Raw diamonds from Bunder Mine project (Rio TInto)

Rio Tinto Walks Away From Diamond Mine

September 7th, 2016 by

Raw diamonds from Bunder Mine project (Rio TInto)

Raw diamonds from the
Bunder diamond mine project 
(Rio Tinto)

After spending 14 years and $90 million to develop the site, mining giant Rio Tinto has walked away from its promising Bunder diamond mine project in India. The project would have been only the second active diamond mine in all of India, sitting astride a massive diamond deposit. By itself, the Bunder diamond mine would have catapulted the impoverished state of Madhya Pradesh into the ranks of the world’s top ten diamond producing regions.

The Bunder diamond deposit has an estimated 34.2 million recoverable karats of diamonds in a cluster of eight diamondiferous pipes. Plans called for a $500 million world-class, highly automated mine using the latest technologies. Projected output was between two million and three million karats per year, and the raw stones would have been cut and polished in India, by Rio’s existing diamond cutting branch.

Location of the Bunder Diamond Mine
(click to enlarge)

This would have put Bunder in the top tier of diamond mines worldwide. Now, Rio Tinto has shelved these plans permanently. Originally slated to finally begin production late this year or early 2017, the project had remained perpetually in limbo. Therefore, Rio is cutting its losses and handing ownership of the mine to the Indian government for free.

 

Why Did Rio Tinto Give Away The Bunder Diamond Mine?

bunder diamond mine

Rio Tinto’s sample plant at Bunder diamond mine, Madya Pradesh, India (Google Earth)

It started off well. Rio Tinto had been exploring the region for two years when it found what would become the Bunder diamond mine in 2004. Two years later, a prospecting license was granted by the government, and test bores were drilled. Results were so promising, that a mining lease was applied for in 2013, and granted by the Bureau of Mines. A state of the art sample plant was constructed to process ore from test bores. According to the Rio Tinto website, “The plant is highly automated, uses minimal water through recycling and water harvesting, and does not use any chemicals in the processing of the diamonds. The plant is also entirely modular, does not require any permanent structure and is designed to minimise noise and dust.” Samples recovered were all that Rio had hoped for.

This was the high point of the project.

tiger crossingRio Tinto’s difficulties with the Indian government’s infamous maze of government red tape was exacerbated by the environmentally sensitive area around the proposed mine site.

The location, in the Chhatarpur Forest District of Bunder region in Madhya Pradesh, is close to a wildlife corridor used by tigers during their migration from one wildlife reserve to another. The area is also home to leopards, the Indian Gazelle, Spotted Deer, and a native antelope, all of which are considered endangered.

While the Bunder diamond mine site is not directly abutting any wildlife reserves or sanctuaries, there were concerns that the noise and deforestation would cause notable environmental harm. The proposed removal of 492,000 trees from the area around the mine did not win Rio Tinto any friends among environmentalists.

Who, Us?

shrugSoon after Rio Tinto’s decision to walk away from the Bunder diamond mine project was made public, Indian Bureau of Mines Secretary Balvinder Kumar told Reuters that Rio’s decision was a complete surprise, saying that the government was close to giving the company the required forest clearing permit. “It’s a commercial decision taken by their headquarters in which we could have not done anything,” said Kumar. He told reporters that the government “would move quickly” to exploit the massive diamond deposit, as soon as ownership was transferred from Rio Tinto. Kumar said, “Bunder is one of the best deposits in India and we would like to make sure that it is tapped.”

Red Tape And Falling Demand

Rio Tinto’s refusal to sink good money after bad on the Bunder diamond mine project is only the latest in a line of high profile project cancellations by companies looking to revive India’s mining sector. ArcelorMittal scrapped plans for a steel mill in the Indian state of Orissa in 2013, citing red tape. South Korean steelmaker Posco mothballed plans last year to build a $12 billion steel plant in the eastern Indian state of Orissa after ten years of trying to clear through government red tape. Two years earlier, Posco canceled plans for a $5.3 billion steel plant in Karnataka, India. (the company is still operating its rolling mill and galvanizing plant in India.) Likewise, Rio Tinto isn’t giving up completely on India. It has a 51% stake in iron ore mine in Odisha that, hopefully, will run into less red tape.

These cancellations come amid falling global demand for many commodities, from steel to diamonds. This makes the idea of spending a decade or more slogging through the Indian government’s red tape at the local, regional and national levels a far less enticing option. The need by all commodities companies to cut costs during this global economic downturn means that projects in India are the first in line for the axe.

Smelling the Coffee in New Delhi

PM_Modi_2015Red tape and bureaucracy have made India one of the more unfriendly countries to foreign investment. Prime Minister Narendra Modi was elected in part on his pledge to fight corruption and revive India’s economy. While he continues to push forward efforts at economic reform, he is meeting opposition from entrenched interests.

The clock is ticking. India’s economy has enjoyed the tailwinds of lower oil prices, something that cannot go on forever. The only thing standing between a vibrant Indian economy based on the nation’s natural resources and workforce is the government’s entrenched bureaucracy and deadly corruption.

Billions of dollars worth of foreign investment are waiting to see if Modi can succeed at his efforts to cut red tape and reduce corruption. Who knows, with a more welcoming government, the next boss at the Bunder diamond mine just might be the old boss.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.