Re­sources

CON­SUMERS IN SHANG­HAI AND BEI­JING ARE CHANG­ING THEIR SENSE OF FASH­ION – AND THE FATE OF RIO TINTO’S AR­GYLE MINE.

The Australian - The Deal - - Contents - BY SARAH-JANE TASKER

A new fond­ness for di­a­mond jewellery among Chi­nese con­sumers has put the sparkle back into Rio Tinto’s his­toric Ar­gyle mine.

THE RIS­ING POP­U­LAR­ITY of di­a­monds among Chi­nese con­sumers is forc­ing sig­nif­i­cant change in the global jewellery mar­ket, and one of the ma­jor ben­e­fi­cia­ries will be­Rio Tinto’s Ar­gyle di­a­mond mine in north­west­ern Aus­tralia.

The his­toric mine in the Kim­ber­ley re­gion of north­ern Western Aus­tralia is among the world’s largest di­a­mond sup­pli­ers and is the big­gest pro­ducer of nat­u­ral coloured di­a­monds. The jewel in its crown, so to speak, is the rare pink di­a­mond, as the mine pro­duces more than 90 per cent of global sup­ply.

Rio had been con­sid­er­ing in­clud­ing the Ar­gyle mine as part of a broader sell-off of as­sets, but it aban­doned that plan two months ago. Cap­i­tal­is­ing on ris­ing Asian de­mand is now a key mar­ket­ing fo­cus for Ar­gyle, with the Chi­nese mar­ket in par­tic­u­lar hav­ing been iden­ti­fied as in a “fast-growth” phase. Over the next five to 10 years, China is ex­pected to be­come the sec­ond-largest mar­ket for di­a­monds, af­ter the US, and to rep­re­sent al­most a third of global de­mand.

The mar­ket in China has tra­di­tion­ally been dom­i­nated by the large white di­a­monds pur­chased for wed­dings – a trend im­ported from the West. How­ever, Chi­nese con­sumers are in­creas­ingly fond of di­a­mond jewellery as a reg­u­lar fash­ion ac­ces­sory. That suits Ar­gyle, which pro­duces smaller, more af­ford­able di­a­monds de­signed to fill that niche.

Rio Tinto di­a­monds and min­er­als chief ex­ec­u­tive Alan Davies says the medium to long-term mar­ket fun­da­men­tals for di­a­monds are ro­bust, fu­elled by a grow­ing Asian ap­petite for lux­ury goods and strong North Amer­i­can de­mand. “We have valu­able, high-qual­ity di­a­mond busi­nesses ... well po­si­tioned to cap­i­talise on the pos­i­tive mar­ket out­look,” he says.

The glob­ally di­ver­si­fied miner has spent $US2.2 bil­lion to trans­form Ar­gyle’s open-pit op­er­a­tion into an un­der­ground mine, ex­tend­ing the as­set’s life till 2020. The un­der­ground fa­cil­ity opened in May and uses the block cav­ing method, which in­volves un­der­cut­ting the ore body and then al­low­ing it to break or cave un­der its own weight. The cave at Ar­gyle ex­tends be­tween 400 and 680 me­tres be­low the ex­ist­ing pit and is the size of 20 rugby fields.

Ex­plo­ration for di­a­monds in the Kim­ber­ley be­gan in 1972 and Rio (then CRA) ar­rived in 1976. In 1979, di­a­monds were found in a sam­ple col­lected from Smoke Creek, which runs 35 kilo­me­tres from the Matsu Range to Lake Ar­gyle. The mine set records when it started pro­duc­tion in 1985, dou­bling the global out­put of rough di­a­monds overnight.

Ar­gyle is not the only di­a­mond mine in the Kim­ber­ley re­gion. The El­len­dale mine, bought late last year by Goodrich Re­sources, pro­duces an es­ti­mated 50 per cent of the world’s sup­ply of yel­low di­a­monds. Di­a­monds from the mine, which is about 120 kilo­me­tres east of Derby in the West Kim­ber­ley, are mar­keted by in­ter­na­tional jew­eller Tiffany, which re­cently in­creased its prices from $US3800 a carat to $US5000.

Rio has a 60 per cent stake in the Di­avik di­a­mond mine in Canada and a 78 per cent in­ter­est in the Murowa mine in Zimbabwe. The miner’s share of the pro­duc­tion from its three op­er­at­ing di­a­mond mines is sold through its sales and mar­ket­ing head­quar­ters in An­twerp, which has of­fices in Mum­bai, Hong Kong and New York. The min­ing gi­ant also op­er­ates a small cut­ting and polishing fac­tory in Perth for rare pink di­a­monds from its Ar­gyle mine.

The next test of the pink di­a­mond mar­ket is due in the com­ing months. They are sold through an an­nual pri­vate ten­der process. One of the pre­cious stones sold last year was ex­pected to go for more than $US2 mil­lion on the re­tail mar­ket. This year’s ten­der, which will close on Oc­to­ber 8, in­cludes three shiny red di­a­monds. The rest of the 64-item pack­age com­prises 58 pink di­a­monds and three blue ones.

Rio does not dis­close sale prices, but no one would be sur­prised if some of the ex­quis­ite di­a­monds found their way into the Chi­nese mar­ket.

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