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"Also, the structure of the diamond industry has many parallels with Rio Tinto's other business sectors. There are only six major players and perhaps a dozen significant diamond mines in the world, so it's fairly concentrated. The industry has a very steep cost curve providing sustainable competitive advantage to large, low cost, producers."

Demand in that market is relatively stable, says Johnson, and tends to follow GDP. Indeed, the price and demand for diamonds has been less volatile than that for any of Rio Tinto's other products. "As much as half of the market for diamonds is bridal," he says.

"The number of people getting engaged every year doesn't change much. Of course, some might say that a diamond is the ultimate in discretionary expenditure, but would a guy tell that to his girlfriend when she accepts a proposal of marriage...?"

All of these factors mean that the activities of the Diamonds group tie in well with Rio Tinto's overall strategy, which is to find and develop large scale, long life, low cost resources and run them efficiently.

The business stands fourth in global diamond mining rankings, after De Beers, Angola and Russia. It is also the smallest and newest of Rio Tinto's six product groups. It was formed in April 2003 when Rio Tinto's gold operations, with which it was previously combined, were transferred to other product groups. The thinking behind this was that Rio Tinto's portfolio of managed gold assets was shrinking (the Kelian mine in Indonesia, for example, is due to close this year) whereas its directly managed diamond interests were growing fast, thanks in large measure to the commissioning of the Diavik mine in Canada.

"If there was ever any question about whether our diamond operations had 'critical mass', the addition of Diavik to our portfolio in 2003 removed any doubts," says Johnson. "It's a premier division business that's already exceeding our high expectations, and we are ramping up production this year."



"Also, the structure of the diamond industry has many parallels with Rio Tinto's other business sectors. There are only six major players and perhaps a dozen significant diamond mines in the world, so it's fairly concentrated. The industry has a very steep cost curve providing sustainable competitive advantage to large, low cost, producers." Demand in that market is relatively stable, says Johnson, and tends to follow GDP. Indeed, the price and demand for diamonds has been less volatile than that for any of Rio Tinto's other products. "As much as half of the market for diamonds is bridal," he says. "The number of people getting engaged every year doesn't change much. Of course, some might say that a diamond is the ultimate in discretionary expenditure, but would a guy tell that to his girlfriend when she accepts a proposal of marriage...?" All of these factors mean that the activities of the Diamonds group tie in well with Rio Tinto's overall strategy, which is to find and develop large scale, long life, low cost resources and run them efficiently. The business stands fourth in global diamond mining rankings, after De Beers, Angola and Russia. It is also the smallest and newest of Rio Tinto's six product groups. It was formed in April 2003 when Rio Tinto's gold operations, with which it was previously combined, were transferred to other product groups. The thinking behind this was that Rio Tinto's portfolio of managed gold assets was shrinking (the Kelian mine in Indonesia, for example, is due to close this year) whereas its directly managed diamond interests were growing fast, thanks in large measure to the commissioning of the Diavik mine in Canada. "If there was ever any question about whether our diamond operations had 'critical mass', the addition of Diavik to our portfolio in 2003 removed any doubts," says Johnson. "It's a premier division business that's already exceeding our high expectations, and we are ramping up production this year."
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Review is published by Rio Tinto, 6 St James' Square, London SW1Y 4LD, England Telephone +44 (0)20 7930 2399 Editor: Cherry DeGeer