Rio Said to Favor Diamond IPO After Failing to Find Buyer

Rio Tinto Group is pursuing an initial public offering of its gem unit, the world’s largest supplier of natural colored diamonds, after failing to find a buyer, according to a person familiar with the matter.

Rio hired Morgan Stanley to oversee an IPO in London, the person said, asking not to be identified because the process is private. The London-based company is still open to offers for the operations, the person said. Rio has been considering divesting the assets since March last year, saying they no longer fit with its strategy.

The unit, the world’s third-biggest producer of rough diamonds with mines in Canada, Australia and Zimbabwe, may be worth about $2.2 billion, Deutsche Bank AG said in a March 11 report. Rio Tinto has also announced the potential sale of its Pacific Aluminum unit and is seeking to sell its Canadian iron ore operations, a person close to the matter said in March.

“Rio has been trying to get out of diamonds for a very long time,” Evan Lucas, a markets strategist at IG Ltd. in Melbourne, said by phone. “Looking to do an IPO suggests that they haven’t been able to find a private buyer.”

Rio declined 2.5 percent to A$53.80 at the close in Sydney. BHP Billiton Ltd., the world’s biggest mining company, fell 2.3 percent.

David Luff, a Melbourne-based spokesman for Rio, didn’t immediately return a phone message seeking comment on the potential share sale. Nick Footitt, a spokesman for Morgan Stanley in Hong Kong, didn’t immediately return calls seeking comment.

Most Value

The decision on a whole or partial sale of the diamond operations or a separate listing would depend on which offers the most value to its shareholders, Alan Davies, chief executive officer of diamonds and minerals said in April.

“It’s a good business in itself,” said IG’s Lucas. “It’s probably too small to be a real player within their portfolio makeup. It’s a very specific niche market.”

Rio, the world’s second-largest mining company, is working on asset sales as well as cutting staff as waning global demand for commodities is crimping revenue across the sector. The plans for a possible London listing were reported yesterday by Sky News.

BHP Billiton and Rio Tinto are leading global asset sales by mining companies disposal and may sell businesses or stakes in mines for as much as $35 billion, according to a March report by Deutsche Bank AG.

Glencore Xstrata Plc and private-equity firm Blackstone Group LP are considering bids for Rio’s 59 percent in Canada’s Iron Ore Co., the Wall Street Journal reported yesterday citing unidentified people familiar with the matter. The stake may be worth about $4 billion, the people said according to the paper.

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