Rio Tinto advances Diamond assets sales as Aluminum Plan Stalls

Rio Tinto Group, the world’s third- largest mining company, said its plan to sell diamond assets is “well advanced,” while the divestment of aluminum operations has stalled after prices for the lightweight metal fell.

Rio is “looking at multiple options” for its diamonds division, Chief Financial Officer Guy Elliott told reporters yesterday on a conference call from London. “The diamonds sector looks interesting and healthy certainly as you look into the medium- and longer-term, in view of the low levels of supply and continuing strong demand.”

Rio in October said it intended to sell 13 aluminum assets, including smelters and alumina plants in Australia, the U.S. and U.K., to improve its finances. Rio has also said it may consider an initial public offering for its Pacific Aluminum unit.

The sale, which may draw bids from Chinese buyers, according to Deutsche Bank AG, is taking place within “tough conditions,” Elliott said in February.

Aluminum has declined 20 percent in the past year, hurting producers such as United Co. Rusal and Alcoa Inc. (AA) In February Rio took an $8.9 billion one-time charge on the value of its aluminum business relating to the $38 billion acquisition in 2007 of Alcan Inc., the biggest completed mining takeover.

Rio is weighing a sale of diamond mines, including Diavik in Canada’s Northwest Territory, where it owns 60 percent. Rio operates the Argyle mine in Western Australia state and owns 78 percent of Murowa in Zimbabwe.

Diamond prices are expected to rebound as mining companies struggle to keep pace with a revival in demand when the global economy recovers, according to Singapore Diamond Exchange Pte Ltd. The average price of so-called top-quality 1-carat diamonds has dropped 12 percent this year, according to the Rapaport Diamond Trade Index, which rallied 22 percent in 2011 and 14 percent in 2010.

BHP has sought bids for its Ekati mine, which is also in the Northwest Territories. Harry Winston and groups led by private-equity firms KKR & Co. and Apollo Global Management LLC (APO) were in talks to buy Ekati, two people with knowledge of the matter said in March.

A combination of the two assets followed by an IPO would be an attractive investment, Nomura International Plc said in April. Such a business would return about $700 million of earnings before interest, tax, depreciation and amortization for 2012 and have a market value of $2.1 billion to $3.5 billion based on trading multiples of smaller rivals, it said.

BHP and Rio together accounted for about 16 percent of global production by value in 2010. De Beers, 45 percent-owned by London-based Anglo American Plc (AAL), is the largest diamond producer by value, with output of 31.3 million carats in 2011. Anglo expects to increase that stake to 85 percent in September.