Rio Tinto to invest in BRC DiamondCore’s DRC projects

Global mining giant Rio Tinto (RTP-N, RIO-L) 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 it’s 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) to earn a 60% interest in five diamond exploration projects in the northern Democratic Republic of Congo 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 projects 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 heavyweight 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 Phase 2 exploration, Rio Tinto and BRC DiamondCore would then form a joint-venture company in which Rio would hold a 60% share and BRC the remaining 40%.

Currently Rio’s most advanced exploration diamond project is a continent away in India. It’s 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 license 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 characterised by strong demand for diamonds.”

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

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

At mid-day in Toronto, BRC DiamondCore was trading down 2 a share at $1.56.

The company has a 52-week trading range of $1.35-8.00 per share.

BRC DiamondCore has 25.7 million shares outstanding.