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Legitimizing Marange

Editorial

Dec 20, 2013 3:18 AM   By Avi Krawitz
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RAPAPORT... Zimbabwe’s diamond industry has come a long way in its quest for legitimacy. And it still has a long way to go to gain the full support of the global industry. Significantly, diamonds from the country’s Marange fields remain banned in the U.S. – potentially its largest market – while they are now legal in most other places.

Perhaps its biggest diamond coup culminated in the first European tender of Marange goods held in Antwerp last week. Only a few months ago, the European Union (EU) decided to lift its sanctions on the Zimbabwe Mining Development Corporation (ZMDC), which has joint ventures with the companies operating mines in Marange. Clearing the sanctions has enabled such sales.

The EU decision was not met without criticism, including by the Rapaport Group and human rights campaigners, which continue to question whether diamonds from Marange are used to fund human rights violations, violence and political gains. Rapaport’s position, outlined in a special report published in January 2013, titled “Moral Clarity and the Diamond Industry,” maintains that the diamond trade must insist on the separation of good diamonds from bad and the exclusion of such “dirty diamonds” from the legitimate distribution system.

Global Witness stressed that the ruling Zimbabwe African National Union – Patriotic Front (ZANU-PF) party, and the military, have tapped into revenue from the ZMDC’s diamond ventures, and may have helped to finance the alleged rigging of the July 2013 elections that kept ZANU-PF in power.

“The EU should have given more time to investigating these claims before lifting sanctions,” Emily Armistead, a senior campaigner for Global Witness, said at the time. “Now it will be left to European consumers and jewelry companies to ensure that Zimbabwe’s tainted diamonds are not sold in our shops.”

That Antwerp’s diamond leadership has lobbied to legitimize the ZMDC amid these allegations is a blemish on its own record. As a result of their efforts, approximately 300,000 carats of rough recovered across five of the operating mines in Marange were up for sale at the Antwerp World Diamond Council (AWDC) tender facility.

In the midst of the Antwerp tender, the recently appointed mines minister, Walter Chidhakwa, dissolved the boards of the ZMDC and the Minerals Marketing Corporation of Zimbabwe (MMCZ). NewsDay, an independent Zimbabwe publication, suggested that the move was linked to the 2010 alleged disappearance of 1.3 million carats of diamonds.

While Chidhakwa so far appears more rational than his predecessor, Obert Mpofu, campaigners remain skeptic. “It seems like window dressing, because this [tender] has put the Zimbabwe government in the spotlight. So they want to appear as if they are doing something to improve accountability,” Alouis Munyaradzi Chaumba, from the Anti-Corruption Trust of Southern Africa, told SW Radio Africa. “At the end of the day though, without the participation of civil society monitors, accountability in the mining sector will remain a challenge.”

The burden of ensuring such accountability should be shared by the trading centers that are drawing the Marange goods in – particularly Mumbai and Dubai, and now Antwerp, amid its efforts to maintain a leading position in the rough market (see Editorial, “Trading In Antwerp,” published on December 12, 2013).

Meanwhile, the mining companies operating at Marange appear to be facing other challenges, as mining costs are projected to rise and production is expected to lag in the coming years. Tendai Biti, finance minister at the time, said in the treasury’s mid-year fiscal review, that the country’s diamond production will fall below initial expectations in 2013 as diamond mining shifts from alluvial to more costly hard-rock mining of the so-called conglomerates.

A geologist familiar with the Marange operations explained to Rapaport News that mining has so far been focused on the relatively easy-to-mine surface deposits. While surface mining of the current concessions is being depleted, the hard rock underground conglomerates remain untapped.

In a recent visit to Marange, minister Chidhakwa criticized the mining companies for failing to invest in preparations for potential underground mining while they were enjoying the high profit margins of the surface deposits. Mining the hard rock conglomerates will be far more expensive and it remains unclear whether underground mining is economically viable. “We know where the hard rock is located but we don’t know the yield of diamonds it will produce,” the source said. It appears that the mining companies are not obliged to mine the conglomerates, begging further questions about whether Zimbabwe’s diamond sector will be sustained in the long run.

Already, Anjin Investments, a Sino-Zimbabwe joint venture company operating one of the larger Marange concessions, has halved its workforce, according to The Herald. The newspaper cited an Anjin director saying these were cost-cutting measures as the depletion of alluvial mining is forcing the company to dig deeper for conglomerates that are not commercially viable using current technology.

For now, there remains a fair bit of surface mining available. While the current concessions that are being mined are expected to be depleted in about two years, they only cover about 20 percent of the potential area of surface deposits that are available in Marange. Chidhakwa will likely hinge the granting of future concessions upon prospective plans to subsequently develop underground conglomerate mining.

In doing so, future mining will be more controlled, if more costly. The government has accordingly revised its 2013 projections down from initial estimates of 16.5 million carats to 12.5 million carats – slightly above 2012 levels.

With lower production, one can only assume that Zimbabwe is hoping that the EU stamp of approval will help raise the value of its diamonds. Meanwhile, Antwerp is back on a level-playing field with other trading centers that have been dealing with Marange diamonds for some time, while also trying to position itself as the primary location for future Marange rough supply.

But while the Antwerp tender may be a key step toward that goal, it still does not provide the full credibility that Zimbabwe craves. The fact is that the U.S., due to its embargo, is the only remaining diamond center that can answer to socially conscious consumers. Ultimately, it is left to the U.S. diamond industry to defend the integrity of the trade. As the largest consumer market for diamonds, the U.S. is able to prevent Zimbabwe from attaining its goal of complete legitimacy.

The writer can be contacted at avi@diamonds.net.

Follow Avi on Twitter: @AviKrawitz

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.diamonds.net/weeklyreport/ or contact your local Rapaport office.


Copyright © 2013 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.

Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
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Tags: Antwerp, Avi Krawitz, diamonds, Marange, Rapaport, Zimbabwe
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