Marange: world’s largest diamond producer?

Marange is currently ranked the largest diamond producing deposit on earth ranging over 300 square miles in eastern Zimbabwe. Estimated to have produced almost 17 million carats in 2013, Marange diamond production represents about 13% of global rough supply on a per carat basis. The Marange fields consist of widespread alluvial mining, where diamonds have been deposited on the earth’s surface and can be easily collected with light mining equipment, shovels, sieves and even bare hands.


Figure 1: The Marange diamond fields (noted with red star) are located in Eastern Zimbabwe, not far from the border of Mozambique. Source Google Maps.
Figure 1: The Marange diamond fields (noted with red star) are located in Eastern Zimbabwe, not far from the border of Mozambique. Source Google Maps.

This contrasts with other large-scale diamond projects where commercial open-pit and underground mines require advanced engineering and heavy equipment costing billions of dollars to build and operate. Alluvial diamond projects tend to have a much shorter life span than open-pit or underground projects, as the resource is limited to the easily assessable surface stones.

While Marange is a relatively new project with formal mining only commencing five years ago, there are already indications that most of economic resource has been depleted. The diamond fields are operated under the government-affiliated Zimbabwe Mining Development Corporation, which has partnership agreements with seven private entities most of which are affiliated with Zimbabwe ex-military or political officials.

Production plummets

Since mining under ZMDC officially commenced in 2008, the surface resource base has significantly declined resulting in a lower production grade requiring miners to move more or deeper tonnage to maintain current production levels. Mining deeper conglomerate rock requires more advanced equipment, and some of the Marange companies are reluctant to put forth the capital expenditure necessary to procure the needed equipment.

Some companies claim that upgrading equipment is not economically viable given that Marange diamonds are among the world’s least valuable on a per carat basis. In addition to being relatively small, lower quality rough Marange diamonds trade at a discount on the world market because the united States, the largest diamond buyer in the world, does not allow importation because of human rights abuses in Zimbabwe. The European Union, home to the largest diamond trade hub in the world, only recently lifted restrictions imposed in 2008 for the same reason.

During the chaotic transition period in 2006 when the ZMDC forcefully took control of the diamond fields from MDC, a lawless diamond rush erupted resulting in 200 deaths as 35,000 locals were forcefully removed from the fields by the military.

Physical attacks

There have been numerous additional documented reports of physical attacks and detentions by security officials working for ZMDC and the mining companies against local people accused of illegal artisanal mining.

Given the harsh socio economic challenges of the country, a significant amount of the illegal mining can be explained by people acting out of people from the diamond area, resulting in loss of food sources and shelter as promised accommodations were not adequately provided.Marange has been littered with cases of corrupt operating partners and government officials accepting bribes resulting in unscrupulous politics and tax evasion. The Zimbabwe Finance minister has stated that the Treasury has not yet received any tax revenue from Marange operations in 2013. In 2012, the finance minister was forced to cut the country’s national budget from $4 billion to $3.4 billion after $600 million of expected diamond tax revenue was never received.

The Kimberly process (KP), a United Nations-backed system that was enacted in 2003 aimed at halting the global trade of rough diamonds tied to violence, has not been as effective as hoped in Zimbabwe. The governments participating in the KP distribute rough diamond passports only to miners in their country that follow the principles of the KP, theoretically banning the export rough diamonds linked to violence.

Dishonoured

Global Witness, a human rights group and a founding participant of the KP, resigned in 2011 because it said some governments, including Zimbabwe, have “dishonoured, breached and exploited the system without bearing any consequential penalties.” Even with KP parameters set, participating countries need to band together and uphold the standards of the organisation.

International confusion with the KP’s stance on Marange diamonds, which was revoked in 2009 and then reestablished in 2011, has allowed some Zimbabweans to export Marange diamonds without consequences. The primary buyers of the rough diamonds have been companies operating in China, India, and South Africa that process and then mix Marange diamonds with diamonds sourced elsewhere, essentially making Marange diamonds indistinguishable from the rest of their inventory. There is speculation that most polished Marange diamonds end up in Dubai, UAE, and infiltrate the West from there.

Last September Belgian and diamond industry officials successfully lobbied the EU to lift sanctions on ZMDC diamonds claiming that trading these diamonds would help lift Zimbabweans out of poverty and encourage transparency.

The first EU Marange auction took place in Antwerp in December and fetched $10 million for 300,000 carats, working out to a price of just over $30 per-carat on average. A second auction took place last week where another 300,000 carats were sold. Relative to the worlds other large-scale diamond projects, Marange diamonds tend to be lower in quality, with a large percentage of the output only fit for industrial use.

Tarnished image

The tarnished image of Marange diamonds and the restricted distribution system that comes along with that further reduces their value by as much as 25%. The average price per carat of a Marange diamond is $20-$45 per carat, while the global average price-per-carat of a mined diamond is around $100, according to KP.

The Marange fields are economic even with a low average price-per-carat diamond because the alluvial mining process is relatively inexpensive; in 2011 the ZMDC estimated that the average cost of production of a Marange diamond was $19-30 per carat, while the global average is around $65 per carat. But once all the easily accessible surface diamonds have been claimed, the project may no longer be economic.

Companies operating in Marange recently began publically expressing concern that the surface economic resource base was rapidly depleting, requesting fresh mining claims. The ZMDC has vowed to not issue new claims to companies unwilling to make capital investment in equipment needed to mine at depth.

This ultimatum should result in the ultimate test as to whether Marange diamonds can be profitably mined in deeper conglomerate rock. If not, the remaining life of Marange’s world-class production could be relatively short.

Companies operating in Marange

As of January 2014

Anjin Investments Ltd

50%: Matt Bronze Ltd - A company principally controlled by senior Zimbabwean military official Charles Tarumbwa

50%: Anhui Foreign Economic Construction Group – a Chinese-based construction company

Diamond Mining Company

50%: Zimbabwe Mining Development Company

50% : Consortium of Investors from Dubai, UAE

Gye Nyame Resources

50%: ZMDC

24% Bill Minerals – a Ghana-based company owned by William Essien

20%: Zimbabwe Republic Police Trust

6%: Dantor – a private company owned by Zimbabweans Itai Munyeza and Blessmore Chanakira

Jinan Mining Ltd

A Chinese-based company that has an unspecified joint venture with ZMDC

Kusena Diamonds

A company allegedly affiliated with Sino-Zimbabwe, a cement company comprised of a joint venture between two Chinese entities and a Zimbabwe government-run industrial development company.

Marange Resosurces

100%: ZMDC

Mbada Diamonds

50%: Marange Resources – a wholly-owned subsidiary of ZMDC

50%: Grandwell Holdings - a Mauritius-registered company affiliated with New Reclamation Group, a South African scrap metal company, controlled by Robert Mhlanga, a retired Zimbabwean Air Vice Marshal and former personal pilot to President Robert Mugabe.


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