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RAPAPORT... Rio Tinto reiterated its long term commitment to the diamond industry on Thursday as the company sought to further downplay BHP Billiton’s merger attempt.
“Within the global diamond industry, Rio Tinto Diamonds is well positioned as a leading supplier to the market with a clear focus on the upstream portion of the value chain,” the company said in its 2007 annual report released Thursday (May 29, 2008.)
Rio Tinto said its commitment to the sector was evident in investments made at its three operating mines.
“Rio Tinto’s diamond assets are world class and we have made a major investment in developing underground mining at both the Argyle and Diavik diamond mines,” said Bill Champion, managing director of Rio Tinto Diamonds. “The resulting operations will be lean, technologically advanced and world’s best in terms of safety, productivity and operating costs.”
Concern over the future of Rio Tinto’s diamond business had surfaced as production fell 26 percent to 26.023 million carats in 2007.
The diamond unit’s financial performance was more encouraging, however, as revenues from diamond sales rose 21.7 percent to $1.02 billion in 2007 and underlying earnings grew 32.7 percent to $280 million, as reported in February.
Increased volumes from Diavik, a reduction in stocks at Argyle and tax credits in Australia and Canada contributed to the rise in earnings,” the company explained, adding that the rough diamond market recovered during 2007 “as excess pipeline inventory was consumed after weakness in the latter half of 2006.”
Rio Tinto Diamonds’ decline in production continued in 2008 and fell 24 percent to 3.296 million carats in the first quarter of 2008. Champion maintained an optimistic outlook, however, as underground diamond production at Argyle and Diavik is scheduled to come on stream in 2009-2010, “a time most likely to be characterized by strong demand for diamonds.”
“Between now and 2016, even under the most optimistic supply scenario, demand will outgrow supply,” Champion said.
“We cannot overlook the fact that the U.S. accounts for half of all diamond jewelry consumption, however we must acknowledge the accelerating diamond jewelry sales in China, India and the Middle East. These emerging markets are set to provide some solid insulation from any volatility in the US,” he added.
Rio Tinto again rebuffed BHP’s offer of 3.4 of its shares for each Rio Tinto share, which would create the world’s largest mining company by a long shot.
The company talked up its strengths to investors in London on Thursday saying that world demand for its metals and minerals were expected to double by 2022, while its own compound annual production growth should be 8.6 percent through to 2015.
Rio Tinto, the world’s third largest diamond producer, has full ownership of the Argyle mine, a 60 percent share in Diavik and a 77.8 percent stake in Zimbabwe’s Murowe alluvial mine. BHP is the fourth largest diamond miner with an 80 percent share in the Ekati diamond mine in Canada and exploration projects in Canada, Angola, and the Democratic Republic of the Congo.
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