In the 1960s, when Michael O’Keeffe was in primary school, he’d rise around 4am to go and muck out horse stables to earn some money to help his family.
He and his sister lived in a flat at the back of the Cairns public hospital with their mum, who ran the maternity ward. His father, a World War II veteran, who suffered post-traumatic stress disorder and drinking problems, was largely absent. O’Keeffe says his family didn’t have much, but they got by, as many of that generation did. When he and his sister walked home from school, they sometimes looked into the windows of homes, and talked about the houses they wanted to live in one day.
Now 70, O’Keeffe, who’s worth an estimated $450 million, has two residences, one in Quebec, Canada and another in Queensland. However, he spends most of his time on planes, and on his 46-metre yacht, which he bought from shopping centre billionaire Frank Lowy in 2019 and renamed Moatize. O’Keeffe also has a company and a horse called Moatize. He owns about 30 horses, most of which are for racing and are stabled at Sydney’s Warwick Farm.
Moatize is a place where O’Keeffe, a former Glencore Australia boss and trained chemical engineer, came to fame. It’s a town and coal area in Mozambique where O’Keeffe built his first independent company. There he made his fortune and established a reputation for spotting unloved and undervalued assets with huge potential, and then relatively quickly turning them into multibillion-dollar companies.
O’Keeffe has done this in coal with Riversdale Mining and Riversdale Resources, companies which he sold at the top of the market to Rio Tinto and Gina Rinehart, respectively, who would later come to regret buying those assets. He has done it with iron ore, building Champion Iron, into a competitive, high-grade outfit. Now he’s intending to do it in diamonds by bringing a former BHP mine, which was once highly profitable and prized by the Big Australian, back to life and listing it on the stockmarket.
The diamond mine is in Canada’s remote Northwest Territories, which sit partly in the Arctic Circle, where temperatures can plunge to as low as -50 degrees. It’s a far cry from the tropical climes of O’Keeffe’s upbringing.
O’Keeffe is sitting in a private room at Sydney’s Double Bay Intercontinental hotel, having a coffee. He’s wearing a well-tailored black suit with his tie folded up and tucked into his top pocket. His youngish face is dominated by a pair of black-framed glasses. He doesn’t look like he’s entering his eighth decade, nor like a man who’s worried, even though his next appointment is with a banker from the private wealth arm of the troubled Credit Suisse, which was recently acquired in a fire sale by UBS.
O’Keeffe spent most of March pitching potential investors to raise $231 million for his latest venture, Burgundy Diamond Mines, which he wants to transform into a significant player in the global diamond industry, and into the largest listed diamond company in the Western world.
‘I want it [Burgundy Diamond Mines] to be bigger than Champion Iron.’
Michael O’Keeffe, mining entrepreneur
The world’s biggest diamond companies are De Beers and Alrosa. De Beers is controlled by multinational resource group Anglo American, and Alrosa is one-third owned by the Russian state.
The $231 million capital raising by Burgundy is to fund the acquisition of the Ekati Diamond Mine in Canada’s Northwest Territories for $US136 million ($203 million), most of which is debt. After that acquisition, Burgundy will become the world’s 10th-biggest diamond producer.
“It’ll be the biggest listed diamond company in the [Western] world, which is quite amazing. There’s no other commodity you can do that in by buying one asset,” says O’Keeffe.
The Ekati mine, which employs 1100 people, was put into production in 1998 by BHP and was hugely profitable delivering high-grade diamonds, before it was sold by then-CEO Marius Kloppers in 2013 after it was deemed non-core to the mining giant’s operations.
After BHP sold Ekati, the mine had multiple different owners. In 2021, it was bought out of bankruptcy protection by Arctic Diamonds, which is now selling to Burgundy.
“When the BHPs and Rios of the world build things, they build it very well,” says O’Keeffe. “You’re buying absolutely magnificent infrastructure that’s in place. My DNA is to find brownfield assets and buy them at a time when the commodity is out of favour.”
O’Keeffe says global diamond production has been declining because of the lack of new mines being developed. Supply has also tightened after sanctions were imposed on Russian diamond imports. Presented with that environment, and the chance to acquire a quality diamond asset cheaply, it was an opportunity too good for him to resist.
“The diamond market has shrunk. Ten years ago, the market for diamonds was about 190 million carats. Five years later, it’s down to 150 million, and now it’s about 120 million, and there’s no big supply coming on,” says O’Keeffe. “You have to spend a lot of money to find diamonds, and they are always in remote places.”
Paul Zimnisky, a US-based industry analyst who runs Diamond Analytics, agrees. He forecasts that diamond supply will be between 115 million and 125 million carats annually for the remainder of this decade. “The new norm is significantly less than what we saw towards the end of last decade.”
Zimnisky too says the reason for this is that no new big diamond mines are being developed. “Diamond deposits are extremely rare, and most of the high-grade deposits that contain a lot of high-quality diamonds have already been exploited. There’s just not many resources left that provide enough of an economic incentive to put them into production. And it takes a long time.
“It can take between 10 and 25 years from the first discovery of the kimberlite, which is the ore where diamonds are found, to production. If the price of diamonds goes up significantly, some of these deposits that may only be mediocre, may become investible at some point in the future.”
However, a weak global economic outlook has depressed demand for luxury goods and experiences, from jewellery to fine dining to luxury holidays, which means diamond prices are unlikely to rise sharply in the short term.
While O’Keeffe talks up the outlook for Ekati, the reality is that it only has a mine life left of six years. O’Keeffe and his team are looking at ways to extend this through technology, exploiting other deposits on the site that haven’t yet been mined, and through acquisitions.
Ziminsky estimates that if a company were developing Ekati from scratch today it would cost close to $2 billion and take almost a decade.
Burgundy’s strategy with the acquisition of Ekati is to become a vertically integrated diamond business. In 2021, Burgundy bought the Argyle Pink cutting and polishing business from Rio Tinto, where it can process up to 3000 rough carats a year, and thus capture the profit margin there too. However, it won’t be able to accommodate all of Burgundy’s diamonds and so other cut and polishing facilities, such as those in India, would be used.
Burgundy’s market capitalisation is tiny, at around $100 million. O’Keeffe believes he can grow it to be bigger in value than the Canadian iron ore operation he created, Champion Iron. “I want it [Burgundy Diamond Mines] to be bigger than Champion Iron.”
Champion Iron was created when O’Keeffe spotted some undervalued iron ore assets in Quebec. In 2015, Champion Iron paid $C53.3 million to acquire Bloom Lake iron ore assets, including liabilities (it was once valued at $C4.9 billion) out of bankruptcy protection. Since then, it’s grown into a company with a market capitalisation of $3.6 billion. It’s a dual-listed company in Australia and Canada.
If O’Keeffe wants Ekati to replicate the success that he’s had with his other companies, then analysts expect it may involve acquisitions.
There is an obvious candidate and that’s Rio Tinto’s diamond mine, Diavik, which is located 30 kilometres from Ekati. Earlier this year, Rio Tinto invested a further $US40 million to extend the mine’s life to at least 2026. O’Keeffe won’t rule out a consolidation opportunity if Rio wanted to exit that business. But would Rio want to deal with O’Keeffe after its last disastrous deal with him?
O’Keeffe’s career began at Mt Isa Mines (MIM), and from there he would be plucked to become Glencore Australia’s boss in 1995, where he spent nine years. During that time, he grew turnover from $US100 million to $US2.4 billion, before vending most of the operation into Xstrata.
When O’Keeffe left Glencore’s Australian operations in 2004 he teamed up with a former MIM colleague, Steve Mallyon. Together O’Keeffe and Mallyon invested in a company called Riversdale Mining, and through it raised tens of millions to acquire some coal tenements they had spotted in Mozambique. It was 2006 and a time when coal prices were in a slump. Japan’s Sumitomo Corporation became an investor in Riversdale, and later India’s Tata Steel bought into the project.
After five years of developing the project, coal prices were once again on a tear and were trading near record highs. It was at this time that Rio Tinto lobbed a blockbuster bid of $3.9 billion for Riversdale Mining.
[Riversdale] remains one of the worst investments in Rio Tinto’s 150-year history.
Within three years of ownership Rio Tinto was forced to write off most of the value of that Mozambique coal project. Rio Tinto’s chief executive Tom Albanese was sacked and in 2014 the company sold Riversdale Mining for a mere $US50 million. It remains one of the worst investments in Rio Tinto’s 150-year history.
O’Keeffe is critical of the way that Rio ran that business. “They destroyed it.” He says one of the company’s key mistakes was to get rid of the advisory board that Riversdale Mining had, whose members included the chairman of the state oil company Petromac, and another who had written Mozambique’s constitution. “The first thing that Rio did was get rid of that, and the damage that caused was crazy.” O’Keeffe says he made an offer to stay after the deal on the advisory board, but it was rejected.
O’Keeffe says the advisory board was important to navigating the state, and ensuring the decisions it made were culturally sensitive and resulted in a win for both the resources company and the government. “Through it the decisions got softened and moulded into something that was universally agreeable.”
In Canada, he also has an advisory board for the same reason, which includes a former Quebec premier and a politically connected lawyer.
After Riversdale Mining, O’Keeffe and Mallyon went on to build Riversdale Resources, a Canadian coal exploration company, with a private equity firm Resource Capital Funds in 2012.
That company was bought seven years later by Gina Rinehart’s Hancock Prospecting for $806.5 million. Rinehart has since run into substantial problems with starting that project, as state and federal Canadian governments, under public pressure, have gone cold on new coal mines.
O’Keeffe says everything was on track for Riversdale Resources, and then 12 months after the deal, the provincial and federal governments changed course. “You can’t predict that. Gina’s got people working on it now. However, the more and more time goes on, the harder it is to take a tonne of coal out of the ground, any new coal, let alone existing coal. In the meantime, everyone is freezing in the dark. I would have thought there are better ways of keeping your coal and your emissions down by looking at carbon capture opportunities for power stations and things like that.”
Around the time that Riversdale Resources was started, O’Keeffe had also invested in Champion Iron – a company, he says unsurprisingly, that is undervalued by the market.
Champion’s shares were recently trading at $6.84. Analysts at Macquarie and Citi have price targets on the stock of $8 and $8.40, respectively, for the next 12 months. Citi analyst Paul McTaggart says the doubling in Champion’s output in the next 18 months and its higher-grade iron ore make it a good story. He also sees it as a decarbonisation play. “It’s got volume growth, which is hard to find in my universe of big cap iron ore stocks. It’s also a kind of decarbonisation play, as it aims to produce a product for DRI pellet production. Even without that, their higher-grade iron ore product typically commands a premium. If you put higher-grade iron ore in, you get more iron out, and you’ll get less slag.”
O’Keeffe has made enough money to be comfortable to retire, but he’s not ready. “I love creating and building things, it’s really enjoyable. If I’m not doing that then it feels as if there’s something missing in my life.”
Once he starts, another driver kicks in. “I can’t fail. I think that comes from not having anything when I was growing up. It’s deep-seated.”
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