Since the US, accounting for 45 per cent of the global jewellery consumption, is yet to come out of recession, the accelerating diamond jewellery sales in China, India and West Asia are set to provide some insulation from volatility in the US. These three emerging markets will collectively be the key drivers of growth in jewellery sales, as the middle classes grow and desire premium products, says Bruce Cox, managing director of Rio Tinto Diamonds, in an interview with Dilip Kumar Jha. Excerpts:
Where does India stand on Rio Tinto’s map?
India is an important partner for Rio Tinto. More than 90 per cent of the Argyle production is cut and processed here. More than 60 per cent produce of Diavik mine in Canada is cut and polished here. When we talk about diamond mine, India comes first in our mind.
What is the current status of your plan for diamond mining in India?
We are seeking a mining lease for a site at Bunder (Madhya Pradesh) where we are in the process of drilling to update us with the quality of diamond, approximate reserves and the mine life. Reconnaissance sampling has covered more than 32,000 sq km and has resulted in the discovery of more than 30 pipes, first of its kind in India. This is set to become a world-class diamond mine. I believe, it will take one year to commence feasibility study on the Bunder project and two more years for pre-mining preparations.
During the three-year period, we are hopeful to obtain mining rights from the government. Thus, the mine is expected to become operational by 2012. It takes 10 years to obtain the first piece of diamond and we have completed five years. Hence, in the next five years, we will get first piece of diamond from the Indian site of Bunder. Since the mine is located at a government-owned forest site, there will be no problem in obtaining environmental clearances as well.
You have evinced interest in other similar mines in India as well. Any update on that?
Yes. Rio Tinto has shown interest in diamond mines at other five locations, including Orissa, Jharkhand etc. Study is on for them as well.
What are your future investment plans here?
In the last five years, we have spent $25 million on drilling. Another $75 million is likely to be spent on pre-feasibility study in one year and $10 million on post-feasibility work. Then depending upon size of mining assets and quality of diamond, investors would be keen on the project. But, indications are by putting up an investment of up to $500 million, we would have enough cartage to mine diamond economically.
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What is your plan regarding rough diamonds mined in India? Will that be supplied to Antwerp before being sold to Indian customers or will you sell roughs directly to Indian processors from the Bunder mine?
Nothing has been finalised so far.
What prompted you to launch pink diamond, the rarest of the rare diamond, in India now?
Despite problems in the US, the Indian gems and jewellery industry continued to grow. This sector, so far, has been immune to economic recession and estimated to grow at 15 per cent of CAGR between now and 2020 due to rising disposable income among the middle class and a fragmented regional celebrations across the year. Due to Indians’ love for diamond for its high aspirational store value, Rio Tinto has launched pink diamond for the first time in the country on the occasion of its 20th anniversary here.
Mined at its Argyle facility and processed at our cutting and polishing unit in Perth, around 40-60 pieces of pink diamond are auctioned every year. In last auction, a carat of pink diamond fetched $1.01 million, which is likely to go up several times this year. Pink diamonds were earlier sold through tenders in New York, Canada, Germany, Hong Kong and Tokyo.
What distinguishes you from other miners for rough diamond sales in India as the country contributes over 70 per cent to your annual sales?
Rio Tinto’s product profile is well suited for Indian markets. Our 10 loyal Indian customers process about 70 per cent of global roughs output, contributing 73 per cent of our annual sales. 10 per cent of our retail jewellery items are sold in India, which we would like to expand through retail customers by understanding their choice, providing them better technical and marketing services, etc. An estimated 450,000 workers are involved in cutting and polishing of roughs, about 150,000 are engaged in Argyle diamond, which requires highly skilled professionals.
We do not want to increase the number of our customers for rough sales. But, we are here to study Indian market and have an authorised Indian partner. We believe, north India is set to become a global diamond hub, especially for small- and medium-size coloured diamonds.
Any impact of economic recession on your business?
The recession has diminished diamond purchases by retail customers, thereby reducing roughs’ prices in a big way. Cut and polished diamond prices also fell by 15 per cent during the period. Indian processors stopped buying roughs in December that forced mining companies to cut production. Since, India processes over 80 per cent of roughs produced globally, the voluntary halt in offtake helped the industry to clear pipeline inventory.
Amid signs of miners unlikely to resume production, which was cut at the time of peak economic recession in December, do you see the price of roughs increasing in the near future?
Rough diamond prices would be pulled by the increase in cut and polished diamond prices. Demand is gradually improving from December lows, but production is unlikely to increase as there is no discovery of new mines in sight. Long-term fundamentals suggest that at the aggregate level, demand will exceed supply, resulting in a robust price outlook.
