Rio Tinto buffing diamond float to take on De Beers

Rumours abound that Anglo-Australian giant Rio Tinto (LON, ASX, NYSE: RIO) is not likely to follow rival BHP Billiton (ASX, LON, NYSE: BHP) and dispose of its diamond business outright, but that it has much more ambitious plans.

In March BHP announced it is restructuring its diamond operations with a view to selling off the division which has never fitted in well with the world’s largest miner’s volume plays such as iron ore.

Shortly after Rio Tinto followed BHP’s lead and ordered a strategic review of its diamond division and with news last week that BHP agreed to sell its Ekati mine in northern Canada to jewellery retailer Harry Winston, pressure is mounting for Rio Tinto to unlock some value from its gems.

BHP got for $500m for Ekati, but WA Business News reports Rio Tinto wants “much more than that” for its diamond assets which includes a long established processing and marketing arm and that it’s putting together a package for an LSE listing:

Speculation emanating from London points to Rio Tinto retaining a 40% stake in the new business which will have WA’s Argyle mine and the Diavik mine in Canada as its major producing assets. Rio Tinto owns all of Argyle which started production in 1983, and 60% of Diavik which started in 2003.

Apart from Diavik and Argyle – the largest ever pink rough diamond were dug up there this month – Rio also owns a small mine in Zimbabwe. And last week Rio lifted the veil on a “secret” deposit the company discovered in India in 2004.

According to Rio’s website, the deposit — located in rural India, about 800 kilometres southeast of New Delhi— is the most important diamond discovery in India in the last 40 years.

The Bunder project, in Madhya Pradesh, is set to start production by 2016 or early 2017. Once that happens, India could once again have a world-class mine, producing between two to three million carats a year.

Even including the Indian properties a stand-alone Rio Tinto Diamonds would be a distant third in bulk to De Beers – now owned by Anglo American – and Russia’s Alrosa which together produce more than half of the world’s diamonds.