Rio Tinto's Diamond Revenues +12% in H1

Argyle (above) is shifting from an open pit to an underground project at a cost of $2.2 billion

(IDEX Online News) – An increase in production and revenues has not prevented Rio Tinto's diamond business from losing more money in 2012. Rio's gross revenue from diamonds increased by 11.8 percent to $350 million in the first half of 2012.

The loss widened to $38 million from $10 million in the first six months of 2011, according to a first half underlying earnings report published this morning (Wednesday).

Rio Tinto is investing $2.2 billion in the underground mine at Argyle, extending the mine life to at least 2019. Production is scheduled to commence in the first half of 2013 reaching full production in 2014.

Of the net impairments to the group's diamond businesses, $456 million relates to Argyle and was caused by changes in assumptions about future capital costs required to complete the Argyle underground project, Rio said.

The results follow an 18 percent increase in production to 6.17 million carats during the January-June period of 2012.

While the company benefited from increased diamonds production, demand for rough diamonds slowed down.

Rio warned that the short-term fluctuations would continue in line with economy cycles and global conditions. The long-term outlook for diamonds remains robust, it added.

Its 2012 diamond production guidance is 14.6 million carats.

In March, Rio Tinto announced a strategic review of its diamond business that will include exploring a range of options for potential divestment of its diamonds interests.

The company is yet to announce the result of this review. According to media reports, Harry Winston, its partner at Diavik, is interested in Rio's 60 percent stake in the mine.

The one major holding for which there is presumably less interest is Argyle. One possible reason is the heavy costs related to the underground project.

Rio Tinto's diamond interests are Argyle (100 percent), Diavik (60 percent) and Murowa in Zimbabwe (77.8 percent).