Taming Zimbabwe’s Diamond Production
March 7, 2014
This sale was a trial run, consisting of mostly low-end material, but it represented a major step in efforts to transform what had been a wild card in the world diamond market—in terms of accountability, pricing and supply—into an orderly flow of rough to mainstream diamond manufacturers and dealers. Until this auction, all Marange rough had been sold through Zimbabwe’s capital city of Harare, with little or no vetting of buyers or price transparency. According to Mark Van Bockstael, who chairs the Kimberley Process Working Group of Diamond Experts, the December auction was the first step in a long-term movement to eventually route most or all Marange rough sales through Antwerp. This sale was made possible by the European Union’s Sept. 24 decision to remove all sanctions against diamonds from Zimbabwe.
Van Bockstael, who is also an executive of the AWDC, has spent considerable time on the ground in Zimbabwe. From November 2011 to December 2012, he was one of two official monitors working toward establishing Marange’s compliance with the KP.
Mark Van Bockstael, chairman of the Kimberley Process Working Group of Diamond Experts, spent two years bringing Zimbabwe’s Marange operations into compliance with Kimberley Process standards. Photo by Russell Shor.
The auction drew criticism from many quarters, including activist groups and some members of the diamond industry who claimed the sale aided a repressive regime which routinely violates human rights. Yet Van Bockstael says the days of forced labor and uncontrolled diamond digging are long over. All seven mining concessions are secured and professionally run and mechanized, he explains, stressing that the Kimberley Process Certification Scheme (KPCS) has instituted three major steps to make certain Marange’s mining operations conform to standard.“First, we have ensured that all of the diamond production is accounted for,” he says, pointing to a satellite map of the Marange area mounted on the wall of his Antwerp office. “We can track production via satellite imaging. We know the grade (carats per ton of ore) of each concession, and through satellites we can see how much material is extracted each month. We check this information against company ledgers to verify their reporting.
“Second, all production data is matched against the exports listed on Kimberley Process certificates to ensure it is all sold legitimately.
“Third, we monitor the security of the area. All unlicensed mining is illegal, and we made sure local officials enforce this law,” he notes, adding that incidents of illegal artisanal mining have fallen to near zero in the past two years. All of the mining concessions are enclosed, with double fencing around the actual mining areas and additional security features at the processing plants to minimize unauthorized production.
“An additional fourth step is unrelated to the KPCS, but is a result of moving the rough diamond sales to Antwerp, which puts them under strict European Union guidelines regarding finance and transparency.”
The controversy over Marange erupted in 2007–2008 after thousands of artisanal diggers migrated there to work the newly discovered diamond deposit. Forces controlled by the country’s leader, Robert Mugabe, evicted the miners in a brutal campaign in late 2008 that reportedly left 180 dead and hundreds wounded. Following these forced evictions came allegations that Zimbabwe’s government forces continued to commit human rights abuses, including rape and forced labor, against the remaining miners and their families. As a result, the U.S. and the European Union, which had already imposed sanctions on enterprises controlled by Mugabe and his inner circle, banned diamond companies based on their own soil from dealing in Marange diamonds.
The abuses at Marange created a crisis within the Kimberley Process as well. The KPCS was established in 2003 to prevent rebel or terrorist groups from illegally mining and selling diamonds to finance their activities, requiring certificates for all rough diamonds to guarantee they were exported legally. The fact that the officially recognized Zimbabwean government, rather than a rebel group, was charged with the human rights abuses created sharp divisions within the organization, and brought intense criticism from human rights organizations and some governments. The KPCS was portrayed as toothless—or, worse yet, complicit in the country’s disregard for human rights, particularly after its 2011 decision to conditionally approve Marange diamonds for export.
Van Bockstael has heard all of the criticisms, but stresses that the KPCS has gone far beyond its charter to bring order to Marange’s chaotic diamond production.
“They accuse us of doing nothing, but we worked hard for two years to make certain all of the operations were compliant with KPCS standards,” he says, adding that in his time on the ground he did not witness human rights abuses. He also notes that the seven government-approved concession holders “have done their due diligence in regards to water use, ecological and environmental protection. We have monitored their operations so we know they are fully compliant to KPCS standards.”
Van Bockstael does acknowledge there are complaints from NGOs, especially over artisanal mining. “It’s even illegal for people to dig for diamonds—even in their own villages, in their own backyards. They don’t like that, but allowing such digging makes it impossible to account for the production.”
One of the mining companies working the Marange deposit, the Chinese-Zimbabwean venture Anjin, relocated 417 families from its concession. The workers are now complaining they haven’t received the benefits they were promised, but Van Bockstael says it was considered an exemplary move at the time and a model for future relocations, even by local NGOs.
