Source: Diamond mines merger a mess – The Zimbabwe Independent July 15, 2016
GOVERNMENT’S ill-advised forced consolidation of Chiadzwa diamond mines in a brazen violation of property rights under the Zimbabwe Consolidated Diamond Company (ZCDC) is proving to be a fiasco as the new entity is making as low as US$2,5 million a month instead of the promised US$25 million, thus paltry remittances to government.
Taurai Mangudhla
Informed sources said this week ZCDC is currently producing just 20% of its ambitious 500 000 carats monthly output target, bringing into sharp focus First Element Diamond Services which is marketing the country’s diamonds.
This comes at a time recent diamond tenders are raising eyebrows because of uneconomically low prices of the gems.
In May, Zimbabwe sold 140 000 carats for only US$5 million amid claims Mines Minister Walter Chidhakwa and his permanent secretary Francis Gudyanga approved sales of the precious stones for as little as US$25 per carat.
The situation worsened in June as government sold 71 000 carats of diamonds for US$1 million, averaging US$14 per carat.
The low prices being fetched by Zimbabwe’s Marange diamonds on the market remains questionable at a time global rough diamond prices have been steady after a 2015 slump.
Sources said government’s partner at the Zimbabwe Diamond Tender Facility, First Element, has a dodgy past and lacks capacity as it was booted out of Botswana for allegedly undervaluing and smuggling diamonds.
Government early this year forced the Chiadzwa diamond mining companies –Mbada Diamonds, Anjin Investments, Marange Resources, Diamond Mining Company, Kusena Diamonds, Jinan and Gye Nyame — to close down saying their licences had expired as it tried to stampede them into a forced merger.
It claimed it wanted consolidation for the sake of transparency and accountability as the Marange mining activities have been characterised by corruption, theft and looting.
Authorities promised ZCDC, in which government is the majority shareholder, would sell at least 500 000 carats monthly at an average value of US$25 million.
This was expected to be a significant increase from the US$157,2 million that Chiadzwa miners remitted to Treasury in 2015.
Government projected earnings of between US$25 billion and US$30 billion over the next 10 years. Companies at the Chiadzwa diamond fields managed produced diamonds worth US$2,5 billion since 2009, although government claims US$15 billion worth of gems were not accounted for.
Sources in the diamond industry are questioning Zimbabwe’s due diligence processes as well as its commitment to transparency and accountability because of ZCDC’s opaque system and chaos, including First Element’s involvement.
The sources say the May tender, through which First Element claims to have sold 120 000 carats instead of the 140 000 carats was opaque. Later the ZCDC acting CEO Ridge Nyashanu said the diamonds fetched around US$5,5 million.
Nyashanu recently told a Parliamentary Portfolio Committee on Mines and Energy ZCDC sold 513 000 carats worth US$21,5 million between March and May 2016, averaging US$42 per carat.
Sources close to the Botswana intelligence agency, the Directorate of Intelligence and Security Services, say First Element — a company with Belgian roots and also registered in Botswana and South Africa — smuggled and undervalued millions worth of diamonds, prompting the Botswana government officials to end the company’s operations in the country.
“It (First Element’s exit) was because of undervaluation and smuggling of diamonds, but the official word is they ran out of diamonds,” a Botswana intelligence source said.
“First Element was doing their shenanigans and it was exposed, but the government couldn’t do much because they are linked to top officials. Zimbabwe should be careful because these First Element guys have a Gupta-like mentality.”
Sources in the Botswana diamond industry confirmed the allegations
A source close to Zimbabwe’s Minerals Marketing Corporation (MMCZ) said First Element had become a monopoly, cleaning and tendering Zimbabwe’s diamonds. The company is being accused of literally taking over MMCZ’s role in the marketing of diamonds.
“They are like MMCZ in their own right and they can’t really be questioned because the company’s directors always drop big names to intimidate anyone who dares question them,” said a source.
However, First Element executive director and country manager for Zimbabwe Tim Wilkes refuted the allegations.
“We have an office run by a company secretary in Botswana,” Wilkes said. “We had a contract with Firestone Diamonds at their BK11, but they ran out of diamonds so our contract ended.”
Although Wilkes claims Firestone Diamonds’ BK11 ran out of resource, a Canadian company Tango Mining Limited (TML) has agreed to take over BK11 at a cost of US$8 million.
Ironically, Wilkes confirmed TML had in fact approached First Element for a tendering contract. Wilkes refused to answer questions about the value of diamonds that were put to tender in May, referring queries to the mines ministry. Gudyanga has not been forthcoming on these issues.
In the first 17 tenders, Wilkes said his company had sold over 4,2 million carats valued at between US$210 million and US$294 million.
Although market sources say First Element gets 1% of revenues from sellers and another 1% from buyers, Wilkes said his company only received 1% of revenues from diamond companies for tendering plus a negligible fee for cleaning the stones. All this comes amid growing indications that ZCDC has been a fiasco.
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