India wants private sector to explore for diamonds, gold

Government will start to auction the rights to up to 70 diamond and gold exploration zones to mining companies this year

India is seeking the participation of Rio Tinto and Anglo American's De Beers to explore for diamonds and gold, part of Prime Minister Narendra Modi's ambition to make the country a major mineral producer, the mines secretary said.

Balvinder Kumar told Reuters on Monday that the Indian government will start to auction the rights to up to 70 diamond and gold exploration zones to mining companies this year.

India stopped producing diamonds years ago and produces only a small amount of gold, although it is the world's second-biggest consumer of the yellow metal. Modi wants to revive the sector, with most of the exploration and production conducted by the private sector.

The blocks that will go on sale are among 100 mineral zones identified by the state-run Geological Survey of India following an aerogeophysical assessment.

"We need resources to expand our mineral wealth and that's why we want private companies to carry out exploration of deep-seated minerals," Kumar said in an interview. "So far we haven't been able to do detailed exploration, but this proposal is a win-win for all."

However, he said diamond producer De Beers and Rio Tinto, which has already discovered a cluster of eight "diamondiferous pipes" in central India, have been cold to the latest exploration idea, citing high risks of failure.

To allay those concerns, Kumar said the government will reimburse companies' exploration costs if their blocks do not throw up commercially viable mineral reserves.

The blocks, which each cover over 100 square kilometres, are located in the states of Madhya Pradesh, Chhattisgarh, Jharkhand and Rajasthan among others, Kumar said, adding it was difficult to estimate reserves without detailed exploration.

Companies that win the exploration rights will be able to transfer those rights to another party within three years if they wish, and the rights will then be auctioned again for actual mining.

The exploration company will get a percentage of sales as royalty for 50 years from the company that wins the mining rights, if it does not participate or loses out.

It will be the first time India has allowed private companies to just explore for minerals, with the mining rights auctioned separately.

State-run SBI Caps is advising the mines ministry on the proposal, which is expected to be cleared by Modi's cabinet ahead of a two-day government mining conclave in the eastern state of Chhattisgarh that begins on July 4, Kumar said.

De Beers said it continued to engage with the mines ministry but had no current plans to resume any exploration in India.

"There has been no change to the current situation since our exploration activity there closed in December 2015, with no prospecting activity planned for the foreseeable future," De Beers' spokeswoman Lynette Gould said in an email.

Rio Tinto's India head, Nik Senapati, did not immediately respond to requests seeking comment.

India, which produced the Koh-i-Noor Diamond that is now in Britain, is a diamond polishing hub, polishing 14 out of every 15 rough diamonds in the world.