Wednesday February 19, 2014 11:57
Marange is currently ranked the largest diamond producing deposit on earth ranging over 300 square miles in Chiadzwa, a ward in the Mutare District of Zimbabwe (see Figure 1). 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 (see Figure 2).
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.
The Marange fields consist of widespread alluvial mining, where diamonds have been deposited on the earth’s surface and can be easily collected with rather light mining equipment, shovels, sieves and even bare hands. The mining at Marange contrasts with the worlds other large-scale diamond projects where commercial open-pit and underground mines require advanced engineering and state of the art 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, which can be produced rather easily and rapidly. While Marange is a relatively new project with formal mining only commencing 5 years ago, there are already indications that most of economic resource has been depleted.
Figure 2: Marange production in terms of carats and dollars from 2008 to 2013 relative to total global rough diamond production. While Marange is the largest producing project in the world in terms of total carats produced, it is the third largest in terms of total dollar value produced, after Botwana’s Orapa and Jwaneng mines which produce more valuable diamonds on average. Source: Kimberly Process, Paul Zimnisky analysis.
The prospecting rights to Marange were initially held by a subsidiary of De Beers, which made a discovery in 2000, however the economics were too low for the company to pursue development and their prospecting order was left to expire in 2006. The prospecting rights were subsequently acquired by a group of Zimbabweans operating under a U.K. based mineral exploration company called Mining Development Corporation (MDC). Months later, the Zimbabwe government nationalized the Marange property and forcibly took over control from MDC. Today, the diamond fields are operated under the government affiliate Zimbabwe Mining Development Corporation (ZMDC), which has partnership agreements with 7 private entities most of which are affiliated with Zimbabwe ex-military or political officials (see Figure 3).
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. According to an anonymous source reported by the Zimbabwe Independent in November of last year, current surface grades at Marange are 3.75 carats per tonne. A month later, Jinan Investments Ltd’s chief mining operations officer publically commented that deeper conglomerate rock grades drop to 0.4-0.5 carats per tonne, adding that they “are too expensive to extract.” 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.
Figure 3: Companies currently mining in Marange, all of which are partnered with the Zimbabwe government affiliate ZMDC. Source: company data, Global Witness, Partnership Africa Canada, Paul Zimnisky analysis.
Some companies claim that upgrading equipment is not economically viable given that Marange diamonds are among the worlds least valuable on a per carat basis. In addition to being relatively small, lower quality rough, Marange diamonds trade at a discount to the world market because of trade sanctions originating from alleged human rights violations. The U.S., the largest diamond buyer in the world, does not allow the importation of Marange diamonds, and the European Union, home to the largest diamond trade hub in the world, Antwerp, had sanctions against Marange diamonds until recently.
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 local Zimbabweans were forcefully removed from the fields by the Zimbabwe military.
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 sole desperation.
Other violations include government sanctioned forced relocation of Zimbabweans out homes sitting on Marange land which resulted in loss of food sources and shelter as promised accommodations were not adequately provided.
Image: Satellite view of Marange. Source Google Earth.
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 Marange 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 Kimberly Process 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]. Global Witness, a human right group and a founding participant of the Kimberly Process, resigned in 2011 after (as it states) governments including Zimbabwe have “dishonored, 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 organization, which can be ineffective if there is weakness among governments directly participating.
Image: Marange diamonds can be produced with relatively light equipment by diamond mining standards. World-class commercial open pit and underground diamond mines can cost over $1 billion to get into production, Marange miners can begin producing for a fraction of that amount due to the alluvial nature of the deposit. Photo: Marange Resources.
International confusion with the Kimberly Process’s stance on Marange diamonds, which was revoked in 2009 and then reestablished in 2011, has allowed some Zimbabweans to export Marange diamonds without consequence. 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.
Despite all of the contentious activity surrounding Marange, last September Belgian and diamond industry officials successfully lobbied the European Union to lift sanctions on ZMDC diamonds claiming that trading these diamonds would help lift Zimbabweans out of poverty and encourage transparency.
This past December, the first European Union Marange auction took place in Antwerp and fetched $10 million for 300,000 carats, working out to a price of just over $30 per-carat on average. A second auction is scheduled for Feb 12-21 where another 300,000 carats will be sold.
Image: A mobile dense media separator. Photo: Marange Resources.
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. Marange diamonds tend to be small and marked with a brownish-green tint. The tarnished image of Marange diamonds and the restricted distribution system that comes along with that further reduces the value of Marange diamonds 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 Kimberly Process data.
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 is $19-30 per carat, while the global average is around $65 per carat. But once all of the easily accessible surface diamonds have been claimed, the project may no longer be economic, as the cost to produce the same quality diamonds at depth could exceed the economic benefit. Companies operating in Marange recently began publically expressing concern that the surface economic resource base is rapidly depleting, requesting fresh mining claims. The ZMDC has since 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 lived.
By Paul Zimnisky