Rio Tinto said Monday it has lodged mining lease applications for its Bunder diamond project in the Bundelkhand region of Madhya Pradesh, India, which is a vital step in the development of what could be the first significant world class diamond mine in India.

The diamond exploration company said it set an exploration target for diamond mineralization at Bunder of 40-70 million tons at a grade of between 0.3 and 0.7 cts. per ton. The targeted diamond grades are at least three times greater than the grade of the Panna mine, India’s only other hard rock diamond mine.

The original discovery was made as part of a regional exploration reconnaissance in 2002, the company said. A prospecting license was executed in September 2006, which allowed exploration activities to continue. An order of magnitude study is underway to evaluate the economic viability of the eight diamondiferous lamproites. The results are expected by the end of the third quarter of 2008.

“Diamonds are a significant part of the history of India and an important product for Rio Tinto,” said Nik Senapati, managing director of Rio Tinto in India. “We have spent more than 100 Crore rupees ($25 million) over the last six years on diamond exploration and evaluation in India, and remain excited about the prospects for the Bunder project. The application for mining leases is confirmation of our commitment to both mining in India and the global diamond industry.”

Bill Champion, managing director of Rio Tinto’s diamond business, said, “We are delighted with the progress of the Bunder Project, which has the potential to be a world class operation. Rio Tinto has a strong track record of introducing new productions into the market and significantly enhancing their value. We are committed to ensuring a stronger, healthier and environmentally secure community at Bunder, as we have done across all of our diamond operations.”

Rio Tinto processes the majority of its diamonds in India and independently markets the diamond productions from its Australian, Canadian, and African mines, with a well established presence in all the major diamond centers of the world.

Work on the Bunder diamond project to date includes mapping, 48 drill-holes and five surface bulk samples. Drilling is continuing and further surface bulk sampling to support diamond valuation is underway. Environmental approval for a 10-ton per hour Dense Media Separation Plant is expected soon from the Madhya Pradesh government, which allows processing of bulk samples at the project site.

Following the completion of the order of magnitude study in the second half of 2008, a pre-feasibility study would involve further social and environmental studies including further drilling and below the surface bulk sampling.

In total, Rio Tinto has spent over 75 Crore rupees ($19 million) to date on evaluation of the deposit. Plans are in place to spend around a further 135 Crore rupees ($30 million) to support continued evaluation of the deposit.

JCK