Mumbai: It’s proved its credentials in prospecting for some types of carbon, and now,Reliance Industries Ltd (RIL) is trying its hand at searching for what some consider to be the carbon derivative that is the hardest to find—diamonds.
The company, which announced an oil discovery in Gujarat on Tuesday, recently launched an initial survey of a 1,800 sq. km area in Madhya Pradesh (MP) after getting licences to do so from the state government.
Analysts are ambivalent about the potential and prospects of the business, but executives in the diamond trade are enthusiastic at private miners such as RIL finding an indigenous supply of rough diamonds.
India imports almost all the rough diamonds its cutting and polishing industry works on; the country is the world’s largest producer of cut and polished diamonds.
Queries emailed to an RIL spokesperson on Friday remained unanswered till Tuesday evening.
“RIL has been given two RPs (reconnaissance permits) and has signed an agreement with the state government to search for diamonds,” confirmed a senior official of the MP government who did not want to be named, adding that the permits cost a mere Rs1.5 crore.
A “reconnaissance permit” is a licence for a quick survey undertaking preliminary prospecting of a mineral through regional, aerial, geophysical, geochemical surveys and geological mapping, but does not include pitting, trenching, drilling or sub-surface excavation.
If a company finds mineral deposits during its reconnaissance, it will move on to the next stage—mining and drilling.
A 31 October news report from wire service PTI said MP’s director in charge of geology and mining, R.K. Sharma had awarded RIL licences to prospect for diamonds and other minerals such as gold, copper, lead, zinc and silver in the state’s Rewa, Sidhi and Satna districts.
A Reliance executive familiar with the matter who spoke on the condition of anonymity downplayed the development.
“This is the initial phase for any diamond prospecting project. It is a very nascent stage and we are just testing waters and it is too early to comment on strategic business intent,” said the executive adding that any mining, if indeed something was found, was a “long way off, may be three to four years”.
A Mumbai-based analyst with a domestic brokerage who did not want to be identified said the Mukesh Ambani-owned RIL had “a knack for digging things out of ground”, but that it was difficult to determine what this diamond prospecting would result in.
RIL displayed some of that skill on Tuesday when it announced that it had made its first oil find on land in a western Indian block in Gujarat.
In a Tuesday statement, RIL said it has found oil in a block it was awarded in the fifth round of government auctions under the new exploration and licensing policy. The block is located about 130km from Ahmedabad in the Cambay basin. The block, in which the sole owner RIL drilled five wells, covers 635 sq. km. The firm found “a gross reservoir thickness of about 15m” and “the well flowed at a rate of 500 barrels of oil per day”, RIL added throwing “open future potential within the block”. The firm did not comment on the possible total reserves.
RIL’s shares climbed 1.4% to close at Rs2,052.60 each on the Bombay Stock Exchange (BSE) on a day when the exchange’s benchmark index Sensex fell 0.35% to 16,440.56 points. The latest oil discovery will go some distance in assuaging the hit its stock took when RIL announced on 23 October that it will abandon a well in D9 block in the Krishna-Godavari basin.
An analyst with a foreign brokerage who did not want to be identified said the diamond prospecting effort didn’t look like it was part of “a well-laid out strategy” like the company’s entry into the retail business.
The analyst, however, added that the business could be “a good fit” for RIL which has a liking for capital intensive, long gestation projects that require significant engineering skills and, once complete, yield annuity returns with very less operating costs.
A discovery could change the landscape of Indian diamond industry, which exported Rs54,337.68 crore worth of polished and cut diamonds from January-September period this year and clocked imports of rough diamonds worth Rs22,773.56 crore in the same period.
“We have asked the government to expedite any raw (diamond) supplies that can be found from within the country as the supply from global mines has been declining for sometime. It is a good sign if private companies such as RIL and Rio Tinto are getting into it,” said Sanjay Kothari, member and immediate past chairman of Gem and Jewellery Export Promotion Council.
With 85% share in polished diamonds by volume and 65% by value, India could be better off if it had better control over its supply chain, explained Kothari, speaking of a product that is controlled by a lesser number of powerful businesses and remains highly concentrated in a few locations around the world.
According to the state government official mentioned in the first instance, Rio Tinto has already found a huge deposit of diamonds near Chhaturpur village in MP—a sign that there is more to be found. A state government website shows that 18 reconnaissance permits have been granted to date —to firms including Rio Tinto, Geo Mysore Services (India) Pvt. Ltd, and National Mineral Development Corp. Ltd.