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What is the value of Marange diamonds?

02 april 2012

Fact sheet 































I wrote this article some few days after a trip to Zimbabwe, as Rough&Polished seeks to take a closer look at the diamond operations in the southern African country.

Interestingly, I almost missed the birth of my first child, as my wife gave birth to a healthy baby boy, Jaiden Mateo Nyaungwa, three days after my return from Zimbabwe.

Dear reader, I hope you can tolerate my excitement, but be assured that this article is not about babies but diamonds.

Back to diamond business

The mining of diamonds in Zimbabwe dates back as far as the mid 19th century and this was a reason why Cecil John Rhodes sought to acquire territory in the land to the north of the Limpopo, South Africa.

This became Rhodesia, a country named after him.

Rhodes had already made a huge fortune through gold and diamond mining in South Africa, and he now aimed to extend his riches.

He was, however, disenchanted that the reserves in then Rhodesia did not match his expectations.

Nothing much was known about diamond mining in Zimbabwe until recently, as was the case with its neighbours, Botswana, Namibia and South Africa.

Zimbabwe only had two kimberlite mines - Rio Tinto’s Murowa Diamonds, in the central part of the country and Rani Investment’s River Ranch, which is in Beitbridge, a border town between Zimbabwe and South Africa.

Marange diamonds

De Beers held an Exclusive Prospecting Order (EPO) over Marange through its subsidiary Kimberlitic Searches in the early 1990s but left the country in 2006 when its EPO expired.

It had concluded that the deposits were not in line with the firm’s other activities elsewhere across the continent.

De Beers’ exploration rights were then taken up by British-registered African Consolidated Resources in June 2006.

However, the company’s bid to have a Joint Venture with the State was rejected by the Ministry of Mines and ACR was forced out of the claims, which were then taken over by the Zimbabwe Mining Development Corporation.























 






This was despite ACR winning a court case allowing them to continue mining.

A diamond rush started in September 2006 and by mid-December the same year, around 10 000 illegal artisanal miners were working small plots at Marange.

The miners initially sold their diamonds to the government, but a black market rapidly developed, offering better prices.

Two years later, the government unleashed a military operation to drive informal miners off the claims and restore State control over the fields.

Some media reports suggested that the army carried out mining activities using local villagers for forced labour.

Others alleged that a lot of leaders of the Zanu PF party were involved in trading and they had their own diggers and traders.

International pressure groups also claimed that the Zimbabwean security officials had committed human rights abuses in the fields and there was also rampant smuggling.

Zimbabwe denied these claims but it was not enough to stop the Kimberley Process from suspending exports of the gems in November 2009.

A KP monitor, Abbey Chikane was then appointed to see if Zimbabwe was complying with the watchdog’s minimum requirements for trade in rough diamonds.

In June 2010 the monitor reported that the government of Zimbabwe and private investors had satisfied the minimum requirements.





























Earlier, in April of the same year ACR had been dealt a bodily harm as the High Court of Zimbabwe ruled that the government could sell diamonds from Marange while dismissing its urgent application to stop diamond sales from the disputed fields.

In September 2010, the Zimbabwe High Court also formally revoked a ruling from a year earlier that restored mining rights to ACR.

In November 2011 KP allowed Zimbabwe to trade in Marange diamonds again after it met the set minimum requirements.

This did not go down well with the Global Witness, which withdrew from the KP coalition, saying that it felt the effort no longer effectively ensured that diamonds did not make their way onto retail markets.

Influencing global diamond market

Although Zimbabwe’s deputy Mines Minister, Gift Chimanikire professed ignorance about the influence of Marange gems on the global market, and India in particular, when asked by Rough&Polished recently, media reports had suggested last February that De Beers, ALROSA and Rio Tinto were losing out in India to stones from Marange.

Prices of rough diamonds from De Beers and ALROSA were said to have slipped by about 10 percent per month in Surat as a result of diamonds from Marange entering the market.

Indian traders said Zimbabwe diamonds were available at $40 per carat, which was considered cheap compared to other sources where they were sold for $100 per carat.

"Diamonds from Zimbabwe have brought stiff competition to the international market, causing prices to fall sharply," a diamond trader at Mumbai's Zaveri Bazaar, Santosh Desai was quoted as saying by local media.

"An immediate consequence of their arrival was that diamond prices … crashed by 25 percent in the markets of Mumbai and Surat since November 2011."

About 11 million carats of Marange diamonds were expected to flood the Indian market this year while 30 percent of the diamond pieces currently manufactured in Surat were Zimbabwean stones.

What is being produced in Marange?

Asking Zimbabwean officials what the country is currently producing in Marange or what the projected output for the year was often attracts a mute response.

Chimanikire could not entertain Rough&Polished’s probe and neither did Minister Obert Mpofu capitulated when CNN asked him the same question.

Even the local civil society groups that visited Marange diamond fields recently for the first time, were not given production data and they urged Harare to be open to avoid speculation.























 






Although Zimbabwe is said to have produced 9 million carats in 2011 and was targeting 20 million carats this year, production and sales figures remained a guessing game.

Mpofu, however, gave a hint on why Zimbabwe was not willing to float around production, sales figures as well as the names of its buyers.

 “Who is asking for transparency? It is the same person that imposed sanctions on us, because transparency is about knowing the bank that the money has come through, knowing the companies that are buying our diamonds for the countries that imposed sanctions on us to pounce on them. We are not foolish,” he said.

Magic wand

There is a strong perception that Marange diamonds were a magic wand to Zimbabwe’s economic troubles.

Civil servants often go on strike demanding higher salaries and their argument was the country had money coming from Marange.

With the finance minister Tendai Biti also alleging opaqueness in diamond revenue, it remains to be seen if the Zimbabwean economy would completely convalesce with diamonds as a major driver as is the case in Botswana.

Biti presented a 2012 budget of $4 billion late last years and it surely sounds absurd for one to pin hopes on diamonds from Marange that contributed just $300 million to the state’s coffers last year.

What is the value of Marange diamond fields?

Centre for Research and Development director Farai Maguwu told Rough&Polished that independent assessments that put the value of the Marange deposit at $800 billion were realistic.

He said Zimbabwe may be sitting on over 25 percent of the known diamond deposits in the world.

 “[The] assessments were realistic based on current mining operations in Marange and in view of continued discoveries in the region,” he said. “Now that diamonds have also been found in Bikita and in Chimanimani, Zimbabwe may be sitting on over 25 percent of the known diamond deposits in the world.”

Some geologists, according to a local Member of Parliament, Eddie Cross, who claimed to have done a thorough research on Marange, said the fields contained between 2 and 7 billion carats of raw diamonds.























 






No proper prospecting had been done in the area to determine the real value of the diamonds, so all these figures were somewhat hypothetical.

It is this reason that some industry experts had been refusing to acknowledge the gems as a major find.

The majority of the stones mined in Marange were largely believed to be industrial while the quality gem stones were not more than 20 percent, at least for now.

The impact of the gems from Marange on the global market cannot also be underestimated as being witnessed in India.

There is no doubt, as the Debswana boss Jim Gowans said, that any flooding of the market with rough at the moment would see prices going down.

Zimbabwe on the other hand is set to double its output this year and it remains to be seen whether this would force prices on a downward spiral.

If it does influence prices on a downward trajectory, will other players complain or silently push for the sidelining of Marange gems through sanctions that are being imposed by the US and the European Union?

Only time will tell.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished