Rio Tinto Aiming For 10% of World Diamond Output by Year End

Diversified miner Rio Tinto’s share of world diamond production will reach 10 percent in 2004 when its Diavik mine in Canada hits full production, said Keith Johnson, the head of its global diamond business. Speaking to Dow Jones, Johnson said Rio Tinto currently has around seven percent of global market share by value of rough diamonds.

 

In the past few years Rio Tinto has put a great emphasis on diamond exploration, investing 25 percent of its annual $100 million exploration budget into searching for diamonds in the last three years. That investment is now starting to show results. In 2003, Rio Tinto's net earnings from diamonds surged 79 percent to $113 million from $63 million in 2002. But with the boom in commodity prices, the diamond operation’s proportional contribution to group net profit in 2003 was slightly lower on the year at 7.5 percent from 9.7 percent in 2002.

Central to Rio Tinto’s growth plans in the diamond market is its Diavik diamond mine in Canada where it is mining the first of four kimberlite pipes. Rio Tinto owns 60 percent of Diavik with the rest held by Canada’s Aber Diamond Corp. Johnson declined to comment on whether Diavik will meet an 8.2 million carat production target for 2004. “We have made no commitments, internal or external, about how far we will get,” he said.

Diavik's production for 2004 would, however, be ahead of the 3.6 million carats produced in 2003. “Certainly think beyond seven (million carats) in 2004.” Diavik contributed $41 million to Rio Tinto's 2003 net profit compared with a zero-sum addition in the first half of 2003. Although Diavik is currently an open-pit mine, Johnson said a team is looking into strategic options, including plans for under-ground mining. “We will very likely mine this ore with under-ground mines after the open pits are complete,” Johnson said. He added, however, that underground mines at Diavik are still several years away.

Discussing non-Canadian projects, Johnson said Rio Tinto has spent a total of $25 million on exploration so far at its 78 percent owned Murowa project in southern Zimbabwe where the company has a reserve of 12.4 million carats. Johnson is hopeful about mining in troubled Zimbabwe, where the company has operated for 40 years, but said exploring for diamonds in Angola, Sierra Leone or the Democratic Republic of Congo isn’t currently on the agenda. “Maybe one day, but not at the moment.”

Specifically, Rio Tinto would be nervous of risk in Angola, Johnson said. “Angola is still in a situation of political uncertainty and we would not want to invest.” Rio Tinto might look at investing in Russia but would be cautious. Johnson pointed to historical difficulties with legal structures and mining ownership. “We wouldn't write off the possibility, but it's probably too soon.” Johnson said Rio Tinto has looked at the Alrosa-owned Lomonosov deposit, which Alrosa is thought to be looking for a partner to develop. “We have had several discussions with Alrosa on Lomonosov over the last 10 years,” Johnson said, adding that it was currently impossible to say whether a development plan acceptable to Rio Tinto could be developed.