The significance of diamond beneficiation to Zimbabwe
By Ngonidzashe Nzenzema
Part 1: Definitions and Statistics
Introduction
Beneficiation and value addition have
become topics of increasing importance for mineral producing countries,
especially in Africa. There are growing calls not only for increased revenue
generation through sustainable natural resource exploitation, but also for more
local benefits to accrue before export. The anticipated benefits include employment
creation, skills transfer and technology development among others. This has
meant setting up export barriers and tariffs to compel adoption of local
processing by mining companies. Precious minerals among them gold, platinum,
chrome, silver and the famed diamond lead the pack as the prime candidates for
local beneficiation, largely because of their unique qualities and peculiar characteristics.
Analyzing the diamond and its beneficiation
The term diamond conjures up, evokes and elicits various images. These
images range from the positively envisioned opulent displays of magnificent wealth
and luxurious indulgence; to the detestable devastating images of war, hunger, disease
and death. All these word associations hold true for various situations.
Meanwhile, the diamond’s inherent value lies largely in perceptions. Apart from
its industrial applications, a diamond
has come to symbolize various other things like love, wealth, luxury, strength,
purity and at one time diamonds were used for religious, spiritual and even medicinal
purposes. However, for the avoidance of doubt the diamonds which we are
interested in are the “conflict-free” variety found in locations such as
Zimbabwe amongst the major sources, which can be used for industrial
applications and jewellery manufacturing.
In expert parlance or techno-speak a diamond is a hard collection of pure
carbon atoms bound together by the strongest connections known on earth. Traditionally, the greatest economic attribute
of the diamond has been its ability
to quickly and easily move large sums of monetary value concealed in so inconspicuous
a stone. This attribute has led to eminent diamond industry players to refer to
it as a “refugee’s best friend.” However, on its own the rough diamond only
consists of part of the full story. Subsequent value addition through
beneficiation of the mineral transforms it into more valuable configurations.
In Zimbabwe, both the terms diamond and beneficiation have taken cultic status. Minerals have taken centre stage
as a potential driver of economic development. Despite this, a search for the
meaning of the phrase “Diamond Beneficiation” on the other hand still draws
blank faces amongst most citizens, ordinary folk and the sophisticates alike. Regardless,
both words used together are now venerated as potential saviors for the local
economy; an improbable task for such an unassuming mineral. The Central Government authorities in Zimbabwe
see an opportunity even though there is still no agreed definition or legal
framework for concerted minerals beneficiation. For academics, the term
beneficiation has brought about restless nights to even the most studious
scholars. The biggest challenge being that it refers to an intangible concept.
An extra-ordinary understanding of novelty. It requires looking beyond the
obvious and mentally arranging old ideas in new ways. To date there is still
contention and contestation as to the true meaning of the term more so in
Zimbabwe. Therefore, the challenge lies in conceptualizing what it involves and
what it means for the mining sector and related industry players.
For this writer, beneficiation refers to
any subsequent processing undertaken on a mineral or primary product post
extraction. It is the process of further manipulating a mineral’s innate
properties in new and innovative ways into useful finished products that can be
commercially sold for a monetary consideration. This implies that some value is added to the final product, transforming the mineral or combining
the various minerals in new and innovative ways to produce a more valuable
final product. This final product is worth significantly more than the
constituent minerals. The key to beneficiation is the utility of the final
product, for example a loaf of bread made of clay powder finds no utility in metabolic
nutrition. However, perhaps it is more useful in a museum as a model depicting
the types of loaves of bread produced by a bakery over the years.
Diamond beneficiation holds great
promise for Zimbabwe. However, while the country can produce
in excess of 25%
of the worlds demand in rough diamonds it has not achieved any visible
significant benefits. This is despite the discovery of the first commercial
diamond claims in the country in 1997 at Rio Tinto’s Murowa and the 2001, 2003
and 2006 alluvial finds in the Marange and 2013 conglomerate find in Chimanimani
areas. Prior to this, DeBeers the only company ever to conduct extensive exploration
for diamonds locally concluded that there were no commercially viable deposits
of the mineral. The company went on to give up its Exclusive Prospecting Order (EPO),
but ensuing events have adequately disproved its claims. Since then, Chiadzwa
is considered to be the largest find of alluvial diamonds and to have the
world’s largest deposits valued at over US$800 billion. Confirmation of these
estimates is pending thorough exploration which is still outstanding to date.
In order to extract the maximum possible
value from diamonds, the missing piece in the puzzle is a local beneficiation
strategy. This will allow the country to tap as much of the value of the
diamond locally and retain the same before the deposits run out. Exporting the
rough diamond through maximum extraction and exports has not achieved its stated
objectives of improving the livelihoods of the locals or transforming the
economy, as expected of such a valuable mineral.
Diamond industry quick facts
The global diamond jewellery industry was
worth an estimated US$79 billion as of 2013 (DeBeers 2014). This translates from
just over 146 million carats of rough diamonds produced in 2013. However, not
all diamonds produced end up in jewellery. Meanwhile, according to the
International Monetary Fund (IMF) Zimbabwe is reported to have the highest
minerals per capita indices. Its Chiadzwa fields have the potential to produce
12 million carats of rough diamonds per year to beyond the year 2020. Given
that the price of a carat of rough diamond varies between US$30.00 and US$18,000.00
it is of worth to pay attention to developments emanating from this industry.
