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Rio Tinto to expand diamond operations

September 16, 2010

“A bullish outlook for precious stones has prompted Rio Tinto, the London-listed miner, to spend $800m (£518m) expanding its diamond operations. The mining group is primarily focused on iron ore, copper and coal, but has a diamond business that is sometimes overlooked in spite of being the third-largest in the world behind industry leaders De Beers and Alrosa. Rio’s division is based on two mines, including Argyle in the Australian desert.

Rio said on Tuesday that it would spend $803m to construct an underground mine at Argyle, a plan it authorised in 2005 then froze when the financial crisis hit. The expansion will push Argyle’s productivity from 10.6m carats last year to about 20m annual carats in the years leading up to the mine’s closure in 2019, said Harry Kenyon-Slaney, chief of Rio’s diamond and minerals arm.”

Source: Wall Street Journal, June 8 2010

Observations:

  • Rio decided in 2005 to start development on the transition from open pit to underground mining at the Argyle diamond mine in Western Australia. Low global demand and uncertainty about capital conditions forced the company to freeze this decision for several years.
  • The company is mainly active in the production of industrial diamonds, although part of Argyle’s production (the pink diamonds) are used in jewellery. Expansion of Diavik diamond mine is one of Rio’s key capital projects at the moment.

Implications:

  • Global demand for both industrial diamonds and stones for jewellery mainly depends on the Chinese economy. De Beers, among others, is actively trying to improve the image of diamonds in the Asian market. Industrial diamonds, used for cutting and sawing, clearly depend on the growth of construction and industrial sectors.
  • Development of an underground mine at Argyle can be performed rapidly, as an exploration drift can be expanded in order to develop the underground infrastructure. Underground production could therefore start within 2 years.

©2010 | Wilfred Visser | thebusinessofmining.com

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  1. September 16, 2010 at 1:35 pm
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