How Zimbabwe squandered Marange gift – Eddie Cross

via How Zim squandered Marange gift 21/04/2014 by Eddie Cross in NewZimbabwe

In 2002, De Beers, who maintained a small exploration operation in Zimbabwe, deployed a geologist to the Marange Communal Area in the Eastern Districts. The geologist established a camp on the Save River and spent 6 years exploring the area for diamonds, trenching in promising areas and sending truckloads of sample material to South Africa for analysis. The results led the De Beers management to allow their rights to lapse in 2006 and the geologist was withdrawn.

In London, the Management of a small quoted mining company called African Consolidated Resources (ACR), watched these developments with interest and when De Beers abandoned the field, they moved to take over the exploration rights. They transported a small team onto the field and in weeks had found gem quality diamonds. They registered claims over several thousand hectares and placed an advert in the London press to the effect that the discovery could affect the price of their shares.

The Ministry of Mines in Harare was also watching developments and no sooner had the discovery become public knowledge than they took steps to take over the claims of the ACR which was achieved by the end of the year. The measures adopted to achieve this were illegal and everything that followed this decision will eventually be affected by the latent rights of ACR for compensation for the unlawful revocation of their mining rights.

The Ministry then allowed the field to be occupied by small scale informal sector miners and within months, over 40,000 miners had established themselves on the site, exploiting the alluvial deposits scattered over some 60,000 hectares of land. By 2008, the site could be seen from satellites with thousands of shallow pits dug and many thousands of tonnes of soil removed and processed by hand. Diamonds were carried over the border and sold to traders and merchants who quickly established themselves in Mozambique.

In 2008 the State suddenly decided that these rich deposits could not be left to the informal sector and announced that they were going to take over the diamond fields. They lost no time in doing so and without consultation and in complete violation of either the rights of ACR or the small scale miners, the army was instructed to clear the fields of all small miners. Over 200 were killed and the rest displaced including villagers that had lived in the area for a long period. Over the next 4 years six companies, all 50/50 joint ventures with the ZMDC, were established. Three were the most important and occupied the prime deposits – Marange Resources, Mbada Diamonds and Anjin – the latter being a JV with a Chinese company.

In six years these companies processed millions of tonnes of soil and sand, exploiting the alluvial deposits that were spread over the entire field of 80,000 hectares. These activities were conducted under conditions of complete secrecy, despite this, information gradually emerged showing that the fields were yielding many millions of carats of diamonds. Up to 85 per cent were industrial grades at low unit values but the balance were gem quality stones and at least one stone has been cut and polished in Vietnam and sold for nearly $11 million.

Detailed records from both Marange Resources and Mbada Diamonds revealed that they were producing up to 20 carats per tonne and also disclosed the grades and prices that were being achieved for raw stones. From these records and the throughput of the equipment installed at the site, it became clear that Zimbabwe was supplying anything up to 25 per cent of global demand for raw diamonds. This peaked in 2012 at an estimated 30 million carats worth about $4 billion. Overall, over the total period of exploitation after ACR rights were violated I estimate that well over 100 million carats were extracted with a face value of $12 billion. Estimated costs of extraction were about 38 per cent and so at least $7 billion in surplus revenue has been siphoned off from the operation in 8 years.

The problem now confronting the people responsible for this operation is a technical one, the alluvial deposits have been exhausted and what is left is a belt of diamond bearing hard agglomerate which is very difficult to process. Experts suggest that only three companies in the world have the capacity to mine and process this deposit which is estimated to contain up to 9 billion carats worth more than $1 trillion.

For this reason the Ministry of Mines is now faced with the problem of removing the existing operators from the diamond field and replacing them with a single operator who can exploit the field in a transparent and accountable way. They are now looking at the example of Botswana where the industry is controlled by a 50/50 Joint Venture with De Beers that has been in existence for many years and controls the supply of a third of all raw diamonds in the world.

In Botswana the successful implementation of the JV has resulted in raising the GDP per capita to over $9000 and free access by children and young adults to the education system. The country has also accumulated surplus revenues amounting to two years of GDP and has been very careful to manage and secure the financial status of these funds. Most recently they moved to establish auction facilities in Botswana to handle their production.

The contrast with the actions of the Zimbabwe government could not be more blunt – we behaved illegally when we took the claims from ACR even though the company offered 50 per cent of the equity in the field to the State. Then we compounded the violation by forcing the small scale miners off the same property and in the process violated their human rights. We then recklessly mined the easy and most productive areas of the field, releasing tens of millions of new diamonds into an already oversupplied market, driving down market prices for all producers.

We simply squandered and stole the funds realized from the mines. A vast global network of shady characters became involved with aircraft flying in and out of the country with no supervision or control. When the whole thing was over, I hear the Chinese are even taking down and removing the fences they erected to protect their activities and interests. Others are leaving behind debts with local companies and suppliers.

If we had set out to create an example of how not to undertake an investment in the extractive industries, we could hardly have done a better job. Here we have a President who is constantly appearing on global television saying we will never again allow foreigners to control our natural resources – and this is what we do with that power and privilege. It’s a complete debacle and would be laughable if it was not so serious and the consequences for our people so severe.