Cautious Bidders Prompt Rio Tinto to Scrap Planned $1.3B Sale of Diamond Business

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By Vittorio Hernandez | June 24, 2013 4:55 PM EST

Mining giant Rio Tinto (ASX: RIO) will no longer push through with the planned sale of its $1.3-billion diamond business because of cautiousness among buyers.

Rio announced on Monday morning the decision to scrap the sale of the diamond business, the first of the giant miner's planned asset sales such as its iron ore, copper, coal and aluminium businesses in a bid to reduce the company's net debt of $19 billion and improve return to shareholders.

"We have valuable, high-quality diamonds businesses that are well positioned to capitalise on the positive market outlook ... After considering a number of alternative strategic ownership options it is clear the best oath to generate maximum value for our shareholders is  to retain these businesses," Rio Tinto Diamonds & Minerals Chief Executive Alan Davies said in a statement.

Rio, the world's second largest miner, and BHP Billition (ASX: BHP), the biggest miner, both announced the sale in March 2012 of their diamond businesses. While Rio opted to cancel the planned sale, BHP found a buyer in November and sold the enterprise to Harry Winston, now renamed Dominion Diamond Corp.

Rio actually co-owns the Diavik mine with Canada-based Dominion, which wants to acquire only Rio's 60 per cent stake in the mine, not in the entire business.

The company's diamond business, which has operations in Australia, Canada and Zimbabwe, suffered a $43 million loss in 2012, down from the $10 million profit it registered in 2011.

In the last 12 months, BHP had over $4.6 billion in asset sales while for the same period, Rio sold only its Eagle copper mine for $325 million. Rio also wants to dispose of its stakes in the Pacific Aluminium arm, Iron Ore Company of Canada, Clermont coal mine, Coal & Allied and the Northparkes copper mine in Australia.

Besides the cautious buyers, Rio opted not to sell its diamond business because the long-term outlook for diamonds is positive due to strong demand for luxury goods in Asia, Mr Davies said. 

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