Critics of the KPCS insist that the repressive Mugabe regime benefits from the diamond funds, siphoning off the proceeds to fund the state’s security forces, which continue to engage in human rights abuses. People living in the diamond-producing areas, they add, do not benefit from diamond production in their midst.
Van Bockstael says some critics believe there can only be “satans or saints in the world.” The reality, he stresses, is somewhere in between: that there are huge quantities of diamonds in Zimbabwe, and they will be mined and sold regardless of the circumstances. In this case, he says, the best that can be done is to harness the flow of diamonds from that country and ensure they enter the trade legitimately. Addressing charges that funds are siphoned off, Van Bockstael maintains that “all of the mining companies must provide detailed, transparent accounts of their sales, including taxes and royalties paid to the government. Under Zimbabwe law, mining companies have to pay 15% royalty on the value of diamonds mined, but the investor-friendly laws allow corporate taxes to be deferred until they recoup their capital investment.”
Marange’s 2014 diamond production is expected to reach nearly 17 million carats, valued at $53.10 per carat, the lowest of any major producer except Australia. (The two other mining operations in Zimbabwe, River Ranch and Rio Tinto’s Murowa, were not affected by KPCS sanctions.) According to KPCS figures, a significant percentage of Marange production consists of larger goods up to five carats, but only 8% of the output is of gem quality. An additional 8% is called near-gem or “lower rejections,” meaning that only a small percentage of each rough stone can be polished into a diamond usable in jewelry. The remaining 84% are rejections and bort, the industrial diamonds used primarily as abrasives.
In addition, Marange’s gem-quality diamonds usually trade at a discount, because they often have a slightly greenish tint, even in higher colors. This tint makes them difficult to match in jewelry when using stones from multiple sources. Dealers compare them to rough diamonds from Australia’s Argyle mine, which have a brownish cast and similarly trade at a discount. Despite this, Van Bockstael believes that $53 per carat average price could be improved substantially by moving the sales to Antwerp’s more transparent environment.
Antwerp’s main diamond trading street, Hoveniersstraat, is the new site for much of the Zimbabwe rough diamond sales. Photo by Russell Shor.
More changes to Marange’s production are anticipated. The deposit is vast, covering more than 400 square miles, but the shallow, easily mined areas are nearly depleted and mining companies will have to dig deeper—much deeper—to extract diamonds. Van Bockstael believes that mining operations will consolidate as production costs rise, particularly because the quality is so low.Marange, he notes, is technically not an alluvial deposit, nor is it a kimberlite pipe. The diamonds originated from an unknown source and were deposited by seawater into a bowl-shaped bed millions of years ago; they now lie under a conglomerate of rock and soil. The Marange diggings are at the northwest rim of this bowl, where the diamonds can be found under a few meters of overburden. The grade of the rim, or reef, is also very high—about two carats per ton. (By contrast, most diamond mines average about one carat per hundred tons.) About 50 miles to the southeast lies the more recently discovered Chimanimani diamond deposit, which geologists have identified as the opposite rim of this bowl. In between, the bowl deepens to some 3,000 feet.
“First, the companies operating the deposit do not have much experience with deep mining,” says Van Bockstael. “Second, it is much, much more expensive.”
During the same week as the first Marange tender, Anjin Investments Ltd. announced it was laying off 25 percent of its 845-strong workforce because of rising costs and stagnating rough diamond prices. The company attributed the rising costs to the transition to underground mining.
Zimbabwe’s ruler, Robert Mugabe, who will turn 90 this year, was re-elected in July 2013 amid charges of election fraud. Still, Van Bockstael believes Zimbabwe has the means to achieve stability and growth in the future, because there is a well-developed professional class managing a number of enterprises (including the mining sector) and an encouragingly independent judiciary and police force. He warns, however, that old vested interests could still work against making Marange more transparent.
“The sales in Antwerp are encouraging, but they are not a done deal,” he says.
The government claimed the December tender of Marange rough a success. The permanent secretary of mines and mining development, Francis Gudyanga, said the trial tender, attended by 115 buyers, “will allow the government of Zimbabwe to fully optimize a second, larger tender of Marange goods in the future.”
The average price of $38.25 per carat for the low-end parcels was well below the run-of-mine average, but Van Bockstael hopes this figure will increase substantially as goods more representative of the production are offered for sale in the future.
The second Antwerp tender, held Feb. 12–19, consisted of 960,000 run-of-mine from six companies mining the Marange area and realized $70 million, or about $72.90 per carat, substantially above the average price of goods coming from that area. Some 167 companies participated, according to Zimbabwe’s news media. Nevertheless, Secretary Gudyanga stressed that some goods would continue to be tendered in Zimbabwe.
ABOUT THE AUTHOR
Russell Shor is senior industry analyst at GIA in Carlsbad, California.
