The news that Rio Tinto is looking to sell its diamond assets has sent shockwaves through the business. It’s the third major entity to express its intention to leave the industry in the last year, after BHP and the Oppenheimer family (the Oppenheimers!).

What makes this surprising is that these entities are saying sayonora after the gem trade has enjoyed one of the best years in its history, with prices increasing upwards of 20 percent. Nor does the future look particularly bleak, given the much-cited supply-demand projections, as Rio took pains to note in its statement.

So why are they leaving? Rio and BHP make a lot more money with core items like iron ore and copper; compared to those products, diamonds are a small, limited, far less profitable business. (According to one estimate, Rio’s diamond division accounts for less than 2 percent of its profits.) Moreover, extending the life of existing diamond production requires a lot of cash. Argyle’s expansion cost some $2.1 billion, and was one reason Rio’s diamond division recorded a loss last year. And if you have billions to invest, would you rather put it in something that generates good profits—or something that generates really good profits, and has far greater potential? In a way, both Rio and BHP can be said to have “outgrown” the diamond business.

(For all this, I should note that both Rio and BHP haven’t unequivocally said they are leaving; instead they both launched “reviews” of their diamond assets. It’s possible they won’t find the right buyer. BHP, in particular, has stressed it wants a company that continues its record of responsible mining.)

As for who might pick up these properties, there aren’t many obvious candidates. De Beers hasn’t ruled out buying another mine, and according to its spokeswoman, E.U. antitrust laws don’t prevent it from picking up new assets. But it now has Anglo-American calling the shots. The Bloomberg news service reported Harry Winston and Apollo Capital have expressed interest in Ekati, and it’s possible they could cast their eyes towards Diavik as well. (Winston is an obvious candidate to buy the rest of Diavik; it already owns 40 percent of it.) There also might be interest from small diamond companies like Petra and Gem Diamonds, which have done well with other companies’ cast-offs. We may be heading towards a future where diamond mines are held mostly by diamond mining companies—just as gold mining is done mostly by “pure players.”

What’s unfortunate about all this is that BHP and Rio made a real contribution to this industry. They supported reform efforts like the Kimberley Process and the Responsible Jewellery Council, and pushed industry organizations towards better governance. Rio Tinto was a particularly active presence here in the United States; it promoted diamonds more than the world’s largest producer, Alrosa, as strange as that is. Which makes its decision to say goodbye all the more regrettable. Together, these two diamond defections could drastically alter the landscape of our industry. Let’s hope not for the worse.

Rob Bates

JCK News Director