State must promote diamond driven empowerment
By: Garikai Chengu
Posted: Thursday, November 18, 2010 11:35 am
AS Zimbabwe prepares to be the largest diamond producer in the world, the State must play an active role in ensuring that the majority of indigenous Zimbabweans are empowered by diamond production.
The State must protect the interests of the average Zimbabwean against entrenched foreign capital interests and corporate greed and corruption. The State can provide such protection in four ways:
Firstly, the State must draft legislation aimed at using indigenous diamond beneficiation as a means of empowering the average Zimbabwean, with particular focus on women, youths, war veterans and the disabled.
Secondly, for beneficiation to work the State must form a State Diamond Trading Company (SDTC). The SDTC's primary objective should be to buy rough diamonds from miners, to sell to local cutters and polishers, in order to boost the downstream sector. Thereby, creating jobs, adding value to diamonds and boosting revenues for government coffers when they are exported at higher prices.
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Thirdly, prior to the State having a hand in empowering the majority through trading and beneficiation, the State must have a hand in helping indigenous small scale miners operate in Chiadzwa through access to claims, equipment, finance and technical expertise.
Finally, for Zimbabweans to fully benefit from the mining, beneficiation and trading of their gems they must know the value, extent and location of their stones. This can be ensured by the formation of the recently proposed State Diamond Exploration Company.
The global value chain of the diamond industry includes exploration, mining, sorting, polishing, dealing, jewellery manufacturing, and ultimately retail. Zimbabwe is able to conduct the first three stages but must focus on mastering the other four. In a nutshell this mastery is beneficiation.
This mastery is crucial because the mark-up value of diamonds increases exponentially as they pass through the links of the global value chain. In fact, cutting and polishing adds around 50 percent to the value of rough stones as well as much needed employment creation.
The world market for rough diamonds is currently valued at $19 billion annually, while the retail diamond jewellery industry is estimated to be $90 billion.
Zimbabwe is set to become the largest producer of diamonds in the world by 2013. The nation is expected to produce 40 million carats per year and earn annual revenues of approximately US$ 2 billion. The importance of focusing on beneficiation lies in the fact that were Zimbabwe to cut, polish and retail the gems internally this figure would quadruple.
As it stands, the government is struggling to deliver services and pay civil servants wages commensurate to their contribution, on a meagre budget of US$100 million per month. Set alongside this, revenues from Chiadzwa have the potential to transform the nation’s fortunes.
Crucial to the rapid growth and success of a beneficiation industry is the formation of a State Diamond Trading Company.
The State Diamond Trader’s mandate should be to purchase a percentage of all rough diamonds mined in the country and resell them to local cutters and polishers. The SDTC is to operate on a cost-recovery basis, passing profit margins on to its clients.
Local firms and craftspeople are then to purchase, cut and polish the rough stones, and then sell them on at market prices. The SDTC must also provide funding to assist with start-up capital for these indigenous small-scale beneficiators.
In fact, according to the Zuma Administration, in the two years that the South African State Diamond Trader has been in operation it has been a boon for the local downstream diamond sector. It has reportedly created thousands of jobs, added millions of dollars to the value of diamonds and thereby boosted government revenues.
Admittedly, there is not as yet a sufficiently large number of people with the requisite skills in Zimbabwe to realise such beneficiation plans.
Therefore, the SDTC should provide for an Indigenous Diamond Beneficiation Fund designed to provide young Zimbabweans with access to intensive training in diamond polishing and cutting abroad. Given the current lack of local cutting schools and traditions, this initiative will bring service and design knowledge back to Zimbabwe, so that the quality of cut diamonds, is up to the industry standards.
Locally, however, for beneficiation to truly empower the majority, thousands of skilled Zimbabweans will be needed to process the gems. Therefore, government must make a firm commitment to creating local schools and institutions to provide the workforce with the necessary skills.
Ideally the vast majority of diamonds bought, cut and sold by indigenous beneficiators will have indeed been mined, sorted and sold by indigenous miners. There is no group more likely to be indigenous, and therefore likely to retain the revenues within the country, than small-scale miners.
However, thus far, only a poultry 5000 hectares of the approximately 66,000 hectares that are potentially diamond rich have been allocated, all to large corporations, most of which are foreign owned and whose primary aim is to satisfy shareholders not the local community.
It is imperative that Government accelerates the provision of diamond claims to small-scale miners as well as provide them with equipment, finance and technical expertise. Preference should be given towards women, youths, war veterans, aids orphans and disabled groups.
This will not only empower the local population, but also provide a broad based catalyst for economic growth. Also, the ratio of societal value in large-scale mining is much lower than in small-scale mining. Small-scale mines employ more people rather than being mechanised, and the ability of small-scale mines to generate employment, income, and entrepreneurial skills in the rural areas can also act as restraint on urban migration.
