News / National
Zimbabwe diamonds: A tale of unending controversy. . . Only US$2,2bn in 10 years
28 Feb 2016 at 12:27hrs | Views
AS Government pulls the plug on private diamond miners operating at Chiadzwa diamond mining fields in Marange, Manicaland, damning statistics indicate that the rough diamonds only managed to earn the country more than US$2,5 billion in the 10 year period from 2006.
However, the bulk of the revenues — US$2,2 billion — were generated after the commercialisation of the diamonds fields in 2011, especially in the period following the Administration Decision on Zimbabwe adopted by the Kinshasha plenary of the Kimberly Process Certification Scheme (KPCS) on November 1, 2011 that allowed rough diamond exports from Marange.
Official figures from the KPCS indicate that Zimbabwe managed to produce 8,4 million carats in 2010 and 8,5 million carats in 2011 and exported gems worth US$320 million and US$422,9 million respectively during the period.
Production peaked in 2012 when 12,1 million carats were produced, generating US$741 million in the export revenues.
But diamond output has been declining since then.
In 2013, only 9,6 million carats were produced and sold for US$448,6 million.
Again, exports slumped to US$470 million in 2014.
Treasury reported in the 2016 National Budget that the country was able to make US$19,6 million from the export of unsorted diamonds in the January to October period last year, while industrial diamonds weighed in with US$137,6 million.
In total, both industrial and unsorted diamonds fetched US$157,2 million.
There has been concern by Government that the bulk of the funds are not finding their way to the fiscus.
In the 2016 National Budget, Finance and Economic Development Minister Mr Patrick Chinamasa noted that the country was ironically getting more from diamond mining in the period when the sector was informal than in the current era where operations are formal.
"The diamond industry has potential to uplift our population, especially as we fully exploit the diamonds value chain. . .
"Indeed, there was greater economic impact from diamonds during times of uncontrolled alluvial panning than what is being realised following introduction of formal diamond mining arrangements. . .
"Mr Speaker Sir, the way forward in our diamond sector is consolidation, plugging leakages through enhanced oversight, transparency and accountability," said Mr Chinamasa.
Mining companies such as Anjin were also reportedly withholding key financial information.
By contrast, Botswana, which is considered to be the world's second-biggest diamond producer by volume, gained more than US$16,7 billion — more than Zimbabwe's GDP (gross domestic product) — in revenues in the four-year period to 2014.
It is widely claimed that Zimbabwe holds 25 percent of the world's reserves of opencast extractable diamonds.
Falling revenues have prompted Government to re-organise the sector, and on Monday last week, the Ministry of Mines and Mining Development ordered the six mining companies operating in Chiadzwa — Mbada, Anjin, Jinan, DMC, Gyname, Kusena — to shut their operations as their operating licences had expired.
Government intends to consolidate all diamond mining activity under the Zimbabwe Consolidated Diamond Company (ZCDC), a state entity.
Part of the new efforts to get the maximum possible value for the precious stone includes adding value to them.
Ten diamond cutting and polishing centres have since been licenced to add value to locally produced diamonds while Aurex, a subsidiary of the Reserve Bank of Zimbabwe (RBZ) which manufactures jewellery, has acquired cutting and polishing machinery from India.
Companies were already sinking
As much as the decision to close the diamond mining companies has generated controversy, information gathered suggests that there were doubts on whether some of the mining companies could continue as going concerns.
A report by the Auditor-General for the financial year ended December 31, 2014 showed that Marange Resources, an arm of the Zimbabwe Diamond Mining Company (ZMDC), recorded
a loss of $1,5 million in 2014.
It was, however, an improvement from a loss of $30,5 million in 2013.
Most tellingly, the company's liabilities exceeded current assets by US$75 million.
Similarly, Mbada Diamonds, a joint venture business between Marange Resources and New Reclamation Group of South Africa, posted a net loss of US$50 million in 2013 from a profit of US$50 million in 2012.
