Rio Tinto to retain diamonds business amid depressed economy

Anglo-Australian miner Rio Tinto Ltd has abandoned its plans of divesting its diamonds business worth $2.5 billion, as selling commodity assets becomes tough in a depressed global economy.

The London-based miner, which was even looking at an IPO for its diamonds business, today said that the best way to generate maximum value for shareholders would be to retain these businesses.

"The medium to long-term market fundamentals for diamonds remain robust, fuelled by growing demand for luxury goods in Asia and continuing strong demand in North America," said Rio's chief executive of diamonds and minerals, Alan Davies.

"We have valuable, high-quality diamonds businesses that are well positioned to capitalise on the positive market outlook," he added.

"After considering a number of alternative strategic ownership options it is clear the best path to generate maximum value for our shareholders is to retain these businesses."

Rio Tinto, the world's third-biggest producer of rough diamonds, had said in March 2012 that it would exit the diamond business by inviting bids for its portfolio of diamond mines.

After failing to find a buyer in the current depressed global economy, the company early this year made plans to spin-off its diamond division through one of the largest initial public offerings (IPOs) and hired Morgan Stanley to draw up plans to raise approximately £250 million ($380 million) in a London listing this year.

However, given the depressed markets for commodities, it concluded even an IPO was not an attractive option.

The UK and Australia-listed company has diamond assets in Australia, Canada, India and Zimbabwe.

Its Argyle mine in Western Australia is the world's largest diamond mine by volume, although not by value due to low proportion of gem-quality stones. The mine produces over 90 per cent of the world's rare pink diamonds. The company also has a cutting and polishing factory in Perth for diamond processing.

In India, the company has diamond exploration projects in Bunder in Madhya Pradesh, where it has discovered a cluster of eight diamondiferous pipes.

The Murowa mine in south-central Zimbabwe is a production mine since 2004.

In Canada, Rio Tinto owns a 60-per cent stake in Diavik diamond mine in Northwest Territories in a joint venture with Dominion Diamond Corp. Recent reports had suggested that the company may sell its stake in Diavik to its partner.

Rio Tinto, which produces around 15 per cent of the world's diamonds by volume, saw its earnings from diamonds plunge by 86 per cent to $10 million in 2011 on revenues of $727 million,  and a loss of $43 million in 2012.

The value of Rio Tinto's diamonds business on its books is $1.2 billion, but analysts say that the business may fetch around $2.5 billion.

Rio Tinto, like other mining giants BHP Billiton, and Anglo American, has cut capital expenditure plans due to a slump in commodity prices and company's mounting debt.

Rio Tinto chief executive Sam Wash has been trying to reduce the company's debt burden through various means which also included a possible sale or public offering of the diamond division.