the formal offer documents.

Mr Bailey said the offer was opportunistic, given that Ashton had recently announced an increased likelihood of an extended mine life at Argyle until 2018. Ashton also has a promising portfolio of other diamond assets that are well placed to benefit from a strong world market for diamonds, he said.

Ashton had earlier announced that the company’s first-half profit – to be reported in mid-August – was likely to be at least 20 percent above the full year pre-abnormals profit for 1999.

Chaim Even Zohar, an Israel-based industry expert, who had flagged the acquisition at the weekend, said the premium for Ashton was higher because market rumours had already driven up the price of Ashton in the weeks preceding the announcement. Mr Even Zohar, who is also the editor of an industry newsletter, Diamond Intelligence Briefs, said the acquisition of Ashton could make Rio Tinto’s position “untenable” at Argyle and predicted that the group would sell out to De Beers.

“De Beers would have access to all the commercial data of Argyle, including prices, strategies and marketing plans,” he said. “There is no way that Rio Tinto could successfully compete with De Beers on the diamond market if De Beers has this information advantage over it. This will probably mean that Rio will sell off its part in Argyle to De Beers as well.” Reuters