Startlingly, in 2013 its liabilities exceeded assets by US$90 million.
In essence, the companies were technically insolvent.
The Auditor-General also observed that Anjin – a joint venture between Government and China's Anhui Foreign Economic Construction Group – was withholding some of the company's finances, making it difficult for the authorities to make an assessment of the miner.
At Kusena Diamonds, the minutes on board and management meetings "held during the year (2013) were not being maintained in the minute book and were not signed as evidence".
There are reports that creditors are pursuing the struggling businesses.
Controversial from the beginning
The most notable case involved the prosecution of some ZMDC officials on allegations of fraudulently entering into joint venture mining deals.
In particular, ZMDC's board selection committee that was made up of the then chairperson Ms Gloria Mawarire; Mark Tsomondo, who was a member of the technical committee; Mr Dominic Mubaiwa, then chief executive officer; and Mr Tichaona Muhonde, ZMDC company secretary to the board, were arrested in November 2010.
Investigations mainly centered on the controversial award of mining deals to Core Mining and Minerals Resources, which resultantly formed Canadile, a joint venture business with ZMDC, and New Reclamation Group of South Africa, a joint venture partner in Mbada Diamonds.
It is alleged that the board selection committee met with the two investors in South Africa between August 4 and August 6, 2010.
Core Mining apparently misrepresented that it was a subsidiary of Channel Islands-headquartered diversified natural resources company BSG Resources Ltd when in fact it was owned by Mr Lovemore Kurotwi.
Mr Kurotwi was subsequently arrested.
The case is still pending before the High Court.
While the select committee was not satisfied with Core Mining's presentation, they went ahead and formed the joint venture business.
The company did not have the resources to plough into the business and struggled to raise funds to finance operations after it was given an operating licence.
Despite the purported guarantee of a $2 billion fund from BSGR, Core Mining turned to the local market, borrowing funds from institutions such as Agribank.
Some of the funds were also generated from the mining activities, which was contrary to the spirit of the agreement.
It naturally affected production and output.
Mbada Diamonds' case is however different.
The only anomaly was that the business was not involved in mining and did not have any experience in business whatsoever.
Notwithstanding that it had a solid financial footing, it did not have a strategy.
Its previous operations at Ziscosteel were also questionable.
ZMDC granted the business a licence nevertheless.
It all had the adverse effect of affecting production in the long run.
Failure to show the money
Most critically, the Auditor-General's report observed that some of the companies failed to follow through on their funding committments to the joint venture projects.
For example, by the end of December 31, 2013; Mbada had invested $48 million into the business, which is $52 million short of the agreed amount.
Jinan has sunk in $135 million of the $200 million required, while DMC had injected $41 million against an agreed amount of $100 million.
However, DMC managing director Mr Ramzi Malik told The Sunday Mail Business last week that the investor has to date contributed $42 million against the $50 million that is required.
"We stopped mining immediately (after the announcement and) this means we have to send everyone home and there is no revenue for the company and we can't meet our obligations. . .
"Right now, the foreign shareholder is doing consultations and soon they will meet with local shareholders and agree or disagree on the way forward.
"What we produced since we started mining is in million of carats and that is not a small job.
"The investor brought US$42 million out of the US$50 million that was required for the duration of the mining activities. So we still had time to engage the Government and see how we could pay the balance.
"In terms of financial statements, we submitted audited financial statements to the Government, this shows that we complied with all requirements.
"To be honest with you, there is no kimberlitic diamonds on our concession areas. We did geological work, which should be done before exploration," he said.
An official from Mbada Diamonds who preferred anonymity as he is not authorised to speak to the Press indicated that they had also submitted comprehensive financial statements to Government.
"It is Government policy so it is difficult to comment. But I am not sure why we were ordered to close because we were the only ones that published comprehensive financial results. We used to provide taxes to Government.
"Obviously we are unable to continue contributing the same amount of taxes because grades have come down together with prices.
"Yes, we did exploration. We actually have a very big exploration department," noted the official.
