When thieves fall out

On Monday the Minister of Mines called in the CEO’s of all six companies mining diamonds at Marange. While he was speaking to them, the Police moved in on site and ordered the staff of all the companies to down tools and leave. Hundreds of millions of dollars of equipment was left abandoned, offices and warehouses unattended and the response by the local community was immediate – they swarmed all over the site, started digging for diamonds themselves and looted everything in sight. On Thursday this week the President announced that the State was “nationalizing” all diamond mining activity.

It was the culmination of decades of discovery and dispute over this vast deposit of alluvial and agglomerate diamond bearing resources containing perhaps 10 billion carats of raw diamonds – possibly the largest discovery in the past 100 years or more.

It was first discovered by De Beers – the largest diamond mining and marketing company in the world who sat on the discovery for nearly 2 decades before they allowed their claims to lapse in 2006. The claims were immediately taken over by a small London based company – African Consolidated Resources (ACR) who then commenced trenching and in 6 weeks discovered what De Beers had been sitting on for many years – large numbers of diamonds in alluvial sands surrounding a ridge of hard agglomerate which contained the bulk of the diamonds and was gradually releasing them into surrounding sands.

Under the rules of the London stock market they published the discovery and this notice came to the attention of the Ministry of Mines in Harare who immediately took steps to cancel the rights of ACR and allow small scale miners (eventually an estimated 40 000) to occupy the site and start shallow mining. In 2008 the State woke up to the richness of the resource and moved in with the Army and helicopter gunships, killed over 200 miners and drove the rest off the site.

Six companies were then granted licenses to start mining. All were associated in one way or another with State security agencies and the State controlled Zimbabwe Mining Development Corporation (ZMDC) who nominally held half of the equity in each operation but with little or no real control and influence. The largest operation was Anjin – a company granted a license personally by the President and controlled by the Red Army of China. The second largest operation was Mbada controlled by close associates of Mr. Mugabe and other criminal elements in South Africa. A third was effectively controlled by the Minister of Mines in the form of Marange Resources.

No compensation was paid to ACR and no recognition given of their rights even after the Courts ruled in their favour. This was clearly a politically controlled move by the Regime in Harare to control the exploitation of this discovery. In the subsequent 8 years I estimate that total output from Marange has been about 120 million carats at an average value of $120 a carat or $14,4 billion. Output reached a peak in 2012 at about 35 million carats but have declined since to 14 million in 2013, 12 million in 2014, 4,7 million in 2015 and perhaps 3 million in 2016.

The decline is mainly attributed to the failure of the companies to break the technical problems associated with trying to process the hard agglomerate which contains the majority of the raw diamonds. I am told by experts in the field that only two companies have the technical knowhow to tackle this resource – Rio Tinto and De Beers, neither of which are even remotely interested in venturing into this proverbial mine field.

Less than 0,05per cent of the revenues of these companies has reached the Ministry of Finance. After years of complaints by Ministers of Finance, suddenly the State has woken up and Mr. Mugabe’s statement this week that there has been “no transparency” at Marange and that “Companies have not been remitting funds to the Treasury and externalizing proceeds of sales” is the height of hypocrisy because the President and his family have for many years been major beneficiaries of the system they themselves created.

The question all of us are asking is why now? The only explanation can be that the President is moving to take full control over the diamond fields now that the flow of diamonds has drastically declined. The Minister of Mines is a nephew and the President is probably concerned about funds reaching elements in the regime, both politically and security connected, who are in the growing camps of those who want him to retire and make way for a successor.

This sorry saga demonstrates what is wrong with many African governments. In Botswana, the discovery of diamonds in large quantities led to the formation of a joint venture with De Beers which has enabled them to develop the resources in a sound way, maintain complete transparency over all aspects and strengthen international marketing and stabilisation mechanisms. Today Botswana produces a third of global demand, is a key center for diamond processing and marketing and steady inflows of resources to the State resulting in the second highest standard of living in Africa and a sound education and health system.

In many parts of Africa the discovery of alluvial diamonds in large quantities has led to civil war and armed conflict – hence the name “blood diamonds”. This is because they are easy to mine and process; carry a high value and small volume. Hard rock mining is completely different requiring major investment and sophisticated technologies and therefore must be controlled and managed by companies with these capacities. This explains in part the dominance of De Beers and they in turn have recognised for many years that with a relatively inflexible demand for diamonds, to maintain their market value, the supply had to be managed. They have achieved this with a market system that handles the great majority of raw diamonds reaching the world market.

The discovery in Zimbabwe has violated all of these principles – there has been no control or management of the flow of raw diamonds to the market and this has reduced global prices and reduced the incomes of all those countries which have a properly managed and regulated diamond industry. It has financed criminal activity and undermined democracy and the observance of human and political rights in Zimbabwe. The discovery has made no contribution to the alleviation of the social and economic crisis here or helped us resolve our indebtedness to our creditors.

What should happen now is for the State to recognise the mistakes made and come clean on their role. To then invite perhaps De Beers to come in and take over the fields and exploit them in a similar manner to what they are doing with Botswana. Such an arrangement would strengthen the system in place in Botswana and give the two countries considerable influence in global markets. But like everything else at present, I doubt if sanity will prevail.

Eddie Cross
4th February 2016