Mining News

Zimbabwe Consolidates Diamond Mines

Posted by Cheryl Rutledge on 7/21/2015 10:52:01 AM

By Alexander Collen, Taylor Jackson and Kenneth P. Green

Zimbabwe’s government has announced plans to consolidate the nation’s diamond industry into a single company, of which the state will own 50 percent. The firms agreed to comply with the ruling which forces them to merge. According to The Herald, Mines and Mining Development Minister Walter Chidhakwa said all the companies would meet this week with officials from his ministry and the Zimbabwe Mining Development Corporation individually to discuss the restructuring mechanisms.

Chidhakwa addressed the Parliamentary Portfolio Committee on Youth, Indigenisation and Economic Empowerment recently and said that non-compliant firms would cease diamond operations in Zimbabwe. He states that the reasons behind the merger are to ensure security of the precious gems and accountability. There were concerns in Zimbabwe’s government that diamond mines have been understating their profits in order to minimise payments to the state.

In the meantime, mining giant Rio Tinto is leaving Zimbabwe after agreeing to sell its 78 percent stake in the Murowa Diamonds mine and its 50 percent holding in the Sengwa Colliery mine to its former local subsidiary, RioZim. Rio Tinto says it “believes that [the] future of these assets can be best managed by entities with existing interests in Zimbabwe." However, Zimbabwe’s reserves of alluvial diamonds (easier to extract) are almost depleted and existing miners argue they have neither the expertise nor the resources to access underground reserves. This may mean that otherwise commercially viable resources will not attract the required investment for extraction.

The Fraser Institute’s Survey of Mining Companies in 2014 found that the Zimbabwe ranked 72nd of 122 jurisdictions in the Best Practices Index (a measure of pure geological potential based on the perception of executives), but are ranked 118th of 122 in the Policy Perception Index. Only four percent of respondents in the same survey said they would be strongly deterred on investing in Zimbabwe assuming that best practice policies were in place, while eight percent said they would not invest at all under best practices. Given current regulations and practices, these figures both rise, to 42 percent and 25 percent of respondents, respectively.

The survey also found that uncertainty regarding the administration, interpretation and enforcement of existing regulations was perceived to be a strong deterrent to investment by 30 percent of respondents, while 60 percent of respondents said they would not invest at all for this reason. Similarly, the legal system strongly deters 31 percent of respondents, with 55 percent saying that they would altogether not invest for this reason. The corresponding figures for political stability are 37 percent and 56 percent, respectively.

To conclude, evidence from the survey suggests that aspects of government policy in Zimbabwe may be significantly deterring the majority of respondents from investing. The depletion of alluvial reserves will force miners to move into more capital and knowledge intensive underground methods. Consolidating and expropriating diamond mines may further decrease the region’s investment attractiveness at a time when the diamond industry can least afford it.

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