Rio Tinto to invest in BRC DiamondCore’s DRC exploration projects

Global mining giant Rio Tinto (RTP-N, RIO-L) currently produces about 16% of the world’s diamonds by volume and 8% by value with its Argyle mine in Australia, Diavik mine in Canada and Murowa mine in Zimbabwe.

But its appetite for a greater slice of that pie is fuelling exploration projects across six continents.

In the latest addition to its diamond exploration portfolio, Rio Tinto has signed a letter of intent with BRC DiamondCore (BCD-T, BCD-J) to earn a 60% interest in five diamond exploration projects in northern Democratic Republic of the Congo (DRC) at a cost of about US$13 million.

The projects involve 106 exploration permits covering about 27,000 sq. km in the DRC’s Equateur and Oriental provinces — an area where alluvial diamonds are already being recovered and that the two companies believe is highly prospective for kimberlite pipes.

The projects do not include BRC DiamondCore’s more advanced properties in the DRC at Tshikapa, Kwango River and Lubao.

Under a staged earn-in arrangement, Rio Tinto would spend US$550,000 for reconnaissance sampling before the end of 2009.

The mining giant would then have the option to earn an initial 35% in whichever of the projects it chooses. (It would be responsible for spending US$3 million in exploration on each of the projects it chooses by the end of December 2012.)

Rio Tinto would have the right to earn another 25% in each of the projects it selects by spending an additional US$10 million before the end of December 2014.

Following second-phase exploration, Rio Tinto and BRC DiamondCore would then form a joint-venture company in which Rio would hold a 60% share and BRC the remainder.

Currently, Rio’s most advanced exploration diamond project is a continent away in India. Its Bunder project in the state of Madhya Pradesh hosts a cluster of eight diamondiferous kimberlites.

Rio Tinto has spent more than US$20 million over the last five years on diamond exploration in India and is the first foreign company to be granted a prospecting licence there.

In Rio’s annual review of the company’s diamond business released late last month, it noted that its underground diamond operations will come on-stream around 2009-2010, “a time most likely to be characterized by strong demand” for diamonds.

“Between now and 2016, even under the most optimistic supply scenario, demand will outgrow supply,” the annual diamond review stated.

While Rio acknowledged that the U. S. makes up about half of all diamond jewelry consumption, it also noted that demand for jewelry was “accelerating” in China, India and the Middle East and would provide “some solid insulation from any volatility in the U. S.”

In response to the news, BRC DiamondCore traded down 2 a share at $1.56.

The company has a 52-week trading range of $1.35-8 per share and 25.7 million shares outstanding.