UPDATE: Rio Tinto Mulls Exit From Diamond Operations

Rio Tinto PLC (RIO) is looking at options for exiting its diamond operations, mirroring a move underway by rival BHP Billiton Ltd. (BHP).

The Anglo-Australian mining company in a statement Tuesday said it had begun a strategic review of the business, including exploring a range of options for the possible divestment of its diamond interests--which include three mines in Australia, Canada and Zimbabwe.

Rio is one of the world's largest diamond producers in an industry dominated by De Beers and Russia's Alrosa, but like at BHP, the business is a relatively small earnings driver and accounts for less than 5% of annual revenue.

"We have a valuable, high-quality diamonds business, but given its scale we are reviewing whether we can create more value through a different ownership structure," said Harry Kenyon-Slaney, chief executive of the London company's diamonds and minerals division.

"We regularly review our businesses to ensure they remain aligned with Rio Tinto's strategy of operating large, long-life, expandable assets," he said.

Kenyon-Slaney said the outlook for the diamond market is very positive, with demand growing strongly and a lack of new discoveries limiting supply of the gems.

The review process may take some time, Rio said.

BHP Billiton in November said it was reviewing its own diamond business, and a month later reached an agreement to sell its 51% stake in an exploration project on Canada's Baffin Island to venture partner Peregrine Diamonds Ltd. (PGD.T) for C$9 million (US$9.1 million) over three years and a royalty on future output.

BHP's 80%-owned Ekati operation, Canada's first diamond mine, produced about 2.5 million carats of rough diamonds in the year through June. Rio Tinto Diamonds produced 11.7 million carats in 2011.

Earnings for both Rio and BHP have in recent years been led by their iron-ore operations, and both companies have plans to invest tens of billions of dollars growing production of the steelmaking ingredient to meet growing demand in China.

-By Robb M. Stewart, Dow Jones Newswires; [phone]; [e-mail]