Rio Tinto Signs Argyle Clients on 3 Year Contract

Diversified miner Rio Tinto is asking clients of its Australian Argyle diamond mine to sign a three year contract that includes a base price for goods. According to industry sources, the agreement stipulates that prices can be raised, but cannot fall below the base price.

The long-term agreement, signed primarily with Indian manufacturers, will enable Rio Tinto to demonstrate to its banks that it is able to recover the $910 million cost of expanding the Australian mine.

While the banks might be satisfied with the agreements, the Indian clients are not. For the past couple of weeks, the Mumbai market was buzzing with talk about the contract, not only the financial commitment it will place on them, but also the burden of supplying the miner with bank guarantees.

Clients started signing the non-negotiable agreement, but several are reportedly holding back.

Last December Rio Tinto Diamonds announced its decision to invest $760 million to develop the block cave underground project at the Kimberley, Australia diamond mine. Another $150 million will be spent on a open pit expansion to ensure continuity of production between the cessation of open pit mining in 2008 and the ramp up of the underground mine.

The average annual production over the life of the underground mine from 2007 to 2018 is expected be around 60 percent of Argyle's historical annual average of 34 million carats and of similar quality.

Argyle produces mostly brownish, smaller goods, commonly referred to as ‘Indian Goods’.