Has the diamond market peaked?

In the last few months, both Rio Tinto and BHP Billiton have announced that they are reviewing their diamond businesses with a view to a sale, the Daily Telegraph writes in an article posted on www.telegraph.co.uk.
Even the Oppenheimer family, which gained control of De Beers in the 1920s, has sold its entire stake in the world’s largest diamond producer to Anglo American.
However, the moves are unlikely to represent a market top. It’s actually all about scale.
Rather than marking a peak in the diamond market, the exit for Rio and BHP makes sense based on the companies’ growth strategies. Mining gem stones is a tiny part of both companies business – and it is difficult for them to grow these operations substantially to increase shareholder value.
Rio produces about 6pc of all diamonds mined globally, with BHP mining 2pc. In 2011, diamonds generated just 5pc of Rio’s revenues.
Anglo American, though its stake in De Beers, producing about 27pc, according to Ryan Long, an analyst at Northland Capital Partners.
Indeed, Anglo has consolidated its ownership of the African diamond producer by buying the Oppenheimer family’s stake.
So, it is more a question of the ability to boost returns on a scale that a major miner requires.
However, mid-tier diamonds companies should be able to boost their production in the next few years leading to meaningful growth in their top and bottom line.
Both Gem Diamonds and Petra Diamonds are following this strategy.
“It has become clear that major multi-commodity miners with a limited diamond asset base cannot expand their position in the diamond business from either acquisitions or discovery of tier one assets,” Mr. Long said.
Rio Tinto’s Diamond assets include the Argyle mine in Western Australia, where the world’s biggest rough pink diamond was recently discovered.
Rio's diamond assets are likely to be valued at $2bn – and these funds can be used to fund Rio’s ambitious growth projects, such as its iron ore expansion in the Pilbara region of Western Australia.
Potential buyers for Rio’s diamond business include US group Harry Winston Diamond, as well as private equity companies such as KKR.
When it comes to diamonds bigger is better – but when it comes to owning diamond mines, small is much more beautiful.