The deal marks BHP's exit from the diamond industry, a year after the world's largest miner said it planned to sell assets including the 80 percent stake in EKATI, Canada's oldest diamond mine and the cornerstone of BHP's diamond business.

BHP said at the time it would focus instead on larger, long-life assets that it can expand.

Harry Winston, one of several jewellery makers that have gone into mining to secure access to gems, has long been seen as a potential suitor, as it is already a partner of Rio Tinto at nearby Diavik, with a 40 percent stake.

But the jeweler - its most recent quarterly earnings tarnished by China's cooling demand for luxury - had been expected to focus its attention on Diavik, after Rio said earlier this year it also planned to pull out of diamonds.

Talks with BHP had also dragged for months.

The $500 million deal for EKATI includes the current operating mine - which has a remaining mine life of just seven years to run - but also other permitted areas, and a "buffer zone" with development and exploration potential.

The EKATI mine has produced an average of around $750 million of rough diamonds per year over the last five years, representing 6 percent of the world's rough diamonds by value.

BHP said on Tuesday took a $200 million non-cash write-down as a result of the sale, but it also pointed to an original investment of $848 million. That has generated income of approximately $2.8 billion, excluding proceeds from Tuesday's sale - a rate of return of around 20 percent.

Other suitors in the process had included private equity group KKR and diamond group De Beers, who eventually held back from an offer, sources familiar with the matter said. Analysts' estimates of price for EKATI had varied widely, from $500 million to over $1.5 billion.

BHP's other diamond asset was sold in December, when the company agreed to sell its majority stake in the Chidliak exploration project in Canada to its partner Peregrine Diamonds.

Harry Winston said it would fund the deal with cash at hand and with debt, including a $400 million term loan and a $100 million revolving credit facility.

Reporting by Clara Ferreira-Marques