Rio Retains Diamonds Business


After a careful and thorough scrutiny of various available options, mining giant, Rio Tinto plc (RIO) has finally opted to retain its diamonds business. Rio took roughly fifteen months, beginning March last year, to come to the decision.

Management believes that the diamond business has an enormous growth potential, with the increasing demand in Asia and North America. It is now expected that retaining the business at this point will enable Rio to enhance shareholders value.

The diamonds business of the company includes the 100%-owned Argyle (Australia-based), 60%-owned Diavik (Canada-based) and 78%-owned Murowa (Zimbabwe-based) diamond mines. The option to divest the business was seen as a step to reduce its costs as well as its huge long-term debts.

Over the past fifteen months, Rio has expanded its diamonds business splendidly. Last month, Rio Tinto Diamonds launched a new and innovative sales platform for its Canadian Diavik production. Rio will use a proprietary auction system to sell its diamonds together with the Supply Agreements. During the same time, the Argyle Diamond Mine produced three of the rare Fancy Red diamonds, for the first time in the history of the mine.

At this juncture, both the metal and mining industries are going through a difficult phase. As a result, not only Rio but other miners, such as Australia-based BHP Billiton Limited (BHP) and Brazil-based Vale SA (VALE), are also attempting to shorten their portfolio to concentrate more on the profitable ones.  While some have found success in divesting some of their assets, others have shelved their plans, not realizing the full worth of the assets.

Apart from the diamonds business, Rio has also been attempting to shorten its non-profitable asset portfolio, with the sale of Eagle project in Jun 2013 and Sebree Smelter in Apr 2013. Rio currently carries a Zacks Rank #5 (Strong Sell). However, another mining company, Golden Minerals Company (AUMN) carries a Zacks Rank #2 (Buy), and is worth a look.

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