Rio Tinto Plc, the world’s second-biggest mining company, approved a $350-million expansion of a diamond mine in Canada, outlining the companys confidence in future growth of demand for the gemstones.
The move shows reinvigorated interest in the Diavik mine. Rio Tinto tried to dispose of the unit, but abandoned the plan last year after it failed to find a buyer and decided not to pursue an initial public offering.
The company owns 60% of the mine, with Dominion Diamond Corp holding the remaining 40%. The Diavik mine is located in Canada’s remote Northwest Territories, near the Akati mine, which was acquired by Dominion Diamond in 2013.
After ill-judged investments, such as purchasing the Canadian aluminium maker Alcan for $38 billion and acquiring Riversdale, a coal project located in Mozambic, the company has faced investor pressure and tried to turn its balance sheet back to the positive by reducing capital expenditure.
However, the diamond gems have demonstrated better performance among the other mining sectors this year, furthermore demand is expected to pick up as China starts to buy more jewels.
“Our decision to invest in the Diavik A21 project reflects our strong confidence in the diamond sector and in our ability to compete effectively in the industry” said Alan Davies, chief executive of Rio Tinto’s diamonds and minerals unit.
The extension, to start mining from a new diamond-bearing pipe known as A21, was a part of the original mine plan and is estimated to cost $350 million over the next four years. Production is expected to start in late 2018, in time to replace vanishing output from other areas of the mine.
According to the original agreement with Dominion Diamond production, which started in 2003, of the entire mine is expected to end in 2023.
The company said it will utilize the same innovative design and engineering technologies used to construct Diaviks two other dikes that enabled mining of three existing pipes.
“This is great news for Diavik, but also for the local communities in which we operate where we are committed to delivering economic and social benefits that will endure beyond the life of the Diavik mine.” said Marc Cameron president of the Diavik Diamond Mines.
Rio Tinto Plc gained 0.54% on Wednesday and closed at GBX 3 002 in London. On Thursday the stock edged up 0.87% to trade at GBX 3 028, marking a one-year decrease of 3.62%. The company is valued at £55.96 billion.
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