Rio Tinto Weighing Options on India's Diamond Market

After much consideration, Rio Tinto (LSE:RIO) (NYSE:RIO) is expected to enter India’s growing diamond market. The one question that remains, however, is – when?

The Anglo-Australian mining company, which first discovered the "Bunder" diamond deposit in Madhya Pradesh in 2004, has recently completed the prospecting and exploration for the project. Nevertheless, with all necessary steps completed, Rio is not pushing for an accelerated mining lease.

Instead, the company said it will begin developing the project according to its 2017 guidance despite India’s new business-friendly political regime which is working to revitalize stalled projects in the country.

“The process of the approvals is going on, but Rio Tinto’s people don’t seem to be in a great hurry,” senior official in the Madhya Pradesh government said. “They say that is how it is.”

Although it may appear Rio Tinto is working slowly on its application processes for the project, Nik Senapati, managing director of Rio Tinto India, says the company is conducting business like usual.

“All parties are working towards getting the clearances which should take in the order of 12-18 months,” Senapati said.

“…we would not like to rush the process and get stuck later whether it is in approval process or engineering rigor.”

Falling commodity prices have put immense pressure on Rio Tinto to maintain cost cutting and cautious expansion plans in countries, including India.

According to Tony Robson, managing director and co-head global mining reach at BMO Capital Markets, the decision on whether to speed up the diamond mine’s development is up to the Rio Tinto board.

“The mine may commence in 2019 or 2020, if the project is approved by the Rio board and gets necessary government support.”

Robson added, “Rio Tinto will put the money wherever the returns are highest. Coal would not be on that list right now, but generally iron ore, bauxite and copper give the highest returns. For diamonds, the next most likely project to be approved may be the A21 Pipe at Diavik.”

Rio has reduced its capital expenditure for 2014 to around $9 billion, almost $2 billion below the previous guidance. 

The Bunder diamond project in India, along with a slew of other mine projects Rio Tinto has on its plate, will be evaluated when the right time comes to do so.