Diamond Business
[Image Courtesy: Diamond Insights]

Global mining conglomerate Rio Tinto is exiting from Zimbabwe Diamond business by selling its 78% stake in Murowa diamond mine to a local private group RZ Murowa Holdings Limited for an undisclosed amount. Rio Tinto’s Diamonds and Minerals chief executive Alan Davies said that the company is selling the Zimbabwe asset because it believes it “can be best managed by entities with existing interests in Zimbabwe” and that it is “committed to the diamond industry” and “focused on operating its two world-class underground mines whilst obtaining the approvals for its advanced diamond projects in India”. However, there may be other plausible reasons why Rio Tinto is really exiting from the Zimbabwe Diamond market.

 

All Zimbabwe Diamond mines to be merged

Zimbabwe government had earlier this year announced that all diamond mining companies including the local unit of Rio Tinto will be merged into one single entity in which the government will have 51% stake, a proposal that was later agreed by top diamond mining firms. This means that if Rio Tinto had stayed back, it would lose control of the operations and would have to face possible intermittent governmental interventions, something any private company would want to avoid.

 

Reducing CAPEX

Overall, Rio Tinto’s CAPEX fell to USD 9 billion in 2014, USD 2 billion less than previous year. Reducing CAPEX means that Rio Tinto has to focus only on its strategic assets, thus letting go of other non-core assets. Besides, exploration budgets of diamond miners generally have fallen by 50% from their 2007-08 levels. Such reduced budgets do not make it tenable to sustain operations in long-term future.

 

Depletion in Zimbabwe’s diamond reserves

Though production of Murowa diamond mine rose by 6% to 442,000 carats compared to its 2013 output, overall diamond production in Zimbabwe fell by 34% to 5.9 million carats in 2014 due to depletion of Marange field’s alluvial deposits. Despite claims that Zimbabwe still has enough diamond to cater to 25% of current global diamond demand, fast depletion of reserves may be an indicator that Zimbabwe diamonds are not for long haul.

 

Rio Tinto’s other two diamond mines – Argyle mine in Australia and Diavik mine in Canada have only 7 years of life left. Its Bunder diamond project in India has been in limbo since years now either due to government approval issues or the company’s indecisiveness to invest and the project is yet to see the light of day. Apart from these four, Rio Tinto does not have any other declared diamond project. In less than a decade, with its 2 existing diamond mines exhausted, its Murowa diamond mine sold and its Bunder project possibly either scrapped or still in oblivion, Rio Tinto will have nothing left to do in the diamond business, let alone being ‘committed to the diamond industry’. Besides, Rio Tinto feels that some diamond markets like China are going in hiatus. Is it possible that Rio Tinto is far-sighted about this scenario and its exit from Zimbabwe diamond business is a strategic decision?

 

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