London, England — 29 March 2012 – Rio Tinto Group (RIO) and BHP Billiton Ltd. (BHP) are looking to exit the diamond industry even as prices head for a fourth year of gains, because they see little prospect of repeating the dominance they hold in iron ore.
Rio is considering options for its diamond mines because they may no longer fit with strategy and they don’t have the required scale, the London-based company said yesterday. BHP Billiton Ltd. has sought bids for its diamond assets.
Bloomberg News reports that BHP and Rio, which together accounted for about 16% of global diamond production by value in 2010, have failed to match the output of industry leaders De Beers and OAO Alrosa of Russia. That contrasts with the position in iron ore, where along with Brazil’s Vale SA, they have a market share of about 63%, according to estimates from Bloomberg Industries.
“They can’t get the scale they want,” said Ed Sterck, an analyst at BMO Capital Markets. “Diamonds don’t really fit with the modus operandi of the big diversified majors and it’s always been a bit of an anomaly that they’ve stuck with it.”
Rough-diamond prices rose 24% last year after two consecutive annual gains of 32% as producers struggled to keep pace with consumption. That advance could be prolonged as stagnant production fails to satisfy surging demand from China and India.
The use of diamonds may grow at double the pace of supply through 2020 because of an expanding middle class in the two Asian countries, according to Bain & Co., the consulting firm.
De Beers, 45%-owned by London-based Anglo American plc (AAL) and the operator of the world’s biggest diamond mine in Botswana, produced 31.3 million carats in 2011. Rio produced 11.4 million carats last year.
“The diamond market outlook is very positive, with demand growing strongly and lack of new discoveries limiting supply,” Harry Kenyon-Slaney, CEO of Rio’s diamonds and minerals unit, said. “Given its scale we are reviewing whether we can create more value through a different ownership structure.”
BHP, based in Melbourne, announced its review in November, saying some or all of its diamond assets, including the Ekati mine in Canada, may be sold because they have limited growth and may no longer fit its strategy of investing in “large, long- life” assets.
Source: Bloomberg News. For further details click here.