We all lose our charms in the end, sang Marilyn Monroe. Rio Tinto and BHP Billiton have put their diamond divisions up for sale – the units are too small to enable them to achieve scale. Rio’s announcement on Tuesday of a potential divestment follows BHP’s move last year. That makes sense: specialist diamond miners may be able to wring more value out of these operations after Anglo American’s purchase of control of De Beers last year.

Investors might rightly ask why Rio and BHP did not sell years ago. Why now? In Rio’s case, it recently took a $344m impairment charge on its diamond mining operations because of the rising cost of completing a project in Australia. That may have snapped the group’s patience with what was turning into a bauble – the unit had 2011 earnings before interest, tax, depreciation and amortisation of just $180m against $28bn for the group. BHP, meanwhile, is selling largely because its sole diamond asset, the Ekati mine in Canada, contributes less than 2 per cent of profits and will have run out by 2019 (which is why selling it is proving so tough).

The outlook for the industry is actually quite bullish on the back of a resurgence of the US market and growing Asian demand. Rough diamond prices rose 24 per cent last year and polished diamond prices rose 18 per cent, according to Rio. But it is hard to expand an existing business. There has not been a significant diamond discovery in nearly 20 years, and mergers and acquisitions are rare because good producing assets are scarce.

One thing potential buyers have in common is a lack of financial heft. So a break-up of Rio’s portfolio could hasten its disposal. Harry Winston Diamond Corp owns 40 per cent of Rio’s Diavik mine in Canada and a piecemeal sale could attract miners such as Petra Diamonds.

There is talk of private equity buyers. But they too lack scale and potential synergies. Short of running the businesses much better than Rio or BHP did (unlikely), or a brave punt on prices, private equity may not see the sparkle this time.

Email the Lex team in confidence at lex@ft.com

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