May 19, 2011 / 10:56 PM / 7 years ago

UPDATE 1-Harry Winston signs deal to source diamonds without investment

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May 19 (Reuters) - Canadian diamond miner and retailer Harry Winston Diamond Corp signed a deal with a Zurich-based diamond advisory firm to source polished diamonds without extra investments and to insulate it from volatile prices in the luxury brand business.

Zurich-based Diamond Asset Advisors AG will set up a polished diamond investment fund of up to $250 million to buy the polished diamonds sourced by Harry Winston , the Toronto-based company said in a statement.

The fund will consign the bought diamonds to Harry Winston, who will use them to make its jewelry and timepieces. The fund’s market value will be calculate using the price paid to replace the diamonds sold through their use in the luxury products.

The deal with Diamond Asset Advisors “represents an innovative and efficient way for the company to support its luxury brand growth objectives,” Harry Winston’s Chief Executive, Bob Gannicott said.

Diamond prices have enjoyed a resurgence going back more than a year due to a steady improvement demand in the United States — the world’s biggest market — and surging demand in China and India, Asia’s biggest and third-biggest economies.

Harry Winston has a 40 percent stake in Canada’s largest diamond mine — the Diavik mine, which it owns along with joint venture partner Rio Tinto . Last month, Harry Winston posted a fall in production at the mine. [ID:nN10295269]

Diamond Asset Advisors was established to develop investment and funding structures which will give investors access to invest in the diamond industry, according to its website.

The first subscription of about $100 million is expected to be raised later this year and the remaining $150 million next year. Upon initial funding by Diamond Asset Advisors, Harry Winston expects to sell a substantial part of its existing polished diamond inventory to the fund at market prices.

The fund, which will be structured as a limited partnership, will be managed by Diamond Asset Advisors and Harry Winston will have no ownership interest. The company’s Executive Vice-President, Ray Simpson, will join Diamond Asset Advisors’ management when he leaves the company.

Harry Winston’s shares closed at C$15.58 on Thursday on the Toronto Stock Exchange. (Reporting by Aftab Ahmed in Bangalore; Editing by Savio D’Souza)

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