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Unpacking issues that took centre stage at the Zim diamond conference

24 november 2014

The second edition of the Zimbabwe Diamond Conference came and went and here I highlight some of the major talking points addressed by the industry players.

The issues centred mainly on the need for Zimbabwe to do much more exploration, the need to implement proper beneficiation and value addition activities, brand the country’s production so it can enter international markets, as well as participate and work together with other countries in the diamond business.

Calls were also made to end sanctions imposed on the local diamond industry.

I unpack some of these issues below.

Sanctions

The issue of sanctions, just like the 2012 conference, was a very emotive issue at this year’s conference, although with less tempers flaring. Mbada Diamonds, one of the companies producing diamonds in Marange, said sanctions imposed on the southern African country are hampering the growth of the local diamond industry.
 Company president Robert Mhlanga said that there was need for fair trade of Zimbabwe’s stones.


“As a nation our potential cannot be side-lined and the future of the global diamond industry cannot be discussed without acknowledging our potential role in its sustainability,” he said. “However, we are faced with a situation whereby we cannot trade our diamonds freely due to various constraints that have been created specifically for us as a nation.” 

Mhlanga said although Mbada was a “global player” in rough diamonds production on same scale with Orata in terms of volume, his company was finding it difficult to borrow, while Orata can raise money on international financial market for exploration and capitalisation. 


Chinese partly owned diamond miner, Anjin Investment further claimed that it lost about $336 million in revenue due to the “sanctions induced depressed” prices.

Company director Munyaradzi Machacha said that the figure was arrived at by multiplying the total carats sold so far with the difference between the average price per carat and the average price for the same goods set by a “reputable” Belgian diamond consultant.

“We therefore believe that we could have earned much more from the diamonds that we sold and we agree with the chairman of Mbada Diamonds when he said that we are getting about 50 percent of the value of our diamonds,” said Machacha.

Diamond miners operating in Marange in partnership with the state-owned Zimbabwe Mining Development Corporation had been slapped with sanctions by the European Union (EU) and the U.S following accusations of gross human rights abuses in the diamond fields.

Harare denied the accusations.

Quite tellingly, Tacy president and journalist Chaim Even-Zohar said that he was called by the then KP chairperson Gillian Milovanovic of the United States after the 2012 conference in Victoria Falls and was accused of propping up a system that was leading to the loss of lives in Marange. The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury was accused of intercepting proceeds from Marange diamond sales.

Exploration

Zimbabwe was urged to embark on a massive exploration drive to determine the diamond reserves in the country.

This comes after reports that the Russian diamond giant Alrosa was set to prospect for diamonds in Zimbabwe with DTZ-OZGEO, a Zimbabwe-Russia joint venture company. Russia's trade and industry minister Denis Manturov said that Alrosa and DTZ-OZGEO would prospect for diamonds throughout Zimbabwe.

Currently diamonds were being mined in the south of the country by private company River Ranch, in central Zimbabwe by Rio Tinto and in the eastern Marange area.

The Zimbabwe Mining Development Corporation (ZMDC), which has joint ventures with the most of the mining companies operating in the Marange alluvial diamond fields, also said that it was negotiating with a number of potential investors with which to partner in exploring for kimberlite diamond deposits in the Marange area.

ZMDC chairperson David Murangari said the parastatal seeks to establish a joint venture with the government's mineral exploration company, the Mining Promotion Corporation, to commence exploration. Zimbabwe's Minister of Mines and Mining Development, Walter Chidhakwa said the discovery of the Marange diamond fields marked a turning point, elevating the country's position as a diamond producing country globally.

“Despite the diamond discoveries made, Zimbabwe still remains largely underexplored, and therefore presents huge opportunities for new discoveries," he said.

Zimbabwean President Robert Mugabe also noted that despite the country’s huge mineral endowment, exploitation of the country’s minerals in general, upstream, side stream and downstream, had been limited by factors that include power shortages, technology gap and uneven marketing conditions.

Beneficiation

Zimbabwean President Robert Mugabe said there was need to promote local mineral beneficiation and value addition to boost revenue.

“In that regard, the diamond industry provides vast opportunities for growth,” he said.

Zimbabwe currently reserves a minimum of 10 percent quota of all the rough diamond exports for local cutting and polishing. Mugabe said the quota would be reviewed as the cutting and polishing industry grows.

“Currently, the cutting and polishing is still in its infant stage,” he said.

Mugabe said his government had crafted a diamond policy, which seeks to ensure sustainable development of the diamond industry after realising the importance of the strategic nature of gems to the country.

“In that regard, the Precious Stones Act is being amended to ensure it captures the recommendations of the policy,” he said.

Zimbabwe also said it that was planning to scrap or reduce royalties for diamonds that are being cut and polished in the country.

Chidhakwa said that this would likely include the removal of 15 percent value added tax on the locally polished gems as well.

“We are … looking as we go towards the budgeting process at the possibility of reducing or eliminating royalties for those diamonds that are destined for local cutting and polishing including the removal of the 15 percent Value Added Tax (VAT) as part of efforts to improve the environment,” he said.

“In our discussions in government we recognize that the process of value addition and beneficiation is the process of industrialization and industrialization has its own cost.”

He said to create the cutting and polishing industry of diamonds there was a likelihood of giving up certain revenue inflow through government.

Harare had increased diamond royalties last January to 15 percent from 10 percent.

Partnerships

The honorary World Diamond Council president Eli Izhakoff said the massive development of Zimbabwe’s natural diamond resources, which would ensure that they will continue to generate growth and development over the long term, requires international cooperation and investment. 

He said that this was the nature of the diamond industry today and the business world in general.

“But there should be no shortage of interested parties. Zimbabwe offers the prospect of substantial and continuing rough diamond production in a market, where over the next two decades demand is forecast to outpace supply,” Izhakoff said.

“Bain & Co. has estimated that demand for polished diamonds will expand by 6.4 percent in terms of value annually over the next decade, while rough diamond supply from known sources will only grow at a compound annual rate of 2 percent.  This makes for an irresistible business prospect, which is good news for Zimbabwe.”

He said Zimbabwe’s future as an important producer would be enhanced if it was seen to be an active participant in the campaign to ensure that diamonds are not a source of conflict, but rather a source of growth, development and prosperity.

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