By Eddie Cross
I am not sure of the details but around the year 2000, a geological exploration team found alluvial diamonds at Marange in Zimbabwe.
They cut trenches and did further exploration for a number of years, until in 2006, they decided to abandon the claims and moved off site. They left behind the shell of a land rover with a computer disc in the cubby hole containing much of the geological information they had uncovered.
A small public company in Britain formed by Zimbabweans, watched these events closely and when it became apparent that the claims were open, they flew out to Zimbabwe and took over the claims.
They found the computer disc and very quickly discovered gem quality diamonds. Because of the potential impact on their share price they published a small notice in a British newspaper and the notice came to the attention of the then Minister of Mines in Zimbabwe.
What followed was one of the greatest heists in world history. The Ministry took over the claims and in 2008 they established 6 companies with the right to mine diamonds on the site.
In the next 8 years an estimated US$24 billion in rough diamonds was extracted from an area of 60 000 hectares of alluvial sand and soil in the Marange area. After costs of about US$7 billion, nearly US$17 billion in raw diamond revenues vanished. Even the President said at one stage that US$15 billion was ‘missing’. It makes the UK ‘Great Train Robbery’ look like pocket change.
The lesson from this episode for all developing countries is that when something like this is discovered, you have to take steps to protect the national interest.
In Botswana, when they discovered diamonds, the deposits had a different character – they had the resources locked down in geological diamond pipes deep in the earth. Not easy mining and the Government of the day recognised they needed a mining company who could exploit the resources effectively and in the national interest.
They entered into a partnership with the largest diamond mining company in the world while retaining a majority stake but leaving the mining to the company. Since then Botswana has maintained a 35 per cent share of global markets for diamonds, earned a reputation for integrity and quality and the revenues that have flowed from the mines have established Botswana as a middle income country where education and health services are largely free.
In Zimbabwe this opportunity was squandered and continues to be mismanaged and subject to corruption on a large scale.
When the settlers came to Zimbabwe in 1890, it was in pursuit of gold and they thought that this country could be another South Africa. Rhodes had almost lost the opportunity to mine gold in South Africa, believing the real wealth was in diamonds and only after the opportunity was exposed for all to see did he get into the game, but at great cost. He was determined not to make the same mistake in Zimbabwe.
However, very quickly it became apparent that the gold resources here were spread over a large area and were generally low grade and dispersed. Attention moved to other things despite the discovery of pockets of gold resources of amazing yield – the Globe and Phoenix was the richest gold mine in the world in its day.
So it was that this country became a significant, but small gold producer with several hundred mines across the country – some quite large but mostly small. Then after the year 2000, when the country slid into a deep crisis with a collapsed economy, millions of our people discovered the so called Artisanal Gold industry and began mining gold on a small scale as individuals. With an ounce of gold worth US$1 500 or more at times, excavating a tonne of ore a day with a yield of 2 to 8 grams became an attractive proposition.
Hundreds of thousands participated in what was in American terms, a ‘Gold Rush’. Because they were too small to own and operate their own gold processing plant, they turned to people who established stamp mills at key points with water and road access and these gold millers soon became established as the local centres producing raw gold for sale.
Often these millers established capacity to process the crushed ore after it had run over a table or through a simple machine to extract the raw ‘free gold’ from the crushed ore and were able to extract gold on their own account in significant quantities.
At the time we were busy destroying our commercial agriculture for political reasons and the mining industry was drawn into the crisis. Small Chrome miners and the hundreds of thousands of artisanal gold miners began to compete for access to resources.
Pitched battles ensued and were encouraged and even financed by buyers who wanted raw chrome and gold for export. The buyers paid very little for both and fortunes were made – one such buyer has just imported a Bugatti which has a gold flecked paint job – US$3,5 million it cost him.
In the mayhem, formal mining operations were invaded and their owners denied access to their own mines. In open pit operations sometimes hundreds of small miners fought each other to maintain their hold on small areas of land.
And so we gradually became one of the larger gold producing countries with the potential, so I am told, to take our place in the front ranks of global gold producers. But once again it is on the basis of a chaotic and increasingly criminal industry that is impoverishing its primary participants. We are close to being classified as producers of ‘blood gold’ with all that that implies.
On a smaller scale we are repeating the mistakes of our diamond industry and in the process failing to gain the advantages of our amazing natural resources and human capital. So what do we do?
The first order of business is to give all our primary producers security of tenure. This means having a mining claim regime that is legal, transparent, enforceable and secure in every way. We had a world class system and do not need to invent anything – just administer the system properly. Then we need to extend those rights to all artisanal miners. In this day and age, we can do so cheaply and quickly using modern technology.
If we did so it would stop the violence in its tracks as claim owners would defend their rights and have the support of the Judicial system and the law enforcement agencies. It would also give the artisanal miners property rights over their claims and when a larger miner or company wanted to take over the resources to establish a larger operation, they would be able to negotiate and sell their claims.
It would also make it possible to set up service centres throughout the country in gold areas to which the small scalers could go for explosives, equipment and advice. If these incorporated milling and extraction equipment to take the gold out of the ore efficiently, it would also help with environmental concerns and give miners a higher return for the same effort.
On the marketing of the gold, I would go back to the old system we used – pay for gold in the field after assaying at the full market price, but in local currency. One of the reasons for the criminal activity is the need to pay for gold in hard currency and the ability to smuggle the gold out of the country.
Because of this feature we are the destination of choice for smugglers from the Congo and Central Africa. Give the Reserve Bank a monopoly and control over gold buying and exports. Do those few things and our industry would expand rapidly and everyone would benefit.
Eddie Cross is a former opposition MDC MP for Bulawayo South and a respected economist. You can follow his blog African Herd