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PE firms prowling world class diamond assets


Diamonds are emerging as a robust alternative investment asset class, says Fusion Alternatives…

Last week the world’s third-largest mining company, Rio Tinto announced it was considering selling its diamond assets. This comes on the back of a similar announcement made last November by the world’s largest mining company, BHP Billiton. These two announcements essentially place a quarter of the world’s diamond supply on the block for sale.
The intention to sell its diamond assets by these two mining conglomerates is more driven by their attempt to streamline their assets by investing in large long-life mine assets as opposed to being driven by a negative outlook for the diamond industry. The respective diamond businesses of Rio Tinto and BHP Billiton are both profitable and considerable in their own right being valued at $2b and $2.5 respectively, however this pails in comparison to the overall  earnings and value of both these mining conglomerates and hence the decision to divest from these assets.
The most fundamental consequence of the sale of these world-class diamond mine assets for the diamond industry is that it has the potential to alter the dynamics of the supply-side of the diamond pipeline. Although some of the potential suitors to purchase these assets may come from within the diamonds industry by entities such as Harry Winston and Alrosa, interestingly circumstances currently point to a higher probability of the potential suitor coming from outside of the industry specifically from the Private Equity world. This would mark a significant change to the nature of the traditionally closely-held supply-side of the global diamond market.
Two private equity companies, KKR & Co. and Apollo Global Management LLC, have reportedly been in talks with BHP Billiton to buy its diamond assets. Notwithstanding the fact that these two firms may be organizing an investment consortium including major players from within the diamond industry, the mere notion that large private equity firms are interested in making a significant play on diamonds is a story unto itself. This not only supports the positive underlying fundamentals of the global diamond market but gives further momentum for the emergence of diamonds as a robust alternative investment asset.

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