Thursday, September 13, 2012

Rio Tinto Sees Strong Fundamentals For Its Diamonds Business

Anglo-Australian mining giant Rio Tinto plc  said Wednesday that it sees strong long-term fundamentals for its diamonds business as demand from China and India continues to surge.
However, the company projects supply of diamonds to be flat over the next decade due to lack of significant discoveries in the last decade and long lead times for bringing discoveries to commercial production.
In late March, Rio Tinto said it was looking into selling its diamond business and commenced a strategic review of the business. The company also said the business will operate as usual until the completion of the review of the diamonds portfolio, which is expected to take some time.
Rio Tinto's larger rival, BHP Billiton Group (BHP, BLT.L, BHP.AX, BBL, BHPBF.PK) said in November 2011 that it has commenced a process to sell its diamond mining assets in Canada.
Rio Tinto is the third-largest producer of rough diamonds in the world by volume, behind Alrosa Co. and De Beers, and also the world's largest producer of colored diamonds. In 2011, the company's production of diamonds was 11.7 million carats, while revenues from the business were $726 million.
The diamonds business includes Rio Tinto's 100 percent interests in the Argyle Diamond Mine in Australia and the Bunder Diamond Mine in India, as well as its 60 percent interest in the Diavik Diamond Mine in Canada and 78 percent interest in the Murowa Diamond Mine in Zimbabwe.
The company also operates a niche cutting and polishing factory in Perth for the rare pink diamonds from its Argyle mine.
In a slide presentation released to the Australian Securities Exchange on Wednesday, Rio Tinto said it is still reviewing all options for the diamonds business, including a sale. However, the company added that it did not face any time pressure for a transaction.
Rio Tinto expects significant growth in diamond production over the next five years. The company added that long term demand will be driven by growth in emerging markets, but noted that little new supply was coming on line.
According to the company, India and China are expected to grow to around 40 percent of the diamond jewelry market by value by 2020. The company also expects the U.S. to remain a key market for diamond jewelry.
However, Rio Tinto expects China to surpass the size of the U.S. market by 2025, and other markets to move in line with GDP growth.
Rio Tinto also forecasts prices to increase over the next decade, due to significant and growing supply deficit.
Separately, NRW Holdings Ltd. said it has been awarded A$133 million of works for Rio Tinto Iron Ore's Cape Lambert Port B 353Mtpa project. NRW is a provider of contract services to the resources and infrastructure sectors in Australia and internationally.
The company noted that the works, which will be undertaken over 48 weeks, include the CLB353 stockyard, conveyor link earthworks, relocation of water pipelines and rail formation earthworks.
In Thursday's regular session on the Australian Securities Exchange, RIO.AX is trading at A$55.39, up A$0.30 or 0.54 percent on 1.26 million shares.

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