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Rio Tinto is to expand its Argyle Diamond mine in the Kimberley.
The West Australian Rio Tinto is to expand its Argyle Diamond mine in the Kimberley.

With Rio Tinto's iron ore expansion going according to plan, the fate of its Argyle diamond mine will be firmly back on the agenda after the company said yesterday the planned $2.2 billion underground expansion of the project was expected to be complete in the first half of the year.

Rio put its diamond operations on the sale block in March last year, but has seemingly attracted little interest. Its diamond division includes Argyle, a 60 per cent stake in the Diavik mine in Canada, and operations in Zimbabwe.

Yesterday Rio said 2012 production at Argyle was up 14 per cent on 2011, to 8.5 million carats, because of better ore grades and processing operations. Production at Diavik also increased, by 8 per cent on 2011 figures. Although Rio released no financial figures with yesterday's production results, it slashed staff and costs at Argyle in September.

Rio said yesterday it expected first production from the underground expansion in the first half of this year, with the ramp-up to full operations to be completed by 2015.

Speculation over the fate of Argyle has increased in recent days after Rio's 40 per cent partner in Diavik, jeweller Harry Winston, announced plans to sell its high-end watch and jewellery division to Swatch for $US750 million. Harry Winston had already moved to expand its diamond mining business through the $US500 million acquisition of BHP's 80 per cent stake Canada's Ekati diamond mine, and is widely regarded as the natural buyer of Rio's stake in Diavik.

Cashed-up after the divestment, the company could now also be in the hunt for Argyle, particularly with the majority of the expansion work complete. Another option would be to float Argyle on the London Stock Exchange.

Rio's global iron ore operations beat expectations, with the company producing 253 million tonnes in 2012, against guidance of about 250mt. That was underpinned by the company's Pilbara operations, which produced 239mt (of which Rio's share was 191mt), 4 per cent ahead of its 2011 figures, despite cyclone disruptions early last year and scheduled shutdowns at its Cape Lambert port to allow for expansion work. The company said Cyclone Narelle had already cost it 3 1/2 days of lost time at its port this year, with more severe weather likely as the season progresses.

"Full year 2012 sales of 233mt (100 per cent basis) were 3 per cent higher than 2011, and fourth quarter sales of 63mt (100 per cent basis) set a new fourth quarter record, 2 per cent higher than in 2011," the company said.

"Sales increased quarter-on-quarter throughout 2012, resulting in record annual sales volumes despite significant volatility in the marketplace."

Rio Tinto chief executive Tom Albanese said he expected commodity markets to remain volatile.

"Across the group, we are taking action to roll back unsustainable cost increases," he said.

Rio shares shed 9¢ to $65.90.