Rio Tinto puts Star-Orion JV with Star Diamond on hold  

Shares of Star Diamond (TSX: DIAM) fell by more than 50% on June 29, after the company announced that Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) had exercised its voting power to place the Star – Orion South Diamond project on care and maintenance until the end of the year.  

Star Diamond holds a 25% interest in certain Fort à la Corne kimberlites, including the Star – Orion South Diamond project, through a joint-venture with Rio Tinto. The project is located in central Saskatchewan.  

“Rio Tinto has advised that, subject to fulfilling its existing obligations, it does not intend to commit additional capital to the project during 2022 beyond what is necessary for care and maintenance,” Star said in a press release on June 28.  

“Rio Tinto also advised Star Diamond…that (it) intends to conduct a near-term review of its alternatives regarding the project, including its potential exit,” it added.  

The company didn’t provide a reason behind Rio Tinto’s decision but said that it was disappointed and that it would work with Rio Tinto in “assessing alternatives” regarding the project.  

A preliminary economic assessment estimates that 66 million carats of diamonds can be recovered over more than 38 years from the project, located about 60 km east of the city of Prince Albert. Its net present value (7%) is at $2 billion after tax, with an internal rate of return of 19% and an after-tax payback period of 3.4 years after diamond production begins.  

The two companies were involved in a dispute in 2021 that dealt with the exploration and expenditure of the project before the issue was resolved through a new deal signed last December.  

Under the arrangement, Rio Tinto agreed to take responsibility for all expenditures of the project between Nov. 9, 2019 and Dec. 31, 2021, which amounted to about $77.4 million. Rio Tinto will also have to incur all expenditures from Jan. 1, 2022 until the completion of a feasibility study.  

As a result of the deal’s new conditions, Star Diamond’s interest in the project was reduced from 40% to 25%.  

At press time in Toronto, shares of Star Diamond were trading at 14.5¢ within a 52-week trading range of 8¢ and 49¢. The company has 473.7 million shares outstanding.