Zimbabwe to Nationalize Diamond Mining After Gem Rush

Zimbabwe to Nationalize Diamond Mining After Gem Rush
Bloomberg, February 21, 2007

By Brian Latham

Feb. 21 (Bloomberg) -- Zimbabwe's President Robert Mugabe, whose seizure of white-owned farms seven years ago devastated the economy, said he plans to take control of the nation's diamond mines.

The government will take control of the industry after allegations of smuggling from the country's mines and a diamond rush in the eastern district of Marange, Mugabe said in an interview on state television late yesterday. Zimbabwe has two diamond mines known as Murowa, owned by Rio Tinto Plc, the world's third-biggest mining company, and RioZim Ltd. The second, River Ranch, is held by private investors.

``Only government will mine diamonds,'' Mugabe said. Diamonds will fall into a ``special category,'' he added, accusing exploration companies of selling the gems they find illegally. Mugabe threatened last May to take control of the country's foreign-owned mines and never followed through.

Zimbabwe, the world's fastest shrinking economy, in 2000 began a program of seizing white-owned commercial farms for redistribution to black subsistence farmers deprived of land during white rule that ended in 1980. In the process export earnings plunged, deepening a recession now in its ninth consecutive year, and inflation soared to 1,594 percent, the world's highest rate.

``If the state takeover of diamond mines is passed into law, it will destroy diamond exploration in this country,'' Andrew Cranswick, Chief Executive Officer of African Consolidated Resources plc, said in an interview today from the capital, Harare.

Monopolize

Shares of Rio Tinto fell 37 pence, or 1.3 percent, to 2,783 pence on the London Stock Exchange at 3:56 p.m. local time. The stock has risen 2.4 percent so far this year. RioZim's shares closed unchanged at 9,000 Zimbabwe dollars on the Zimbabwe Stock Exchange today. The stock fell 3.2 percent yesterday.

Murowa produced 187,000 carats last year. River Ranch's production is not disclosed. Debswana, a joint venture between Botswana's government and De Beers, mined 34.2 million carats last year. Botswana is the world's biggest diamond producer.

Mugabe has repeatedly threatened to seize mining assets in the country that has the world's second-biggest platinum and chrome deposits after South Africa. He didn't mention Rio Tinto.

``The word nationalize wasn't used,'' Nick Cobban, a spokesman for Rio Tinto in London, said in an interview. Mugabe said he would ``monopolize'' industry.

Chavez, Morales

Rio doesn't believe the comments pertain to its mine, he said.

``We don't believe there has been a change in policy,'' Cobban added. ``We believe they were made specifically about the situation in the east of the country.''

Mugabe's threat is similar to those made by leaders of other emerging economies who want their citizens to benefit more from their countries' natural resources. Venezuelan President Hugo Chavez said Jan. 9 he plans to take control of ``strategic'' assets in the nation's energy industry, while Bolivian President Evo Morales has said he would nationalize his country's oil and gas reserves.

It is unclear whether Mugabe's latest pronouncement will be made law, said David Murangari, Chief Executive Officer of Zimbabwe's Chamber of Mines, a business association that represents most mining companies in the country.

'Mistake'

``We are studying the situation and will discuss it with the mining industry if that's really government's intention, but currently there is no law that specifies certain minerals can be mined only by the government,'' Murangari said in an interview.

Zimbabwe's government on Dec. 7 evicted African Consolidated from Marange, a deposit to which the Nettlestead, U.K.-based company had the rights, after a diamond find there prompted thousands of informal miners to converge on the area. The area has now been cordoned off and handed to the state-run Zimbabwe Mining Development Corp.

``I've never believed in nationalization and as a citizen of Zimbabwe I'd say it's a mistake,'' Cranswick said. ``As a mining explorer, well, we'll have to review the whole country if this becomes a legal reality.''

African Consolidated had formed alliances with government ministers and officials, Mugabe said.

``Government ministers and members of the politburo joined ACR, but we said no to that company,'' he said. African Consolidated is challenging the eviction.

De Beers, the world's biggest diamond company, discovered the Marange deposit and passed it on to African Consolidated, Mugabe said. De Beers's spokesman, Tom Tweedy, didn't immediately answer calls made to his mobile phone. De Beers is 45 percent held by Anglo American Plc.

Diamond Demand

Demand in the $12 billion market for rough, or uncut, diamonds has weakened after three Federal Reserve interest rate increases in 2006 added to the debt burden of cutting companies. The U.S. accounts for about half of all retail diamond sales.

Polished gem prices rose a maximum 1 percent last year, Richard Platt, a director of Antwerp-based Polished Prices.com, which tracks diamond prices, said Feb. 9. He forecast a recovery, with prices rising 9 percent this year.

No-one at RioZim and River Ranch was available to comment when contacted by Bloomberg News today.

Zimbabwean diamond production ranks behind Botswana, South Africa, Namibia, the Democratic Republic of Congo and Angola in Africa. The continent produces 65 percent of the world's diamonds, according to De Beers.