Hummm good question i believe its only function is gonna be look for rupees in the ground (since rupees are minerals) but maybe it will have an important use in a dungeon or sidequest
I think it could work like the stone of Agony. Perhaps it shows where weak walls are so you can blow them up, or holes in the ground with buisness scrubs or whatever they decide to throw in.
Maybe, it detects treasure in the clouds above you and then you can chose the sword to fly you up there, where there is a random isolated island of Skyloft, where there is treasure!