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Rio to float US$2bn diamonds business?

As Rio Tinto Limited (ASX: RIO) sells off non-core assets, the miner is considering a US$2 billion plus float of its diamonds business.

According to the Australian Financial Review (AFR), the deal could happen as early as this year, despite strong interest in some of the assets from trade buyers. Rio diamond and minerals head Alan Davies has told the AFR that he expected there would be strong investor interest in a new listed entity, if Rio took that option.

[A float] does actually provide quite an opportunity for investors if they want an investment vehicle like this in a segment that has very strong underlying demand factors geared to some extraordinary things happening in India and China as well as the continued penetration in the western world,” he said.

Canadian listed Dominion Diamond, which has a pre-emptive right over Rio’s 60% stake in the Diavik mine, estimated to be worth US$1.3 billion, and said it was interested in taking up those rights. Dominion (formerly Harry Winston Diamond Corp) already owns the other 40% of Diavik. Dominion recently bought out BHP Billiton’s (ASX: BHP) stake in another Canadian diamond mine, Ekati.

Rio also holds a 78% stake in the Murowa diamond mine in Zimbabwe, with RioZim, an independent Zimbabwean owned and listed company, holding the remaining 22%.

Rio’s other diamond assets include the 100% owned Argyle mine in Western Australia, and the Bunder diamond project, located in India. The company officially starts underground mining at the Argyle mine today, one of the largest diamond mines in the world by volume, and the only significant source of pink diamonds, producing over 90% of the world’s supply.

As well as offloading its diamond assets, Rio is also reported to be considering a separate float of its Pacific Aluminium division, which houses several aluminium assets. The Wall Street Journal (WSJ) has also reported that US buyout firm KKR & Co is considering a bid for Rio’s 80% stake in the Northparkes copper-gold mine in NSW, although Rio hasn’t confirmed that Northparkes is up for sale.

Foolish takeaway

Now that the mining boom is all but over, large miners like Rio, BHP, Fortescue Metals Group (ASX: FMG) are looking to sell off non-core assets in a bid to bolster their balance sheets, and cut costs. That is before commodity prices fall further and they become forced sellers at any price.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King owns shares in BHP.

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