For Zimbabweans to fully benefit from the mining, trading and beneficiation of their gems they must know the value, nature, extent and location of diamonds across the country. Accordingly, the recently mulled Zimbabwe Exploration Corporation Bill must be enacted.
The Zimbabwe Exploration Corporation's mandate will be to undertake exploration work on all mineral deposits. The company is expected to provide detailed reports on the types of mineral and quantum of each mineral found in Zimbabwe.
Encouragingly, Government intends to achieve 40 percent exploration of Zimbabwe’s minerals next year in order to establish the location and size of deposits by the end of 2011.
Such extensive mineral exploration would provide the State with sound information to attract and incentivise, both local and foreign investors. Primarily because the State would have details on the mineral type, geological nature, quantum and life span of discovered mineral ore bodies.
This comprehensive information is of the utmost importance because, as Mines Permanent Secretary Mr Thankful Musukutwa said, Zimbabwe could use its resources to secure offshore credit lines or sell outright to investors.
By playing an active role in the exploration, mining, trading and beneficiation of diamonds, the State can ensure that the country's most important natural resource empowers its human resources.
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By Garikai Chengu, a researcher at Harvard University's Faculty of Arts and Sciences. He can be contacted at chengu@fas.harvard.edu. The views expressed herein are solely those of Garikai Chengu.
Labels: DIAMONDS, THANKFUL MUSUKUTWA
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Govt to undertake aeromagnetic diamond survey
By: TH.
Posted: Monday, October 25, 2010 12:31 am
GOVERNEMNT will undertake an aeromagnetic survey of the Eastern Highlands to determine the extent of diamond reserves in Manicaland province.
Mines and Mining Development permanent secretary Mr Thankful Musukutwa said this while addressing an Indian delegation that visited Zimbabwe last week to explore trade opportunities in the diamond sector.
Mr Musukutwa said there was need for a scientific study to determine the exact quantity and extent of diamond reserves in the eastern parts of the country.
An aeromagnetic survey is a common type of geophysical survey carried out using a magnetometer aboard or towed behind an aircraft.
While the Government estimates an area of 77 000 hectares of land around Marange is pregnant with diamonds, the exact size of deposits remains unknown.
It is also believed that Zimbabwe has diamond reserves across the country, but these remain largely unknown due to the high cost of exploration.
Mr Musukutwa said the size of diamond reserves in Manicaland was not known with current estimates on the extent of diamond deposits in Marange based on discoveries by small to medium enterprises operating in the area.
"Very soon the Government will undertake an aeromagnetic survey in the Eastern Highlands. The estimates we have came from SMEs, but we need something scientific so we will do an aeromagnetic survey," said Mr Musukutwa.
He said the country remained largely unexplored, but it is believed Zimbabwe could be sitting on vast deposits of unknown diamonds and these could account for 25 percent of diamonds from Africa. The African continent accounts for 60 percent of global diamond output.
Labels: DIAMONDS, THANKFUL MUSUKUTWA
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State exploration key to owning resources
By Tichaona Zindoga
THE "discovery" in 2006 of alluvial diamonds in Marange, eastern Zimbabwe, was considered something of a miracle — the proportion of the biblical manna from heaven — coming as it did at a time when the economy was being razed by hyperinflation.
People from all walks of life, from far and wide, descended on this area giving the once little known place not only the acumen to mould instant riches but also a significant salvation to people who were suffering from the effects of an unprecedented economic meltdown.
Marange diamonds also drew in their wake the notoriety that always stalks the precious gems the world over.
But three years before this "discovery", in 2003, someone had been "lucky" to find the deposits and laid claim on the area making the invasion by fortune-seekers that followed in 2006 literally a criminal infringement on private property.
The name of the person in question is Andrew Cranswick, the CEO of African Consolidated Resources, the company which claimed legal title to mine the Chiadzwa diamond claim.
In an interview with a radio station in April this year, Cranswick said the Chiadzwa find "was a lucky one".
He said: "It was found partially on good science, partially on prior information and at first we didn’t understand it because it’s a very unique geological deposit and when we did discover the actual existence of gem diamonds in that particular area — we had many, many hectares all around Zimbabwe exploring for many minerals — we immediately declared it as required by law through the Stock Exchange and we declared it to the Zimbabwean Government, a public declaration . . ."
He explained that he and his "bunch" of investors raised funding in London and listed on the London Stock Exchange.
They also acquired a diamond exploration company that had been closed down by Delta Gold in the 1990s, acquiring the company’s database, which was quite exhaustive.
On the strength of this claim, Cranswick was fighting the exploitation and sale by the Government and its partners of the diamonds in Chiadzwa.
After quelling illegal mining activities, Government has through its company, the Zimbabwe Mining Development Corporation, joined forces with two South African concerns and operationalised mining at Chiadzwa.
There are significant observations that can be made of the above expose.