It is not clear how the affected mining houses will liquidate their debts.
Government had to resort to closing the mining companies after some of them resisted the move to consolidate them under the ZCDC.
However, the bulk of the revenues — US$2,2 billion — were generated after the commercialisation of the diamonds fields in 2011, especially in the period following the Administration Decision on Zimbabwe adopted by the Kinshasha plenary of the Kimberly Process Certification Scheme (KPCS) on November 1, 2011 that allowed rough diamond exports from Marange.
Official figures from the KPCS indicate that Zimbabwe managed to produce 8,4 million carats in 2010 and 8,5 million carats in 2011 and exported gems worth US$320 million and US$422,9 million respectively during the period.
Production peaked in 2012 when 12,1 million carats were produced, generating US$741 million in the export revenues.
But diamond output has been declining since then.
In 2013, only 9,6 million carats were produced and sold for US$448,6 million.
Again, exports slumped to US$470 million in 2014.
Treasury reported in the 2016 National Budget that the country was able to make US$19,6 million from the export of unsorted diamonds in the January to October period last year, while industrial diamonds weighed in with US$137,6 million.
In total, both industrial and unsorted diamonds fetched US$157,2 million.
There has been concern by Government that the bulk of the funds are not finding their way to the fiscus.
In the 2016 National Budget, Finance and Economic Development Minister Mr Patrick Chinamasa noted that the country was ironically getting more from diamond mining in the period when the sector was informal than in the current era where operations are formal.
"The diamond industry has potential to uplift our population, especially as we fully exploit the diamonds value chain. . .
"Indeed, there was greater economic impact from diamonds during times of uncontrolled alluvial panning than what is being realised following introduction of formal diamond mining arrangements. . .
"Mr Speaker Sir, the way forward in our diamond sector is consolidation, plugging leakages through enhanced oversight, transparency and accountability," said Mr Chinamasa.
Mining companies such as Anjin were also reportedly withholding key financial information.
By contrast, Botswana, which is considered to be the world's second-biggest diamond producer by volume, gained more than US$16,7 billion — more than Zimbabwe's GDP (gross domestic product) — in revenues in the four-year period to 2014.
It is widely claimed that Zimbabwe holds 25 percent of the world's reserves of opencast extractable diamonds.
Falling revenues have prompted Government to re-organise the sector, and on Monday last week, the Ministry of Mines and Mining Development ordered the six mining companies operating in Chiadzwa — Mbada, Anjin, Jinan, DMC, Gyname, Kusena — to shut their operations as their operating licences had expired.
Government intends to consolidate all diamond mining activity under the Zimbabwe Consolidated Diamond Company (ZCDC), a state entity.
Part of the new efforts to get the maximum possible value for the precious stone includes adding value to them.
Ten diamond cutting and polishing centres have since been licenced to add value to locally produced diamonds while Aurex, a subsidiary of the Reserve Bank of Zimbabwe (RBZ) which manufactures jewellery, has acquired cutting and polishing machinery from India.
Companies were already sinking
As much as the decision to close the diamond mining companies has generated controversy, information gathered suggests that there were doubts on whether some of the mining companies could continue as going concerns.
A report by the Auditor-General for the financial year ended December 31, 2014 showed that Marange Resources, an arm of the Zimbabwe Diamond Mining Company (ZMDC), recorded
a loss of $1,5 million in 2014.
It was, however, an improvement from a loss of $30,5 million in 2013.
Most tellingly, the company's liabilities exceeded current assets by US$75 million.
Similarly, Mbada Diamonds, a joint venture business between Marange Resources and New Reclamation Group of South Africa, posted a net loss of US$50 million in 2013 from a profit of US$50 million in 2012.
Startlingly, in 2013 its liabilities exceeded assets by US$90 million.
In essence, the companies were technically insolvent.
The Auditor-General also observed that Anjin – a joint venture between Government and China's Anhui Foreign Economic Construction Group – was withholding some of the company's finances, making it difficult for the authorities to make an assessment of the miner.
