Quick Facts
- Rio Tinto has three diamond mines: the Argyle Diamond Mine in Western Australia (100pc ownership), the Diavik Diamond Mine in the Northwest Territories of Canada (60pc ownership), and the Murowa Diamond Mine located in Zimbabwe (78pc ownership).
- Together, these three mines produce 20pc of the world's annual production of rough diamonds
- Rio Tinto is the world's third-largest producer of mined diamonds.
- Its most advanced diamond exploration project is the Bunder Project in Madhya Pradesh, India, where Rio Tinto became the first foreign group to be granted a prospecting license.
Speculation was rife last November when global mining giant BHP said it was considering selling its Ekati diamond mine, in Canada.
As that was not enough, the group went on to dispose of its majority stake - a month later - in the Chidliak project, which is also located in Canada.
This move came shortly after South Africa's Oppenheimer family announced plans to sell their 40 percent in De Beers to global miner Anglo American for $5.1 billion, ending a century in the diamond business.
Some pundits claimed then that BHP’s and the Oppenheimers’ imminent exit from the diamond industry was an indication that the future was not as sparkling, as many thought to be.
Their conclusion was also hinged on the prevailing climate of global economic uncertainty, led by the Eurozone sovereign debt crisis, while the easing of rough diamond prices during the second half of 2011 from the highs reached in June the same year brought a lot of uneasiness.
However, it emerged that BHP’s decision had nothing much to do with the prevailing market conditions but that it needed to concentrate more on its highly lucrative potash business. Another global mining giant, Rio Tinto, which operates three diamond mines, Argyle in Australia, Diavik in Canada and Murowa in Zimbabwe, as well as Bunder, an advanced project in India is also mulling taking the same route that BHP contemplated some few months ago.
"We have a valuable, high-quality diamonds business, but given its scale we are reviewing whether we can create more value through a different ownership structure," Rio Diamonds & Minerals chief executive Harry Kenyon-Slaney said in a statement posted on its website.
Could this be a reason now to press the panic button?
Analysts do not think so, as they said that Rio Tinto’s plans to divest the diamond business made sense given that its main business was iron ore and copper.
Iron ore constituted 78 percent of Rio's net income last year, while diamonds made up just a measly 2 percent.
So it would be extremely dangerous to make a conclusion that the diamond industry was in the red just because another leading miner has indicated its willingness to say good-bye.
These figures, Rio Tinto revealed last year, do indeed help us see the insignificant part diamonds play in their operations.
It does not make sense at all to continue flogging a dead horse when there is a live one that can take you a couple of miles before it tires.
Put simple, so it is ideal for Rio Tinto to focus on increased spending on bigger projects than diamonds, which will contribute a very small net income to the group at the end of the year.
As if it was aware of speculation that would likely arise after announcing plans to sells its diamond assets, Rio Tinto made it clear that the market outlook was positive.
"The diamonds market outlook is very positive, with demand growing strongly and lack of new discoveries limiting supply," said Slaney.
Although the rough diamond prices retreated during the greater part of the second half of 2011, the Thanksgiving and Christmas jewellery sales registered modest growth in the US and Europe.
It was also highly believed that even if global economic conditions are set to continue to cause some volatility in rough diamond pricing, demand from Asia and other emerging markets would continue to grow strongly in the short term.
With supply forecast to remain flat or decline, demand for diamonds was also in the long term expected to continue to rise in both established and new markets as wealth and consumer spending increase.
So clearly, Rio Tinto’s decision was not influenced by fears of a weak diamond market outlook, but it was mainly due to the gems’ importance for the group when compared with cash cows such as iron ore and copper.
The inferred conclusion we can make having witnessed events in the industry for the past four months is that diversified mining companies are finding the diamond business a tough call.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
