Rio Tinto decides to hang on to diamonds business

SYDNEY/MELBOURNE (REUTERS) - Global miner Rio Tinto Ltd has scrapped the planned sale of its diamonds business, valued in its books at US$1.3 billion (S$1.7 billion), amid a slide in global financial markets and a tough environment for commodity asset sales.

The decision announced on Monday marks the first of a string of planned asset sales that the world No. 3 miner may have to scrap in face of cautious bidders.

Rio has been looking to sell iron ore, copper, coal and aluminium assets to pare US$19 billion in net debt, cut costs, and beef up returns to shareholders, but has said all along it was not holding a fire sale.

"We have valuable, high-quality diamonds businesses that are well positioned to capitalise on the positive market outlook," Rio Tinto Diamonds & Minerals chief executive Alan Davies said in a statement on Monday.

"After considering a number of alternative strategic ownership options it is clear the best path to generate maximum value for our shareholders is to retain these businesses."

Rio Tinto put its diamonds arm up for sale in March 2012 soon after rival BHP Billiton put its diamonds unit on the block. BHP won the race to find a buyer last November, selling to Harry Winston, now called Dominion Diamond Corp.

The Canadian company is co-owner of the Diavik mine with Rio Tinto and had expressed interest in buying Rio's 60 per cent stake in the mine, but was not interested in the rest of the business. Other options Rio had considered included a listing of the diamonds arm in London, but in the current depressed market for commodities, that was not an attractive option.

The diamonds business, with operations in Australia, Canada and Zimbabwe, reported a US$43 million loss in 2012, down from a profit of US$10 million a year earlier.

While BHP has racked up more than US$4.6 billion in asset sales over the past year, over the same period Rio has only managed to sell its Eagle copper mine for US$325 million.

Other businesses it is looking to sell are its Pacific Aluminium arm, on the block since 2011, a majority stake in Iron Ore Company of Canada (IOC), its Clermont coal mine, a 29 per cent stake in Coal & Allied, and its Northparkes copper mine in Australia.

It has come up with a shortlist of half a dozen suitors for its majority stake in IOC, for which it is seeking between US$3.5 billion and US$4 billion, according to one source, a big price to be seeking in a volatile commodities market, where trade buyers are very cautious.

The sale of its Northparkes mine, which could fetch US$800 million, is seen as the easiest to seal. However, people familiar with the situation have said there is only one bidder left, OZ Minerals Ltd, and it is under pressure from shareholders not to overpay.