Rio to keep unwanted diamond division
The decision casts doubt on the miner's ability to push through its other planned asset sales in iron ore, aluminium, copper and coal, designed to trim costs and pare back the $19 billion in net debt weighing down its balance sheet.
Rio had considered listing its diamonds businesses when it became apparent a buyer was not forthcoming, but poor market conditions also put paid to that idea.
"After considering a number of alternative strategic ownership options it is clear the best path to generate maximum value for our shareholders is to retain these businesses," said Alan Davies, chief executive of Rio Tinto's diamonds and minerals division.
He said the "medium to long-term" outlook for diamonds remained robust, fuelled by growing demand for luxury goods in Asia, and continuing strong demand in North America.
The diamond arm, with operations in Australia, Canada and Zimbabwe, including its prized West Australian Argyle mine, reported a $US43 million ($47 million) loss last year. It is the world's third-biggest producer of rough diamonds with a book value of $US1.3 billion, though a recent Deutsche Bank report valued it at $US2.2 billion.
The chances of Rio securing a sale dimmed when likely buyer Dominion Diamond Corporation, then known as Harry Winston, bought BHP's diamond arm instead in November. But Rio has maintained that it was not conducting a fire sale of its assets.
"If it's still generating good cash and profits, well then you keep it until someone pops along and says they really want the asset. It's not a big negative," said Vince Pisani, an analyst at Shaw Stockbroking.
Other non-core assets Rio is said to be hoping to sell include Pacific Aluminium, a majority stake in Iron Ore Co of Canada, and its 29 per cent stake in Coal & Allied. Rio shares fell $1.12 to $51.54.
Frequently Asked Questions about this Article…
Rio Tinto abandoned the sale after 15 months of trying to find a buyer amid sliding commodity prices and general caution around resources takeovers. The company also considered listing the diamond division but decided against it because poor market conditions made a flotation unattractive. Rio's diamonds chief, Alan Davies, said retaining the businesses was the best way to generate maximum value for shareholders.
Scrapping the diamond sale casts doubt on Rio Tinto’s ability to raise cash from planned asset sales meant to trim the US$19 billion net debt. The decision reduces the near-term proceeds Rio had hoped to realise from non-core disposals and may complicate efforts to pare down its balance sheet.
Rio’s diamond arm reported a US$43 million loss last year. It operates in Australia, Canada and Zimbabwe (including the West Australian Argyle mine) and is the world’s third-biggest producer of rough diamonds. The business has a book value of about US$1.3 billion, while a recent Deutsche Bank report valued it at roughly US$2.2 billion.
Yes — Rio considered listing the diamond businesses when a buyer didn’t appear, but poor market conditions stopped that plan. For now the company has chosen to retain the assets; management indicated they will keep them until market conditions improve or a serious buyer emerges.
Part of the reason was competition: likely buyer Dominion Diamond Corporation (then known as Harry Winston) bought BHP’s diamond arm, reducing potential suitors. Combined with weak commodities markets and takeover caution, that made finding a buyer much harder.
The market reaction was negative for Rio’s shares on the day: Rio Tinto’s stock fell US$1.12 to US$51.54 following the announcement that the diamond sale was off.
Other non-core assets Rio has been reported to hope to sell include Pacific Aluminium, a majority stake in Iron Ore Company of Canada, and its 29% stake in Coal & Allied. The failure to sell the diamond division raises questions about the ease of selling these other assets.
Rio’s diamonds chief, Alan Davies, said the medium- to long-term outlook for diamonds remains robust, driven by growing demand for luxury goods in Asia and continuing strong demand in North America — factors that supported the decision to retain the division.
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