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Rio Tinto plc (NYSE:RIO) recently unveiled its inaugural Bunder diamond jewelry collection titled Courageous Spirit. The jewelry consists of diamonds from its sampling till date, and the entire collection makes use of 25.34 carats of polished Bunder diamonds. The collection also entails 2.8 carats of rough Bunder diamonds, and has received rave reviews from jewelry critics in India. The Bunder project is expected to create and sustain almost 10,000 jobs in India, where unemployment is a major problem. Rio Tinto also expects a major market presence in India, where diamonds are given a lot of importance culturally. Indigenous diamonds mined in India will have an emotional appeal to Indian consumers and will be able to command a higher price in the Indian markets.

Rio Tinto not only has a huge and ready market available for its diamonds in India, but it will also be able to increase its valuations for its diamond business, according to an analyst at Trefis. Rio Tinto's diamond business accounts for 6% of global production and is valued at $2.4 billion. Diamonds are also in demand in nearby China, where it has always been associated with refinement, class and aristocracy. The analyst at Trefis expects that the Bunder project will not have a significant impact on Rio Tinto's valuation, as its diamond business accounts for only a small percentage of Rio's overall business. However, I beg to differ from this viewpoint and I feel that the Bunder Project will have a positive impact on Rio Tinto's overall valuation.

The demand for quality jewelry has always been very high, and the Bunder project is likely to produce some of the most exceptional pieces of jewelry that international market recently has seen. The story behind Bunder Project and the people who work for the mines will attract people who seek to buy diamonds with character. Madhya Pradesh is a historical region where the famous erotic temples of Khajuraho are located. The cultural aspects of Bunder Project will attract people who like diamonds, but do not want to purchase precious stones that originate from conflict-stricken Western Africa.

Secondly, Rio Tinto has teamed up with a number of Indian designers like Reena Ahluwahlia, whose creations reflect Indian traditions and culture. I also believe that the diamonds from the Bunder Project will be in demand in India, where indigenous jewelry is given preference over imported ones. Rio Tinto will be able to set higher price tags to these jewelries and market them as premium creations. This alone can help Rio Tinto to capitalize on its diamond business even though it is just a small percentage of its overall business. Last but not the least, there is a burgeoning need for high quality diamonds to be sold in China, where spending on luxury has dramatically increased in recent years.

Rio Tinto's second quarter earnings were not stellar. The company's underlying earnings was reported to be $5.2 billion, which is 34% lower than last year. With a cash flow of $7.8 billion, Rio still has a lot of purchasing power. That explains why the company has decided to invest more than $300 million in Bunder project. The company's interim dividend was 72.5 cents, which is 34% higher than in 2011. Low earnings have been attributed to a weak Chinese economy and reduced demand for iron ore.

In spite of the not-so-stellar earnings, Rio Tinto's iron ore chief Sam Walsh dismissed concerns about the Chinese economy. He also shrugged off BHP Billiton's (NYSE:BHP) problems by saying that it is one of the most competitive iron ore miners in the world. BHP shelved a $50 billion project in Australia and Mr. Walsh suggested that it is almost like Red Sea being opened for them. Clearly, he means to capitalize on BHP's woes. Vale S.A. (NYSE:VALE) is however doing well when compared with both BHP and Rio Tinto. VALE ranks No. 5 on Zacks and analysts maintain that it is neutral. VALE has had environmental problems in Brazil, but it has so far remained free from terrible losses. Cliffs Natural Resources (NYSE:CLF) on the other hand has been downgraded, as its stock's performance fell down by 50.76%. Cliffs' net operating cash flow has decreased to $96.20 million.

Freeport-McMoRan (NYSE:FCX) is not doing well in the market either. Its earnings have reduced drastically and that has been attributed to the Chinese economy as well. With a deteriorated cash flow and revenue, Freeport-McMoRan is not in a favorable position. With all this in mind, Rio Tinto is doing significantly better than its rivals and competitors. The excess cash flow has been rightly used in Bunder, where the probability of a profitable diamond business is very high. Concerns over Rio Tinto's overall valuation are unfounded, and I expect Rio Tinto to make a significant profit from its diamond business.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.