How Quickly the Diamond Market Turns

Saved by a newfound taste for diamonds as part of the marriage ritual among Asians, diamond mines have gone from assets marked for unloading to cash spinners for the extraction conglomerates that own them:

“We expect the demand requirements to grow around 6% per annum for the course of the decade,” said Alan Davies, head of the diamond unit for Rio Tinto, the world’s third-largest diamond producer. “And when you look at the supply response there hasn’t been a major find brought on for a long time.”

Just 18 months ago, BHP Billiton and Rio Tinto each had their diamond units on the block. In 2012, BHP sold its Ekati mine in Canada to jewelry maker Harry Winston Co. for $500 million.

Rio Tinto, however, didn’t get a satisfactory offer, say bankers who advised the company. Instead, Rio hung on to its mines in Canada and Australia.

Now digging the stones out of the ground is the most profitable part of the diamond value chain. In 2012, rough diamond miners achieved average profit margins of between 16% and 20%, according to a study by Bain & Co.

The next highest margins—achieved through the sale of finished jewelry products by retailers such as Tiffany & Co. and Cartier—averaged between 11% and 14%.

For Anglo American and Rio Tinto, diamonds now deliver some of the healthiest returns. Last year, margins from Rio Tinto’s precious stones division were double those of aluminum, while the rate of return from Anglo American’s diamond unit was higher than core businesses such as platinum and coal.

Diamonds Regain Their Sparkle For Miners on Rising Demand and Prices – (WSJ)