IDEX Online Exclusive: Rio Tinto Diamonds Starts Rough Diamond Tenders

Rio Tinto Diamonds (RTD) started holding tenders last month, an action that some are concerned will lead to further runaway rough diamond prices. While these concerns may or may not be justified, Rio Tinto seems focused on gauging prices of certain goods and learning more about companies that are not regular clients.

Three times a year, Rio Tinto Diamonds will hold what it calls “invitation sales,” during which a small share of its Diavik production will be offered in a tender. The first such sale took place last month. “These sales are tenders open to all Select Diamantaires and a select number of other invited diamond companies,” RTD Sales Manager Patrick Coppens told IDEX Online.

The company did not disclose an estimate of the size of the tenders. The goods are not run of mine, however they represent a cross section of all major categories from the Diavik production.

The diamond miner has an enigmatic answer as to why it is holding the tenders. “These invitation sales will allow us to have a wider engagement with the market although our strong focus remains on working with our core Select Diamantaire partners,” the company said.

Select Diamantaires, companies that are contractual clients of RTD, say the main reason for the tenders is to give RTD a tool with which to evaluate its prices and find out how close they match what the market is willing to pay. The concern among the Select Diamantaires is that because of the nature of tenders - that tend to push prices upwards - RTD will raise the prices of its goods as a result.

A couple of Select Diamantaires told IDEX Online that they did not win their bids in last month’s tender, despite offering what they considered high market prices. In one case, very high prices were claimed to be offered. It is understood that the bulk of the bids at the tender were at current market prices, however high price bids were placed as well. It is unknown how RTD will analyze the results and apply them to their pricing policy.

In 2008, BHP Billiton introduced its tender system, a small Spot Market Tender and a Term Market tender that is tied to the Spot Market for the majority of the goods. The result was double edged. BHP Billiton succeeded in creating a de-facto rough diamond price list, and at the same time saw prices of rough climb quickly. Rough diamond buyers said that the system invited the climb and affected the price of rough in the secondary market.

The downturn came in late 2008, after the fall of Lehman Brothers signaled that the economic environment had deeply changed. In the October 2008 tender prices fell by 35-45 percent compared to the previous month. This was a mood changer, and suppliers subsequently lowered rough prices.

The non-Select Diamantaires invited to participate in the RTD tenders are “a select number of companies and [the tender] provides an opportunity for both parties to gain further understanding of each other’s business models and product specifications,” Coppens said.

In addition to the new tender, RTD will continue to have its “Specials” tenders of +10.8-carat goods from all three Rio Tinto diamond mines - Diavik, Argyle and Murowa. These tenders are open to all Select Diamantaires and a select number of other invited diamond companies.