BHP and Rio Tinto both recorded weak ends to 2011
Diamond giants look elsewhere as earnings tumble
Posted February 14, 2012 | By Aaron Weinman
Australian companies Rio Tinto and BHP Billiton recorded mixed financial results from their respective diamond operations in the latter half of 2011.
Rio Tinto reported a seven per cent increase in diamond sales recording $727 million in 2011.
The jump came after diamond rough prices increased 24 per cent throughout 2011, compensating for the decreased output in Rio Tinto’s production levels. According to Rio Tinto’s reports, rough prices improved over the first eight months of 2011 due to restocking in the States and increased demand from the emerging Chinese and Indian markets.
Diamond production recorded 11.7 million carats for 2011, a 15 per cent drop on the previous year after Rio’s Argyle mine in Western Australia recorded a 24 per cent decrease in output due to heavy rains in the first quarter, lower ore grades and maintenance difficulties.
The company’s Diavik mine in Canada and the Zimbabwe-based Murowa mine registered production growth despite Rio’s combined diamond operations slumping 86 per cent to $10 million after its capital expenditure jumped 139 per cent to $445 million.
BHP meanwhile, recorded revenue of $357 million from its diamond operations for year-end 2011, a 16 per cent drop on its 2010 figure. Earnings before interest and tax (EBIT) also slumped 41 per cent to $120 million for the same period.
The decreased figures came after production dropped to 938,000 carats, a slump of 32 per cent.
BHP expects production at Canada’s Ekati diamond mine, the company’s only diamond asset, to remain restricted as the operation continues to extract lower grade material.
The results come after both companies announced a revaluation of its diamond assets last December.
As previously reported by Jeweller, Rio Tinto will re-assess its diamond assets this year amid deteriorating economic conditions and BHP meanwhile may sell off its stakes in the Ekati diamond mine.
A report from US-based financial conglomerate, Citigroup, suggested that both companies should spin off their diamond assets because of the money it leaks.
“They are cash intensive and if floated they would have a higher multiple than currently exists within a larger mining house,” the report said.
Potential buyers of BHP’s Ekati stake may include Russian diamond miners, OAO Alrosa and Canadian diamond jeweller Harry Winston Diamonds, owners of the Diavik mine.
More reading:
Diamond assets on the chopping block?
De Beers says diamonds running low
The diamond drought