Rio Tinto Applies for Diamond Mining Lease in India

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Researched by Industrial Info Resources (Sugar Land, Texas)--Rio Tinto (NYSE:RTP) (London), the world's third-largest diamond mining group, has applied for a diamond mining lease at its Bunder project in Bundelkhand, Madhya Pradesh. The company has spent more than $19 million to evaluate the mine and plans to invest an additional $34 million toward further evaluation of the deposit. In the past six years, the company has invested more than $25 million on diamond exploration and evaluation activities in India.

The company aims to undertake the exploration of 40 million to 70 million tons at a grade of between 0.3 and 0.7 carats per ton. This is supposed to be at least three times greater than the grade of diamond obtained from the only other hard rock diamond mine in the country, the Panna mines in Madhya Pradesh. Work at the site includes 48-drill holes, mapping and five surface bulk samples. Drilling operations continue at the site, and the company is undertaking further surface bulk sampling for evaluation. Rio Tinto is also awaiting environmental approval from the state government of Madhya Pradesh to set up a 10-ton-per-hour dense media separation plant to undertake the on-site processing of bulk samples.

The site at Bunder was discovered in 2004 as part of a regional exploration reconnaissance mission. In September 2006 a prospecting license was initiated to permit exploration activities to continue. This was followed by an order of magnitude study to assess the economic feasibility of the eight diamondiferous lamproites at the site. The results of the study will be known by the end of the third quarter this year, after which Rio Tinto will conduct a prefeasibility study to assess social and environmental impact pertaining to further drilling and bulk sampling below the surface.

Exports by the Indian gems and jewelry industry are currently increasing at an annual rate of 22.27%. Total gems and jewelry exports in 2007-08 amounted to $20.89 billion and accounted for 13.41% of the country's total merchandise exports. This included exports of $14.2 billion of cut and polished diamonds, $5.62 billion of gold jewelry and $276.42 million of colored gemstones. Total imports rose 32.5% to $18.5 billion in 2007-08. The industry's exports cater mainly to clients in China, the Commonwealth of Independent States, Russia, the United Arab Emirates and the U.S., with the U.S. and Hong Kong accounting for 26% and the United Arab Emirates accounting for 21% of the total exports. Most of India's diamond-processing units are located in Surat in the western state of Gujarat and are known to handle more than 57% of the world's rough diamonds by value. More than 90% of the small stones obtained from mines in Africa and purchased by European traders are sent for cutting and polishing to Surat, which has more than 10,000 processing units and 1 million laborers.

However, an economic slowdown in the U.S. and other major markets, the appreciation of the rupee, high interest rates and the withdrawal of Generalized System of Preferences benefits have caused a setback to the industry, which laid off 150,000 workers. The volatility of gold prices and the international economic scenario have also led to a decrease in the worldwide demand for gold jewelry.

On April 11, India's Ministry of Commerce and Industry announced several export-promotion measures, including provisions to export colored gemstones on a consignment basis, re-import branded jewelry up to a period of one year and increase the value of jewelry parcels for export to $75,000. The Gem and Jewelry Export Promotion Council is undertaking initiatives to promote jewelry exports to major markets through "Brand India" promotions by strategic repositioning of gem and jewelry products as the "Epitome of Luxury." Indian exporters are exploring African nations like Angola and Namibia for new business ventures that include direct sourcing of rough diamonds and setting up of factories and training institutes. The promotion council has approached the World Jewelry Trade Federation, also known as Confederation Internationale de la Bijouterie; Joaillerie et Orfevrerie (London); and the International Diamond Manufacturers' Association (Antwerp, Belgium) to prepare a report on the capacity of mines worldwide for the supply of rough diamonds. It has also allied with National Institute of Design and National Institute of Fashion Technology to focus on design and innovation.

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