Rio Tinto PLC (RIO) is looking at options for exiting its diamond operations, mirroring a move underway by rival BHP Billiton Ltd. (BHP).

The Anglo-Australian mining company in a statement Tuesday said it had begun a strategic review of the business, including exploring a range of options for the possible divestment of its diamond interests--which include three mines in Australia, Canada and Zimbabwe.

Rio is one of the world's largest diamond producers in an industry dominated by De Beers and Russia's Alrosa, but like at BHP, the business is a relatively small earnings driver and accounts for less than 5% of annual revenue. The assets in the diamond operations are on Rio's books with a value of US$1.17 billion, but some analysts said the company could fetch more if they are marketed well.

Interest in diamond mining has been spurred by BHP's review of its Ekati mine in Canada and Anglo American PLC's (AAL.LN) US$5.1 billion acquisition last year of a further 40% stake in De Beers, to take its interest to 85%.

"We have a valuable, high-quality diamonds business, but given its scale we are reviewing whether we can create more value through a different ownership structure," said Harry Kenyon-Slaney, chief executive of the London company's diamonds and minerals division.

"We regularly review our businesses to ensure they remain aligned with Rio Tinto's strategy of operating large, long-life, expandable assets," he said.

A review of the company's larger aluminum division led to the decision last October to shed 13 assets, including six operations in Australia and New Zealand that have been bundled into a new business that Deutsche Bank estimates is worth about US$4.4 billion.

Kenyon-Slaney said the outlook for the diamond market is very positive, with demand growing strongly and a lack of new discoveries limiting supply of the gems. The review process may take some time, he said.

BHP Billiton in November said it was reviewing its own diamond business, and a month later reached an agreement to sell its 51% stake in an exploration project on Canada's Baffin Island to venture partner Peregrine Diamonds Ltd. (PGD.T) for C$9 million (US$9.1 million) over three years and a royalty on future output.

Earnings for both Rio and BHP have in recent years been led by their iron ore operations. Both companies have plans to invest tens of billions of dollars in the coming years on iron ore, copper and other commodities in great demand in China.

Rio's diamond assets include the fully-owned Argyle mine in Australia that produces rare pink diamonds, the 60%-owned Diavik mine in Canada and 78%-owned Murowa mine in Zimbabwe, as well as its 100%-held Bunder diamond project in India and a cutting and polishing factory in Australia. The operations produced 11.7 million carats last year, but net earnings declined to US$682 million from US$727 million due to higher costs and lower production volumes at Argyle.

BHP's 80%-owned Ekati operation, Canada's first diamond mine, produced about 2.5 million carats of rough diamonds in the year through June.

Macquarie in a research report said it currently values Rio's diamonds business at less than US$1 billion, with minimal value for the asset in Zimbabwe and the early stage project in India. "The mechanism of divesture is uncertain, however we note that there are perhaps limited trade sale buyers with De Beers constrained by competition concerns and BHP Billiton also considering divesting its diamond business," it said.

Separately, Rio said it had completed the planned US$7 billion buyback of its own shares that was begun in February last year.

-By Robb M. Stewart, Dow Jones Newswires; +61 3 9292 2094; robb.stewart@dowjones.com

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