Diamonds might be a girl's best friend, but they might become an investor's good pal, too.

While De Beers has all the marketing moxie, making it perhaps the best-known diamond purveyor in the world, Russia's Alrosa is actually the largest rough-diamond miner accounting for 27% of the world's diamond production with De Beers second at 22% of production by volume, and iron-ore miner Rio Tinto (RIO -0.78%) coming in third with 11%. But if you look at certain rare, specialty diamonds, like pink ones, Rio has virtually cornered the market with 90% of the world's production (a flawless 59.6-carat pink diamond called "Pink Star" was auctioned off by Sotheby's last November for $83.2 million, the most expensive jewel ever sold at auction, nearly doubling the previous record set in 2010 when another pink diamond was sold for $46 million).

Source: Rio Tinto

Yet in a bid to concentrate on core assets last year, Rio Tinto contemplated putting its diamond business up for sale. Despite the rich prospects for diamonds because of pent-up demand for luxury goods in India and China, the industry has been roiled as it goes through a metamorphosis.

Ore-mining giant BHP Billiton (BHP -1.10%) sold off its diamond business last year to Dominion Diamond (NYSE: DDC) for $553 million in order to focus on its iron ore, petroleum, and coal operations. Dominion was formerly known as Harry Winston Diamond, which operated a mining business and a luxury retail jewelry and watch division under the Harry Winston name. It sold the retail business to Swiss watchmaker Swatch last March for $1 billion -- when Harry Winston changed its name to Dominion -- and acquired the Ekati diamond mine from BHP one month later.

Dominion is also a joint venture partner with Rio in the Diavik diamond mine in Canada, and following the Etaki sale Dominion was said to be interested in acquiring Rio's 60% stake in Diavik, though it had little interest in the rest of the miner's diamond business.

The iron-ore miner said that despite its diamond operations being "fully integrated from mine to market," it would consider selling its mines individually if they could fetch a higher value for shareholders. In addition to Diavik, Rio owns 78% of the Murowa mine in Zimbabwe and has full ownership of the Australian Argyle mine, where its pink diamonds come from, and India's Bunder project. 

Argyle mine. Source: Rio Tinto

With long lead times in developing a new mine and new reserves not replacing depletions from production at a fast enough rate, the long-term market fundamentals for diamonds remain robust. Jewelers including Signet Jewelers, Tiffany, and even lower-end Zale just reported strong Christmas results, though they were a bit more cautious about the coming year. And while Rio's own take is that U.S. share of demand will shrink from nearly half to 8% by 2020, China will go from under 5% to more than 21%, with India growing from a similar base to around 12% of the demand market.

It's for that reason Rio Tinto didn't mind pulling its diamond business off the market after it couldn't find a buyer willing to pay up for the assets. It's a business the miner is all too willing to hold onto as the means for generating shareholder returns. Investors might not have fully appreciated the miner's presence in the industry, but that makes it a diamond in the rough that could add some brilliance to a portfolio.