Rio Tinto in talks to sell Diavik diamond mine to Harry Winston

A deal between Rio Tinto (NYSE:RIO) and Toronto-based jeweller Harry Winston Diamond (NYSE:HWD), which is looking to become the sole owner of the Diavik Mine, might be around the corner FT reported Friday (subscription required).

The newspaper said the diamond retailer, which already owns 40% of Rio Tinto’s Diavik mine, is in advanced talks with the third largest miner to acquire its 60% stake in the diamond operation located in Canada’s Northwest Territories and close to BHP Billiton’s Ekati – the country’s oldest diamond mine.

The world of diamond mining is undergoing fundamental changes.

BHP, the globe’s biggest mining company, launched a review of its diamond operations late last year with an eye to sell most or all of its assets. BHP has already off-loaded its Chidliak exploration project in Canada to Peregrine Diamonds.

Rio Tinto followed in March saying that it was reviewing its gem business, potentially selling it all off.

Other than Diavik, Rio Tinto operates two other diamond mines including Argyle in Australia and Murowa in Zimbabwe. The miner also has an advanced diamond project in Bunder, India.

The diamond business may simply be too small for the mining giants. Rio Tinto’s diamond mines contribute less than 2% to its earnings and it’s a small proportion of BHP’s income as well.

On top of that the profit margins for the gems compared to iron ore, which sits at a more than comfortable 70% in Rio Tinto’s case, is too small.

Apart from the changing strategy of BHP and Rio, the founding family of De Beers recently sold out completely from the company synonymous with diamonds after three generations steering the business. The $5.1 billion deal, announced in November, was completed early this month.

Russia’s Alrosa overtook De Beers in 2009 as the world’s number one supplier of rough gems after decades of being a secretive, state-owned organization in the process of readying for a global public offer.

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