At Kusena Diamonds, the minutes on board and management meetings "held during the year (2013) were not being maintained in the minute book and were not signed as evidence".
There are reports that creditors are pursuing the struggling businesses.
Controversial from the beginning
The most notable case involved the prosecution of some ZMDC officials on allegations of fraudulently entering into joint venture mining deals.
In particular, ZMDC's board selection committee that was made up of the then chairperson Ms Gloria Mawarire; Mark Tsomondo, who was a member of the technical committee; Mr Dominic Mubaiwa, then chief executive officer; and Mr Tichaona Muhonde, ZMDC company secretary to the board, were arrested in November 2010.
Investigations mainly centered on the controversial award of mining deals to Core Mining and Minerals Resources, which resultantly formed Canadile, a joint venture business with ZMDC, and New Reclamation Group of South Africa, a joint venture partner in Mbada Diamonds.
It is alleged that the board selection committee met with the two investors in South Africa between August 4 and August 6, 2010.
Core Mining apparently misrepresented that it was a subsidiary of Channel Islands-headquartered diversified natural resources company BSG Resources Ltd when in fact it was owned by Mr Lovemore Kurotwi.
Mr Kurotwi was subsequently arrested.
The case is still pending before the High Court.
While the select committee was not satisfied with Core Mining's presentation, they went ahead and formed the joint venture business.
The company did not have the resources to plough into the business and struggled to raise funds to finance operations after it was given an operating licence.
Despite the purported guarantee of a $2 billion fund from BSGR, Core Mining turned to the local market, borrowing funds from institutions such as Agribank.
Some of the funds were also generated from the mining activities, which was contrary to the spirit of the agreement.
It naturally affected production and output.
Mbada Diamonds' case is however different.
The only anomaly was that the business was not involved in mining and did not have any experience in business whatsoever.
Notwithstanding that it had a solid financial footing, it did not have a strategy.
Its previous operations at Ziscosteel were also questionable.
ZMDC granted the business a licence nevertheless.
It all had the adverse effect of affecting production in the long run.
Failure to show the money
Most critically, the Auditor-General's report observed that some of the companies failed to follow through on their funding committments to the joint venture projects.
For example, by the end of December 31, 2013; Mbada had invested $48 million into the business, which is $52 million short of the agreed amount.
Jinan has sunk in $135 million of the $200 million required, while DMC had injected $41 million against an agreed amount of $100 million.
However, DMC managing director Mr Ramzi Malik told The Sunday Mail Business last week that the investor has to date contributed $42 million against the $50 million that is required.
"We stopped mining immediately (after the announcement and) this means we have to send everyone home and there is no revenue for the company and we can't meet our obligations. . .
"Right now, the foreign shareholder is doing consultations and soon they will meet with local shareholders and agree or disagree on the way forward.
"What we produced since we started mining is in million of carats and that is not a small job.
"The investor brought US$42 million out of the US$50 million that was required for the duration of the mining activities. So we still had time to engage the Government and see how we could pay the balance.
"In terms of financial statements, we submitted audited financial statements to the Government, this shows that we complied with all requirements.
"To be honest with you, there is no kimberlitic diamonds on our concession areas. We did geological work, which should be done before exploration," he said.
An official from Mbada Diamonds who preferred anonymity as he is not authorised to speak to the Press indicated that they had also submitted comprehensive financial statements to Government.
"It is Government policy so it is difficult to comment. But I am not sure why we were ordered to close because we were the only ones that published comprehensive financial results. We used to provide taxes to Government.
"Obviously we are unable to continue contributing the same amount of taxes because grades have come down together with prices.
"Yes, we did exploration. We actually have a very big exploration department," noted the official.
It is not clear how the affected mining houses will liquidate their debts.
Government had to resort to closing the mining companies after some of them resisted the move to consolidate them under the ZCDC.
Source - chronicle
