Why Is Rio Tinto Still Exhibiting in Vegas?

It was one of the big puzzles of the JCK show: With Rio Tinto officially acknowledging its desire to sell its diamond mines, why was Rio Tinto Diamonds not only continuing its promotional activities, but actually expanding them, with its ambitious “Diamonds with a Story” initiative? 

This seeming incongruity makes a little more sense if you think about ways a possible sale could possibly play out. 

There is the hope that Rio’s interest in the impacted properties (Diavik in Canada, Murowa in Zimbabwe, Argyle in Australia, and Bunder, its mine-to-be in India) will be sold as a unit. This makes sense, as diamond operations tend to require scale. (One of the reasons BHP and Rio are selling their assets is because there wasn’t scale enough.) Under such a scenario, Ekati could be picked up, too. (Otherwise, Ekati may face challenges finding a buyer; it doesn’t have much time left and will require years to close down.)

This could be financed with a public offering, or some other financial instrument, and would make Rio Tinto Diamonds among the largest diamond-mining “pure players.” And in fact, the industry’s future may be in “pure plays”; that is currently how most gold is mined. 

The open question is, would this possibly pre-empt Harry Winston making a play for Diavik? Winston owns 40 percent of Diavik, and has the right of first refusal to buy the rest of it. That position generally makes it tough for competitive buyers. The issue is, if the diamond unit is sold, rather than individual mines, would Winston’s right of first refusal still apply? (The company declined comment.)

Rio Tinto the company clearly wasn’t enthused about the future of its diamond assets, when compared to big earning minerals like tin and iron ore. But that doesn’t mean the assets don’t have a future; in fact, they have quite a bright one, given the current (long-term) supply-demand forecasts. We hope that someone will be able to put together a plan to help them meet their full potential.

JCK News Director