Another Asset Sale Coming in Diamond Mining? (RIO, BHP, AAUKY)

UK-based mining giant Rio Tinto plc (NYSE: RIO) is mulling over the idea of shedding its diamond mining and production operations. The company’s review follows by two weeks reports that another mining giant, BHP Billiton Ltd. (NYSE: BHP), was seeking a buyer for its Ekati mine in Canada.

Rio’s assets include the world’s largest producer of pink diamonds, the Argyle mine in Australia, plus shares in three other mines and polishing operations in Australia. According to a report in The Wall Street Journal, Rio’s diamond operations generated 11.7 million carats in 2011, but net income fell to $682 million from $727 million in 2010 as costs rose significantly and volumes fell at Argyle.

One company seeking to expand its diamond business is Anglo American plc (OTC: AAUKY), which expects to close its $5.1 billion purchase of an additional 40% of DeBeers later this year.

Rio’s diamond assets are carried on the company’s books at a value of $1.17 billion, but one analyst told the WSJ that a value of less than $1 billion is more reasonable, given that Rio has yet to complete a project in India and that the company’s Zimbabwe mine has “minimal value.”

Rio’s shares are up about 1.4% in the pre-market this morning at $54.06 in a 52-week range of $40.50-$74.99.

Paul Ausick