The first is the commonality of the belief that Chiadzwa diamonds were a "lucky" find, both to Cranswick and to the ordinary people that thronged into the area to get this proverbial manna.
The fact, though, is that there was nothing lucky or manna-like in the find as the stones existed years and years ago and were, in fact, there for the taking, with some knowledge.
Stories abound of how locals were oblivious of the importance and value of the once ubiquitous stones in the area, and how some "clever" people got rich of the resource in the middle of such ignorance.
That certain companies from South Africa spent years siphoning precious minerals in the name of exploration and assessment at Chiadzwa and elsewhere is also a public secret.
Second is the apparent absence of Government initiative in the "discovery" of the gems, and, this so much from the events that followed, playing the Johnny-come-lately in the Marange.
It would seem Government was not able to dispatch, to use Cranswick’s words, any "good science" or "prior information" to undertake the work itself.
According to Cranswick, whose British company poured time, money and skill in exploring the fields, the Government prejudiced him and had at least to partner ACR in exploiting the gems.
Given revelations that Marange gems can satisfy a quarter of the world’s market in rough stones and more than satisfy Zimbabwe’s budgetary requirements, Zimbabwe’s new-found status as an important player in the industry should ask of something more than the previous "business as usual" approach.
This should also make sense of a sound policy framework in the area.
Opening the Third Session of the Seventh Parliament of Zimbabwe last recently, President Mugabe said the Mines and Minerals Amendment Bill, which was first presented to Parliament in 2007, shall be tabled once again, for consideration during this session.
The Bill will seek to discourage speculation, facilitate investment in the mining sector by both local and foreign investors, as well as ensure that the country derives maximum benefits from its vast array of minerals.
The Zimbabwe Exploration Corporation Bill, which provides for the establishment of the Zimbabwe Exploration Corporation, shall also be tabled in the august House during the session.
Through the Zimbabwe Exploration Corporation, Government will be more actively involved in mineral exploration and thereby be in a position to determine the types and quantum of the country’s existing mineral resources.
Finance Minister Tendai Biti has weighed in saying that Government had to address all issues related to exploration.
Presenting the Mid-Term Fiscal Policy Review last week, Minister Biti said it was essential that a database of all known minerals in Zimbabwe be established.
He regretted that Zimbabwe continued to suffer from the culture of hoarding of claims and continuous renewal of unmined claims, advocating that Government adopt a "use it or lose it" approach with respect to speculative claims.
Government’s undertaking to be actively involved in the exploration of minerals is key and it is only prudent that concrete plans be put in place towards the establishment of the envisaged exploration body.
The establishment of the company has in the past remained in limbo, mainly due to lack of financial resources.
Analysts say exploration by nature is risky business, requiring large investment expenditure outlays and leading to the little exploration Zimbabwe has seen since the 1980s.
Exploration is the most expensive aspect of mining, analysts say, as prospective miners will have to sink in a lot of money without equal or better returns on investment.
"It is very risky enterprise and many private investors are sceptical of mining exploration," former Mines Deputy Minister Murisi Zwizwai pointed out earlier this year.
Mining exploration, said Mr Zwizwai, can be a multi-million-dollar exercise for only a small piece of land, which means undertaking the exercise at a nationwide scale would require billions of dollars.
But this is not a Zimbabwean story alone.
It is said that global experience estimates the average mining exploration success rate at 12 percent as regards viable resource returns on exploration investment.
"The absence of extensive exploration work has perpetuated a situation where most of the local underground minerals remain inferred resources," noted one report early this year.
"This is despite the fact that the country requires appreciation of the actual untapped mineral resource base."
There are compelling reasons for serious Government work in the promotion of exploration ventures.
Extensive mineral exploration would avail Government a strong instrument to attract investors as it would have details on the geological nature, mineral type, quantum and lifespan of discovered mineral ore bodies.
On the other hand, it has been noted that lack of new exploration would make it difficult to switch to virgin mines once the current ones mine out, threatening the future of mineral output.
Virgin mineral bodies are said to have become more critical considering foreign investors’ frenzied interest in the local mining industry after the formation of the inclusive Government last year, which led to the stabilising economic conditions.
While Government might be proactive in the field, it is also critical to encourage private sector participation.
One of the ways to do so is to scrap prohibitive pre-exploration levies.
The Finance Ministry has been charging a pre-exploration levy for new mining projects thus discouraging new players.
Mines and Mining Development permanent secretary Mr Thankful Musukutwa last May said the US$100 000 charged for Exclusive Prospective Orders was inhibiting new investment in mining, especially under capitalised local miners.
An EPO is a licence granted to potential investors to prospect for minerals in a particular area before they are authorised to mine under a Special Grant.
Government levies a further US$100 000 for Special Grants on strategic and energy minerals such as coal, methane and diamonds.
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Labels: MINING, THANKFUL MUSUKUTWA
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