Rio Tinto, BHP should merge diamond assets - analysts

Rio Tinto and rival mining giant BHP Billiton should consider merging their diamond assets, which they are considering to divest and float the shares of a new company, analysts have said.
Rio Tinto operates three diamond mines, Argyle in Australia, Diavik in Canada and Murowa in Zimbabwe, as well as Bunder, an advanced project in India while BHP owns Ekati in Canada, which is just 20 km from the Diavik mine.
Mining Weekly quoted BMO Capital Markets analyst Edward Sterck as saying that the amalgamation might be a good competitor to De Beers and Alrosa.
“They have looked at combining the operations previously,” he said.
An unnamed Rio Tinto spokesperson was also quoted as confirming that when Ekati and Diavik were discovered in the 1990s, the companies did consider putting the operations together.
Sterck said both companies might struggle to find buyers but merging their assets was a better option.
Fairfax analyst John Meyer also said that diamond business “does not sit well with a group which has become dominated by large-scale, mainly bulk, commodities”.
“They have some good quality assets within their diamond business which may benefit from operating outside the Rio umbrella,” he was quoted as saying.
An unnamed source close to BHP Billiton said that the combination of the two diamond businesses may look good on paper it was not easy to implement.
“I wouldn’t want to rule it out, but it’s something that might be easier to do in theory than in practice,” he was quoted as saying.
He said that the two companies would have to decide on valuations of their relative assets, before the market got to put any price on the merger.
Ekati produces about 3 percent of global rough diamond supply by weight and 11 percent by value, while Rio Tinto’s mines produce 20 percent of the world's annual production of rough diamonds.
Rio Tinto was also the world's third-largest producer of mined diamonds.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished