Peper to Diamond Conference

Attached is a Paper I will present to a Diamond Conference this morning at the Holiday Inn in Harare. This is embargoed until 10.00 hrs. The paper contains little new information but for the first time estimates the total volume and possible value of diamond production and sales from the discovery of diamonds at Marange in Eastern Zimbabwe in 2006.

It estimates production in 2012 at 37 million carats worth about $95 a carat or nearly $4 billion dollars. These estimates are supported by information gathered on site and the current installed capacity at the five active mining operations on site. The diamond fields at Marange cover an area of approximately 80 000 hectares and are estimated by geologists to contain 2 to 7 billion carats of raw diamonds. On this basis it is one of the largest discoveries of its kind in the world. It has many other unusual characteristics – the diamonds, although of generally poor quality, contain many very large stones and these have a distinct colour and character. We know of one piece sold for $10,6 million in Veitnam, thought to have emanated from Marange.

Eddie Cross
Harare, 23rd November 2012

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Diamond Workshop at Holiday Inn.doc
Diamond Production and Sales from the Marange Fields in Eastern Zimbabwe Paper presented by E G Cross, Member of Parliament for Bulawayo South, to a conference at the Holiday Inn, Harare on 23nd November 2012

On the 27th of July 2011, I asked the Minister of Mines to make a statement to Parliament on the production of diamonds at Marange for the past five years and the value of that production in 2009. In his reply he stated that a total of just over 11 million carats of raw diamonds had been extracted from the Marange fields in the previous five years. He further, declared that total sales had been just $18 dollars per carat in 2009 and this suggested that implied total value of raw diamond sales in five years of just over $200 million dollars.

He further stated that total payments to the Exchequer had been just over $174 million in the same period. In fact this statement imputed that the miners had paid out most of the money earned from the sale of diamonds. As this is patently untrue, I decided to investigate the diamond find independently.

The Marange alluvial diamond deposits were discovered in 2000 by a geologist working for De Beers Limited in South Africa. The company duly registered an Exclusive Prospecting Order over the area (an EPO) with the Ministry of Mines. After extensive exploration work the company abandoned its find and allowed their EPO to lapse at the end of a six year period. The Minister of Mines has consistently accused De Beers of extracting diamonds from Marange for 6 years and at the recent conference at the Falls he further stated that they had taken 100 000 tonnes from the field and by implication he thought that 2 million carats had been exported without the knowledge of the State. The reality is that the De Beers geologist on the site sent back to Johannesburg samples that consistently showed the presence of low quality, industrial diamonds that were of little interest to De Beers.

Following the withdrawal of De Beers in March 2006, a small group of Zimbabweans living in the Diaspora and operating through a company that they had formed in London called “African Consolidated Resources” or ACR took the required steps to register a number of claims over a selected portion of the diamond fields and this process was duly completed in June 2006. ACR geologists had quickly determined that De Beers had missed the main deposits and as part of the registration process, ACR was obliged to declare their findings in accordance with the rules of the London Stock Exchange as a public company and in addition, because the find included gem quality diamonds, they notified the Ministry of Mines.

In September 2006 just three months after registering their claims and commencing preparations to commence mining and understanding the significance of the discovery, ACR proposed a similar arrangement to the Ministry of Mines for the exploitation of the fields as that used in Botswana through a Joint Venture between the State and De Beers mining company. In their proposal ACR suggested that a new company be formed with the equity held by both the Government of Zimbabwe and ACR in the ratio of 50/50 – with ACR being responsible for management and all mining activities. Such an arrangement would have meant that over 70 per cent of the revenues from the diamond fields would have accrued to Government.

For unknown reasons, this proposal was rejected by the Ministry of Mines and ACR was forcibly removed from the claims which were then taken over by the Zimbabwe Mining Development Corporation, even though they had no expertise or the required capital to exploit the discovery. The Ministry immediately opened up the area to small scale miners without restriction.

The people of the Marange District and many others took up this opportunity, discovered that alluvial diamonds had real value and rapid expansion of informal diamond mining activity began. At one stage it was estimated that many thousands of illegal miners were operating in the Marange fields. A very substantial industry sprang up in nearby Mozambique to manage the sale and distribution of the growing supply of raw diamonds from Marange.

In late 2008, a military operation was mounted during which several hundred people were killed and thousands of local diamond miners driven off the claims. This exercise was carefully and ruthlessly carried out and was designed to restore State control over the fields. In my view the primary reason for this was the understanding within the ruling Party at the time, that they were in unsettled water and needed alternative sources of funding.

The legal rights of ACR were brushed aside and in the ensuing period, six groups were permitted by the authorities to start formal mining and extraction activities on the deposits. The six groups permitted on site were the following:

Mbada Diamonds
Anjin/Zimbabwe National Army
Marange Resources (ZMDC and formally Canadile)
The Zimbabwe Republic Police
The Central Intelligence Organisation
The National Prison Service

Since then of this list only Canadile has had its rights revoked for reasons that are still unclear. Their claims are being mined by the ZMDC under the auspices of the company Marange Resources. All the other listed organisations are active on the diamond fields although the relative richness of the individual field allocations varies a great deal from place to place. Marange Resources and Mbada Diamonds occupy the original claims registered by ACR in 2006. Since 2009 another company has been allowed on site, with principals from the Middle East, little is known about this operation.

The activities of these groups on site remain clouded in secrecy and it is clear that no accurate consolidated figures of production exist for the area. However, the statement by the Minister that output in 2010 rose to 8, 5 million carats gives some idea of the magnitude of this operation. That is equal to 23 000 carats a day and this confirms the view that Marange is now one of the largest finds in the global diamond industry for the past century.

My own investigations, using published and unpublished data suggests that diamond extraction from the alluvial deposits at Marange within the area of the ACR claims were averaging approximately 20 carats per tonne of ore processed in the early days. I must explain how this figure was arrived at. As part of my investigations in 2011 I was handed 7 sheets of paper on which are recorded the actual daily production figures for Marange Resources (Pvt.) limited. These showed that in 2009, the company processed 25000 tonnes of ore/sand and produced an average of 19.86 carats per tonne. The production sheets were signed by 4 military officers who signed as “Completed by”, “Checked”, “verified” and “Confirmed”. Each man gave his rank.

Data actually available for 2010 from Mbada Diamonds suggests that output from the Mbada claims has been running at 150 tonnes of ore per hour since new equipment was installed in 2009. This amounts to nearly 1 million tonnes of ore per annum. At 20 carats per tonne this is equal to 20 million carats – two and half times the volume declared by the Minister for 2010 and this estimate ignores the production from the other 5 claims and the hundreds of informal sector miners that are still operating in the area. In my own estimates in the table below I have used a figure of 10 carats per tonne, declining to 5 carats per tonne as the character of the deposits being mined have been changing.

From the data that I have in hand for actual diamond production by quality and size, the Mbada claims in 2010 were running at 15 per cent good quality gem stones, 21.67 per cent quality industrials, and 62.5 per cent low quality industrial diamonds and 0.68 per cent rubbish. The average price achieved on gem stones was $350 in 2010 while industrial diamonds realised between $31 and $3 a carat. The overall average price achieved in 2010 by Mbada, was $67 per carat, this compares to the Ministers claim that they were getting only $18 per carat.

If we value the Ministers figures for diamonds mined in 2010 at Marange at the average price of $67 per carat rather than the figures he gave to Parliament, then the actual value of sales of raw diamonds from Marange in 2010 were $563 million dollars and not the stated $200 million for the past five years. Payments to the fiscus therefore represented only 30 per cent of the diamonds officially produced and sold in 2010.

Although no accurate information is available from the other operators, it is clear that the Angin operations were either equal to or even greater than the Mbada operations. In particular the Angin mining activities expanded rapidly after 2010 and they have commenced hard rock mining on their claims. Recent data based on installed capacity at Angin suggests that this company is now producing up to 7 times the total production of Mbada. Up to date output figures for Marange Resources are not available but are thought to be significant and to have increased since 2009.

The table below sets out estimated production and sales of diamonds from the Marange fields. These estimates are conservative in that they recognise that we simply have no idea of how much was extracted from the fields by informal miners 2006 to 2008. Thereafter I have assumed that yields are declining as the alluvial deposits are exhausted and mines are forced to start mining the aggregate in which the bulk of the diamonds are located. Volumes of ore are based on the installed capacity on each mine. These figures suggest total ore processed since mining began of 15 million tonnes, half of this in 2012. Diamond production at 100 million carats; the values are based on known prices and the quality spread established from data from the Mbada claims.

Production and Sale of Diamonds from the Marange Fields, Zimbabwe:-
Year
Ore 000 tons
Carats/ton
Prod 000 C
Value per Ca
Sales million $
2006
25
10
.250
50
12.5
2007
50
10
.500
50
25
2008
100
10
1
50
50
2009
145
20
2.9
70
203
2010
1785
10
17.85
70
1249
2011
5710
7
39.97
85
3397
2012
7510
5
37.55
95
3587
Totals
15325
7
100
85
8504


Had these deposits (thought to contain between 2 and 7 billion carats of diamonds worth $200 billion to $700 billion dollars – source ACR Geologists) been exploited along the lines proposed by ACR in 2006 when the discovery was made, then the revenues to the State from Marange could have reached perhaps $5,5 billion in the past 4 years. In 2012, the Minister of Mines promised to pay to the Treasury some $600 million or less than 17 per cent of the gross revenues estimated above. His failure to do so plunged the Ministry of Finance into a crisis which meant that many items in the national budget could not be funded. No explanation has been given for this failure.

In Botswana where a joint venture along these same lines has functioned for many years, the State receives two thirds of gross sales. Education is free and the people do not pay personal taxes. Botswana has an income per capita today of nearly $9 000 and is rated a middle income country. Zimbabwe has an income per capita of just $390 in 2012 and is rated one of the poorest countries in the world.

Evidence of the reality of these figures for production and sales from Marange, if people need them, can be seen in the following:

- A deficit on imports of nearly 50 per cent or in excess of $4 billion this year;
- Imports of $1,4 billion in motor vehicles in 2012;
- The construction of large, luxury homes in many parts of the country;
- Visible evidence of a high standard of living for a significant number of people whose positions do not justify such life styles;
- Significant expenditure by individuals and firms linked to Marange including luxury apartments and houses, even high rise buildings in South Africa;
- Substantial investments by certain individuals connected to the Marange operations in many areas of Zimbabwe, including the purchase of buildings and companies;
- The expenditure of perhaps $300 million via the Presidents Fund on free crop inputs, scholarships and bursaries;
- The purchase of two new long range Airbus Aircraft;
- Expenditures on military equipment and facilities that are not provided for in the State budget; and
- Massive support for political parties in anticipation of a snap election

The Kimberly Process does not take into account human and legal rights abuse in the exploitation of diamonds, it only adopts a stance if it can be demonstrated that diamond production is being used to promote and fund armed attacks on civilians. It does not take into account the use of such funds to destabilise countries or political systems. It therefore cannot be taken as a suitable measure to define what has and is happening in Zimbabwe.

In 2011, the Parliament of Zimbabwe adopted a motion without dissent, that the Marange diamond fields be nationalised. It is pleasing to see that the Minister of Finance has announced that that is exactly what is intended under the new Diamond Act and that we can expect action shortly. This does not remedy the harm done already, but at least it secures the future for the benefit of all Zimbabweans.

While welcoming this measure, we should not lose sight of the compensation that is surely due to the shareholders of ACR, the families of those killed or disposed at Marange itself and the loss of revenue to the State over the past 5 years. My own view is that those who have benefitted so visibly from the illicit sales of Marange diamonds over the past 5 years should be required to pay such compensation to the affected company and communities.

In the meantime it will be enough to turn the Marange discovery from being a curse to a blessing which will benefit every one of us.