By Neha Dasgupta and Mayank Bhardwaj
NEW DELHI (Reuters) - Indian resources conglomerates Adani and Vedanta are considering bidding for a $9 billion diamond project in the country that was abandoned by global miner Rio Tinto (AX:RIO) (L:RIO) this year, according to multiple sources with knowledge of the matter.
The central state of Madhya Pradesh was likely to invite bids in the first week of November to explore the deposit, which is estimated to hold around 32 million carats of diamonds, a senior state government official said.
"We're advertising only for that area in which (Rio Tinto) have prospected and established availability of diamonds," Manohar Lal Dubey, Madhya Pradesh's top mineral resources official, told Reuters by phone.
An auction would be held around 40 days after the notice inviting bids was published, he said.
Rio Tinto "gifted" the Bunder deposit, about 500 km (300 miles) southeast of New Delhi and discovered by the company in 2004, to Madhya Pradesh in February after saying last year that it was pulling out to conserve cash and cut costs.
The company spent around $90 million over 14 years on Bunder, located in a forested area important to tiger and wildlife habitats, with the plan to invest up to $500 million. The project had been hampered by delays in obtaining environmental permissions.
Small teams from both Vedanta Resources (L:VED), controlled by London-based Indian billionaire Anil Agarwal, and fellow billionaire Gautam Adani's Adani Group visited the site in recent months, three sources with direct knowledge of the matter said.
Madhya Pradesh official Dubey said two company executives had met him over the project, but declined to identify the companies or share more details.
An Adani executive informally approached the federal environment ministry regarding Bunder ahead of Rio's exit announcement in February, according to a source with direct knowledge of the matter.
Spokespeople for Vedanta, Adani Group and the environment ministry did not immediately respond to requests seeking comment.
Rio Tinto's decision to withdraw from the project, after legal fights with green activists, came at a time when Prime Minister Narendra Modi's government was seeking the help of the company and its rivals, such as Anglo American , to explore for diamonds and gold to make India a major mineral producer.
TIGER RESERVE
Volcan Investments, the family trust of Vedanta's Agarwal, is the second biggest stakeholder in Anglo American (L:AAL), which controls the world's biggest diamond producer, De Beers Group.
Agarwal told Reuters in March he bought the stake in Anglo to cut India's dependence on imports of precious commodities.
"My vision is to reduce the import bill of India. We import all the diamonds, we import all the gold, and platinum," Agarwal said. "Anglo has the technology. India doesn't have that technology. I have made an investment to bring the technology. This will be a good bridge."
An Anglo spokesman declined to comment.
For the new round of bidding for Bunder, the Madhya Pradesh government has more than halved the mining area to 364 hectares.
Only firms with a minimum net worth of 25 billion rupees ($384.67 million), or 4 percent of the estimated value of the diamond reserves, will be eligible to bid, said Vineet Kumar Austin, another senior Madhya Pradesh mining official.
The state, however, has yet to finalize the commercial terms of the auction, such as royalty sharing, one of the sources said, speaking on condition of anonymity as the details are not yet public.
Bidders can also expect protests from environmentalists given that the area is, according to the environment ministry, a corridor between the Panna Tiger Reserve and the Navardehi Wildlife Sanctuary.
A local NGO called Pehal, which in 2013 secured an interim court order against cutting of trees by Rio Tinto, is gearing up to stage protests and seek legal backing to halt the auction process.
"We know the government will soon begin auction and we will also make people aware, hold press conferences and also approach the high court," Pehal Chairman Hari Krishna Dwivedi said.