From The West Australian London was abuzz last night with speculation that private equity giant KKR was hatching a plan to combine BHP Billiton and Rio Tinto's unwanted diamond businesses, including the Argyle mine in the Kimberley, to create a global giant.
The merged entity, according to reports in London, would control 15 per cent of the world's diamond supply and be the industry's third biggest player behind Anglo American's De Beers unit (21 per cent) and Russia's Alrosa (24 per cent).
KKR is thought to be the front runner in BHP's auction of the Ekati mine, in northern Canada, which analysts have valued anywhere between $US750 million ($723 million) and $US2.7 billion.
Bids are expected by next month.
London's Sunday Times newspaper reported that Gem Diamonds, which is in the throes of selling its Kimberley Ellendale diamond mine, had considered a bid for Ekati before withdrawing from the auction.
KKR is also eyeing Rio's diamond business, which is headlined by Argyle, one of the world's biggest diamond mines and the biggest producer of rare pink diamonds.
Rio expects to receive at least $US2 billion for its diamond division, which also includes the Diavik mine in Canada and Murowa in Zimbabwe.
Rio operates Diavik in partnership with retailer and miner Harry Winston Diamond Corp, which has a 40 per stake in the mine.
Harry Winston is expected to take a close look at Rio's diamond unit, and possibly BHP's, in what is shaping as the most serious rival to KKR's ambitious merger plan.
Rio and BHP decided to end their decades-long link to the gem stones because of an increased focus on long-life, tier-one assets in commodities like iron ore, coal and copper.
Diamonds contribute only fractionally to Rio's and BHP's bottom lines and the respective divisions do not feature prominently in the miners' growth plans.
The Sunday Times report said KKR had asked South African diamond industry veteran Brian Menell for strategic advice.
As with most private equity deals, KKR would most likely float the diamond business within three to five years. After a bumpy few years, expectations for the diamond market are mostly positive on the back of last year's double-digit price jump, with growth in India and China expected to offset declining demand from traditional markets in Europe and the US.
India and China are forecast to account for 20 per cent of diamond consumption by this year and as much as 40 per cent by 2020