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Rio Tinto reviews selling diamond businesses

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A second miner of Canadian diamonds is headed for the exits. Rio Tinto, (RIO-T) the world's third-largest miner, effectively invited bids on Tuesday for its diamonds business, on its books at $1.2 billion US, and joined rival BHP Billiton (BHP-N) in backing away from a business that has lost its sparkle.

Rio Tinto, which runs three mines in Australia, Canada and Africa, said it was reviewing its diamond business and would consider selling it, as the group focuses on expanding in more profitable commodities such as iron ore, copper and uranium.

Its diamond business - the 100-percent-owned Argyle mine in Australia, famous for its pink diamonds, as well as 60-percent-owned Diavik mine in Canada and 78-percent-owned Murowa mine in Zimbabwe - could come on the market at the same time as BHP Billiton tries to sell its Ekati diamond mine in Canada.

"We have a valuable, high quality diamonds business, but given its scale we are reviewing whether we can create more value through a different ownership structure," Rio Tinto's diamonds and minerals chief executive, Harry Kenyon-Slaney, said in a statement.

An industry analyst estimated Rio Tinto's diamonds business could fetch around $2 billion, though this was well north of its book value of $1.2 billion. The analyst declined to be named as he is not the lead analyst on the company.

Net earnings from Rio Tinto's diamonds business slumped 86 percent to $10 million last year on revenue of $727 million, as the group was hit by lower production and higher costs at Argyle. The previous year was also boosted by a tax benefit.

The open-pit Argyle mine, undergoing a $2.1-billion expansion underground, is the largest diamond producer in the world by volume and the largest source for pink diamonds, however only 0.1 percent are actually considered pink.

Only about 5 percent of the output is of gem quality, with Argyle diamonds being used in everything from road paving to medical and industrial drilling equipment.

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