Zim turns to Bots on diamonds

Gaborone- Zimbabwe’s Mines and Mining Development Minister Walter Chidhakwa is expected in Botswana at the beginning of next month to study the country’s diamond mining model.

Government spokesperson Jeff Ramsay has confirmed the visit, saying Chidhakwa will be in the country on July 2, although it was not clear yet if the minister will meet with President Ian Khama as suggested by the Zimbabwean media.

Ramsay said: “I don’t know if he’ll be meeting with the president but I know he’ll be meeting with all stakeholders from the mining industry.”

The minister’s visit is expected to help Zimbabwe chart a new path in its minerals exploitation and development.

Chidhakwa has undertaken similar visits to Namibia and South Africa to study their models and now wants to look at the Botswana model as he works on plans to consolidate the diamond mining companies into one entity, with 50% government shareholding as is the case in Botswana.

The government of Botswana mines diamonds in partnership with South African mining giant De Beers.

“Diamond mining is a very difficult sector,” Chidhakwa is quoted as saying by the Zimbabwe Independent newspaper.

“It is difficult to monitor and manage, but if we consolidated the companies into one and have one monitoring mechanism the model of consolidation will allow for better monitoring thereby reducing the leakages,” he told the newspaper.

He added that: “I will be going to Botswana to look at their model. 

We are relatively a new diamond-mining country.”

Botswana has used diamonds to develop the country from being a mostly rural backwater at independence in 1966 to a booming economy but the trickling down effect which ideally means that the economy should be enjoyed by the ordinary man on the streets has not been realised.

Botswana is a middle-income African country widely known for its wise stewardship of diamond resources that has allowed it to build critical infrastructure, educate its populace and prosper. 

Yet Botswana also has one of the highest rates of income inequality in the world, William G Moseley, professor of geography at Macalester College says. 

Chidhakwa reportedly wants the Zimbabwean diamond mining companies to merge into one firm, in a move meant to streamline their operations while curbing leakages.

Media reports in Zimbabwe said the move comes after most diamond mining companies in the Marange area of Manicaland failed to account for revenues they realised in their mining operations, save for Mbada Diamonds which in March last year declared to Parliament that it had surpassed the US$1 billion turnover mark.

Zimbabwe is the world’s fourth-largest diamond producer, producing an estimated eight million carats with potential to supply 25 percent of global demand.

Seven companies are operating in Chiadzwa, namely Mbada, Anjin Investments, Diamond Mining Company, Gye Nyame, Jinan Ming Private Ltd, Kusena and Marange Resources.

Chidhakwa said the consolidation process would involve the merging of the wholly government-owned Marange Resources with the other diamond mining companies, including Murowa and River Ranch diamond mines.

“The problem in Zimbabwe is that we have companies in Chiadzwa that were opportunistic and speculative. 

What we are now trying to do is to resolve that problem,” he is quoted as saying.

“We want to do it through consolidation. There is a basic way of doing it (sharing); 50 divided by let’s say seven. But it will not be equal sharing because they have different levels of capitalisation. 

We then say we are using net-asset-value of each company. You take the net asset value of Mbada, Anjin and others and you add them and come up with the total net asset value.

“You calculate Anjin as a percentage of the total and Mbada the same, and everybody gets their share. 

Because we now say that there is no limit, this company will mine all diamonds in the country and there is no other company that will be allowed to mine diamonds in Zimbabwe besides that framework. Everyone is coming on board – Murowa and River Ranch,” the minister further said.

Chidhakwa said the companies would have latitude to do exploration across the country in the context of that bigger entity.

He said they would calculate how much equipment is required to mine the diamonds and its value; each company would then be required to inject capital, depending on the shareholding — like a rights issue.

If some fail to raise the money they will then be diluted and the bigger companies can buy additional shareholding.

“This mining is not for mickey-mouse miners, but serious mining across the country. 

The problem is that when you look at the agreements we signed, all the companies were expected to inject money either in the form of cash or equipment and it is in the agreements.

“If you go and look at what they (diamond mining firms) have injected, it’s generally less than half because some went on to lease equipment. 

When you calculate net-asset-value, the leased equipment is not included.

“So the panic now is that they are looking at what they are coming in with. Out of the lot, only one company brought about 45% of what was originally agreed on. 

That is where the first stage of company resistance is,” he said.

“We need to create a dominant player in the diamond sector and, more importantly, the value chain. You can never go onto the international market without a big player on your side. There are five in the world currently; we need to create our own,” says Chidhakwa.

Government this year instructed diamond mining companies to merge including Rio Tinto’s Murowa Diamonds and form one company under a two-phased programme expected to optimise earnings by cutting the long chain of players extracting stones.

The new structure will see Government controlling 50 percent of the entity while operating companies will share the remainder based on the capital they have invested.

In Botswana, the government and global mining giant De Beers operate a 50-50 joint venture, Debswana, which has grown into the world’s largest diamond producer by value.

Namibia’s diamond miner Namdeb is a wholly owned subsidiary of Namdeb Holdings (Proprietary) Limited which is owned equally (50:50) by the government of Namibia and De Beers.

In Russia, seven companies merged under the banner of Alrosa, now the leading international diamond producer by volume. Experiences in Russia and Botswana prove that engaging fewer diamond mining players refocuses attention to production.

Alrosa comprises different shareholders including the Russian Federation. Municipal districts, individual companies and legal entities are also co-owners. The company accounts for the highest diamond volumes in the world and produced 33 million carats in 2013.

Under the new arrangement in Chiadzwa, Marange Resources, Gye Nyame and Kusena Diamonds whose single portfolio has already been created, will be the first to be amalgamated. The second stage will merge Mbada Diamonds, Anjin Investments, Jinan and Diamond Mining Corporation.

June 2015
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