Rio Tinto Diamond Production -26%, Net Diamond Earnings +32.7%

Rio Tinto reported a 26 percent drop in diamond production in 2007, to 26.023 million carat, due mainly to a decrease in the output from its Australian mine, Argyle. However, net earnings from rough diamond sales rose 32.7 percent to $280 million, up from $211 million in 2006.

The miner saw an 11 percent rise in overall underlying EBITDA (earnings before interest, taxes, depreciation and amortization) to a record $13.92 billion. Underlying earnings rose 1 percent to $7.443 billion.

Higher sales volumes, mainly from growth projects, which include higher diamond grades at Diavik, increased underlying earnings by $516 million, as compared to 2006.

Diamonds gross sales revenues for 2007 totaled $1.02 billion, while underlying earnings were $74 million.

Rio’s earnings from the wholly owned Argyle mine were $87 million, $23 million above 2006, and mainly attributable to higher rough sales, higher polished pink tender prices and a one-off tax benefit.

Earnings from the Canadian Diavik mine, of which Rio owns 60 percent (Harry Winston Diamond Corporation owns the remaining 40), rose $54 million to $193 million. The effect of the stronger Canadian dollar was more than compensated by higher production, as mining was almost exclusively from a pipe with a higher grade of ore than what was mined in 2006.

Murowa mine earnings totaled $3 million, $7 million below 2006 and attributable to lower volumes arising from a strategy to increase stripping so as to improve pit stability. Rio owns 77.8 percent of the Zimbabwe

Rio Tinto commented in a statement that, while the Christmas holiday period in the U.S. was assessed as generally weak overall, the tight supply outlook for rough diamonds is expected to lead to healthy demand in 2008, especially for better quality rough diamonds.

In the cutting and manufacturing centers, Rio explained that manufacturers’ margins are likely to remain under pressure, due to a weak U.S. dollar and rough price growth outpacing polished prices.