Diamonds group

Diamonds

Uncut gems of varying colour, including pinks, from the Argyle diamond mine in Western Australia.

The Diamonds group comprises the Diavik Diamonds (Rio Tinto: 60 per cent) mine in Canada, the wholly owned Argyle mine in Australia, the Murowa (Rio Tinto: 78 per cent) mine in Zimbabwe, which started production in 2004, and diamond sales and representative offices in Belgium and India.

At 31 December 2006, Diamonds accounted for five per cent of the Group's operating assets and, in 2006, made up three per cent of Rio Tinto's sales revenue. Diamonds contributed US$205 million to the Group's underlying earnings, a decrease of US$76 million from 2005. Earnings came under pressure because of poor conditions in the diamond markets, which resulted in sales being lower than planned. Diamond stocks were consequently higher at the year end than at the end of 2005.

Conditions in the diamond markets deteriorated during 2006 as a result of financing issues, a temporary oversupply of rough diamonds and a widening disconnect between rough and polished diamond prices. Problems in the rough and polished markets were exacerbated when severe flooding in India during August dramatically reduced manufacturing capacity.

In addition, increases in precious metals prices during the year saw demand for the smaller, cheaper categories of polished gems decrease. The poor conditions during the year put pressure on rough diamond prices and the major producers, including Rio Tinto, were forced to revise their prices.

Rio Tinto sells its diamonds through its marketing arm, Rio Tinto Diamonds, according to a strict chain of custody process, to ensure suppliers, partners and customers operate to acceptable standards of social and environmental responsibility.