Rio Tinto’s diamond float moves to lift-off

Western Australia’s big Argyle diamond mine appears destined to shine as a key part of a new company being packaged by mining giant Rio Tinto for listing on the London stock exchange.

Other mines and exploration assets in Rio Tinto’s worldwide diamond portfolio will also be tipped into a float which industry sources say will emerge as a multi-billion dollar specialist diamond business.

Finding a way out of diamonds, which sit oddly alongside Rio Tinto’s speciality of bulk and base metal commodities such as iron ore, coal, copper and aluminium, has been on the company’s agenda since late last year.

The same issue had been dogging the board of BHP Billiton which earlier this week took the easier exit route by simply selling its Ekati mine in Canada, and the associated diamond marketing operation, to the global jewellery retailer, Harry Winston.

BHP’s diamond departure raised $US500 million. Rio Tinto has been seeking much more than that, but the problem has been finding a buyer for the business which includes a long-established diamond processing and marketing operation and four primary mining assets.

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.

Secondary assets will include a 78% stake in the small Murowa mine in Zimbabwe and the undeveloped, but highly-rated, Bunder diamond discovery in India.

Dubbed “the secret mine” Bunder has been well hidden from public view by Rio Tinto for the past 12 years, making a rare public appearance in London two weeks ago when an exotic necklace went on display.

Diamonds in the necklace, named Courageous Spirit, came from Bunder with the chief executive of Rio Tinto Diamonds, Jean-Marc Lieberherr, telling the Financial Times newspaper that: “the symbolism of finding a mine in the heartland of diamonds is very emotional – we couldn’t miss the opportunity of using some of the samples we extracted to focus everyone’s mind.”

“We are re-starting the Indian diamond story and its rich heritage that we can leverage into or marketing message.”

Unsaid, but open to reasonable interpretation, is that the marketing message will soon include the release of a prospectus targeting Indian investors keen to buy a slice of their history.

The same form of marketing can also be seen in last month’s carefully orchestrated publicity about the record price of more than $US2 million paid for a pink diamond from Argyle.

Details of the proposed float, which first surfaced as a concept last April, have not been revealed, nor has Rio Tinto explained why it is opting to create a separate stock-exchange listed company rather than make a clean exit like BHP Billiton.

However, one reason for opting to float is the difficulty in valuing a diamond marketing business, or in putting a value on the Bunder discovery which has been described as the most important diamond discovery in India for more than 50 years.

In a background briefing document, Rio Tinto said Bunder was one of only four new diamond mines likely to become functional in the next 10 years.