Zimbabwe’s diamonds are however being sold at a discount because of the
country’s desperation to raise fiscal revenues due to liquidity challenges
brought about by the restrictive measures put up by the foreign governments
making it tough to trade freely. This means diamond are underperforming and the
country is losing value to middle-men and precious jobs to foreign countries. However,
by locally adding value the country could multiply what it is currently earning
many times over. The simple statistics below demonstrate this.
Globally, producers were reported to
have shared just US$18 billion in 2013 from 146 million rough diamond carats
sold. Of this figure Zimbabwe reported a gross value of US$664 million from the
sale of its diamonds, an amount that still needs to be shared between the
government and its Joint Venture partners after paying off operational costs.
In the final analysis, the government makes a paltry amount, meaning the State is still left holding the short end of the
stick. This has to be compared against estimated earnings of US$79 billion for
the global jewellery industry. Comparably easy, rich pickings made by a coterie
of downstream players who usually do not even have diamond mines in their own
countries. There is thus need for increased advocacy to locally beneficiate
diamonds by setting up facilities modeled along the lines of the Zimbabwe
Diamond Center so as to capture most of the value locally, since the most money
stands to be made at the subsequent stages of diamond beneficiation.
While DeBeers still dominates the
market, it is closely followed by producers like Russia’s Alrosa and new kids
on the block like Zimbabwe which is still relatively in the early stages of
developing the diamond mining industry. Figures for Rio Tinto might be
contaminated since it also mines diamonds in Zimbabwe and its data has not been
disaggregated for this purpose. However, despite this, the very fact that
Zimbabwe’s Chiadzwa diamonds have been disaggregated and considered 4% of total
global production is not a mere feat.
The diagram below shows the 2013 consolidated
percentage production figures for each source:
Figure
1
Source: The Diamond Insight Report (DeBeers
2014: 38)
Developments along the diamond value
chain
The diamond value chain refers to the
various processes through which the diamond passes until it reaches the market. It consists of
six stages: exploration and production; rough diamond sales; cutting and
polishing; polished diamond sales; jewellery manufacturing and finally retail
jewellery sales. The greatest value addition and growth in value comes at the
jewellery manufacturing and retail sales stages.
The diagram below show the value trends
as the diamond passes through various stages of processing:
Figure
2: The diamond
value chain
Source: Bain and Company (2013: 5)
Clearly, there is more value to be
gained from diamond beneficiation through jewellery manufacturing and retail
sales, than simply selling in the rough. There is also a growing recognition
that diamond jewellery is considered valuable if it is made by reputable
jewelers and sold from famous luxurious shops. Therefore, branding is
everything in the industry. Locally there in now need to grow good brands
building on the advantage the country has in controlling supply. In the USA a
diamond ring sells for an average cost of US$3,700.00 in the up market
retailers, at least two months’ salary for middle class white collar workers.
This illustrates that a diamonds’ value
increases significantly as it passes through the value chain. Bain &
Company report that it nearly quintuples as it passes through the value chain. However,
the greatest value of up to US$50 billion is added at two stages: the jewellery
manufacturing and retail stages (Bain & Company 2013: 4). However,
critically they also report that diamond mining alone still achieves the
highest profit margins of up to 20%. This presents numerous opportunities for
Zimbabwe to pursue along the entire value chain, from the mine to the market
since it possesses significant quantities of diamond deposits.
References
Bain
& Company Incorporated and Antwerp World Diamond Centre. 2013. “Journey
through the Value Chain,” The Global
Diamond Report. Bain and Company Inc.: Boston.
Chininga,
C. 2013. “First Report on the Portfolio Committee on Mines and Energy on
Diamond Mining (with special reference to Marange Diamond Fields) 2009-2013.” Parliament of Zimbabwe Portfolio Committee
on Mines and Energy. Presented to the Fifth Session of the Seventh
Parliament of Zimbabwe on June 2013. S.C.4, 2012. Parliamentary Monitoring
Trust of Zimbabwe: Harare.
DeBeers Incorporated. 2014. “The Diamond
Insight Report” Available at http://www.debeers.com/
http://www.debeersgroup.com/en/news/company-news/company-news/global-diamond-demand-reaches-record-levels.html,
Kimberley
Process Certification Scheme. “Kimberly Process Statistics 2012.” 19 June 2013.
Viewed on 16 September from https://kimberleyprocessstatistics.org/static/pdfs/public_statistics/2012/2012GlobalSummary.pdf.
McKinsey &Company. 2014.
“Perspectives on the diamond industry” White Paper. Available at http://www.mckinsey.com/
Government of Zimbabwe. 2013. National
Budget 2014. Printflow: Harare
Sunday
Times (SA). “Fabulous wealth in Marange Diamonds” 8 August 2010.
No comments:
Post a Comment