Presentation to parliament on state of diamond mining

Presentation to Parliament on the state of the diamond extractions at Marange and in support of a motion on the subject submitted for debate to the Zimbabwe House of Assembly.

Honourable E G Cross, Member for Bulawayo South Constituency for MDC (T)

Mr. Speaker, Sir, I rise to submit a motion on the state of the diamond mining operations underway at Marange in the Manicaland Province of Zimbabwe.

Mr. Speaker, Sir, on the 27th of July I asked the Minister of Mines to make a statement to this House 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 past 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 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 clearly suggests that the figures bore little or no relationship to reality, I decided to investigate the diamond mining activity at Marange and now wish to report my findings to the House.

Mr. Speaker, Sir, 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.

Following this, 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.

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, 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 the 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 a huge 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.

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

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 vary a great deal from place to place. Marange Resources and Mbada Diamond occupy the original claims registered by ACR in 2006.

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 are averaging approximately 20 carats per tonne of ore processed.

It is estimated by seasoned observers that a million tonnes of ore had been processed by the miners in the period up to the end of 2009 and if the figure of 20 carats per tonne are extrapolated across the field, then 20 million carats have been extracted since the discovery in 2006. This is double the figure given to this House by the Minister.

Data actually available 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 over 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 of the other 5 claims and the hundreds of informal sector miners that are still operating in the area.

Published sales figures for other diamond mining activities in the region suggest that the average value of raw diamonds extracted from Marange should be about $67 per carat, based on the actual ratio of industrial gems to gem quality stones being extracted from the claims.

From the data that I have in hand, the Mbada claims are running at 15 per cent good quality gem stones, 85 per cent industrial diamonds. The average price achieved on gem stones was $350 in 2010 while industrial diamonds realised between $31 and $3 a 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 this House, 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.

Mr. Speaker, Sir, if we apply these average prices to the unofficial estimates that I have obtained for the Mbada claims only, then we come up with the astonishing figure of $1,4 billion for actual raw diamond sales in 2010 for Mbada. It is likely that this level of output is being maintained in 2011 and industry sources confirm this, in fact since 2010 raw diamond prices have risen 20 per cent and therefore output in the current year from the Mbada operations should be $1,7 billion dollars.

Although no accurate information is available from the other operators, it is clear that the Anjin operations are either equal to or even greater than the Mbada operations. In particular the Anjin mining activities are expanding rapidly and they have commenced hard rock mining on their claims. Up to date output figures for Marange Resources are not available but are thought to be significant and to have increased since 2009.

If this is true then we could be looking at annual sales from these three operators of over $4 billion dollars a year at present. Under the ACR proposals made to the Minister of Mines in 2006, 70 per cent of this revenue stream would be accruing to the Government of Zimbabwe. This is $2,8 billion dollars – equal to the current revenue of the State from all other taxes.

Mr. Speaker, Sir, it is clear from these figures that the Minister of Mines has misled this House on the issue of the magnitude and value of diamond sales from the Marange fields.

If it is understood that these estimates represent only the formal mining activity on site, then if we were to add to this the estimates of informal sector activity before the March 2008 military operation and afterwards, we are looking at a source of funds in Zimbabwe, under Zimbabwean control and management, that is sufficient to transform our State coffers and pay Civil Servants the kind of salaries they have been demanding.

Instead of which, we have a host of illegal miners and traders operating here in Mozambique and in South Africa, extracting and trading our diamonds to their own benefit and to the benefit of unknown political and military figures in Zimbabwe. This is more than enough money to finance the “Parallel Government” that has been talked about in recent months.

Then there are the astonishing revelations exposed by the BBC Panorama Programme of the human rights abuses taking place at Marange. In a detailed and well researched programme they expose killings, rape and torture over the past 4 years. There can be little doubt that this has blown our admission to the Kimberly Process right out of the water, and we deserve to be excluded so long as we do not get our house in order.

The solution to all of this is a proposal made to Cabinet last year that the whole of the Marange deposits should be nationalised formally and brought under Government control. Everyone who is currently on site extracting diamonds formally and informally must be removed, the area fenced and guarded by the armed forces.

Mr. Speaker, Sir, once this is achieved then we should go out to international tender for an operator. Such a tender would state the condition of the resource, the type of geological formations that are found on site and other particulars. It should ask for offers to take over the whole operation in partnership with the Government of Zimbabwe and the Marange community and put forward their proposals for operating and financial conditions.

The successful company should then be allowed on site, take over all operations and begin to extract diamonds in a transparent and properly controlled way. Such raw diamonds would be sold at public auctions and the proceeds dealt with in terms of the contracts.

It should be noted by this House that in Botswana, where similar conditions prevail in the diamond industry over two thirds of all revenue from the sale of raw diamonds accrues to the State. In Zimbabwe, such an arrangement would enable us to collect very substantial resources each year from the Marange field and this would transform our national fiscal situation.

This would be the case even if we deliberately and in consultation with other diamond producing countries, limited production to ensure that we do not undermine global markets and maintain a sustainable flow of revenues from the field for at least the next 30 years.

This motion offers the House an opportunity to intervene in this situation to the benefit of all Zimbabweans and in pursuit of our national goal of economic recovery and development.

It would be criminal of those of us who sit in this House to allow the present situation to prevail for another day longer than it has to. I urge all Members to support this motion and then to ensure that the Executive carries out our wishes.

Presentation by Eddie Cross, MDC-T MP for Bulawayo South