Rio Tinto Explores Sale Of Diamond Operations

on March 27 2012 1:14 PM
A dump truck at Rio Tinto's Pilbara operation in Australia
A dump truck at Rio Tinto's Pilbara operation in Australia. The company announced a review of its business model, with an eye on the possible sale of its diamond operations. Rio Tinto

Rio Tinto PLC (NYSE: RIO) said Tuesday it is mulling the sale of its diamond operations, variously estimated to be worth from $1.2 billion to $2.5 billion, as the world's third-largest mining company sharpens its strategic focus.

The London-based company said it will conduct a review of its businesses, with special attention being paid to its three diamond mines in Argyle, Australia; Diavik, Canada and Murowa, Zimbabwe, as well as Bunder, an advanced diamonds project in India.

We regularly review our businesses to ensure they remain aligned with Rio Tinto's strategy of operating large, long-life, expandable assets, said CEO Harry Kenyon-Slaney in a statement. 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 Tinto is one the world's largest diamond producers, behind South Africa's De Beers and Russia's Alrosa, yet its diamond business account for less than 5 percent of revenue. The company's diamond business produced $10 million in profits last year, it said.

The possible divestiture follows BHP Billiton Ltd.'s (NYSE: BHP) review of its mining operations, which eventually led to the sale of a 51 percent stake in an exploration project to Peregrine Diamonds Ltd., as well as Anglo American Plc's $5.1 billion purchase of a 40 percent stake in De Beers.

This process may take some time, Kenyon-Slaney, Rio Tinto's chief executive, said. We're committed to keeping stakeholders informed about any key developments, and in the meantime are reassuring employees and the governments in the states and countries where we operate that it is very much business as usual.  

Rio's American Depositary shares fell 10 cents to $53.96 in afternoon trading.