Rio Tinto ramps up diamond mine in Zimbabwe

With its small size and risky location, Murowa won’t be making the cover of Rio Tinto‘s (RTP-N) annual report any time soon, but the company’s third and newest diamond mine has quietly started production in Zimbabwe and ramped up to commercial levels.

Situated 40 km outside Zvishavane in south-central Zimbabwe, Murowa comprises three kimberlite pipes discovered in 1997.

The project is managed by Rio Tinto, which holds a 78% interest in the mine, while the remainder is held by RioZim, a Zimbabwean-listed company and former Rio Tinto subsidiary.

Rio Tinto carried out feasibility studies and mine planning from 1998 to 2000, and delineated reserves in the two largest pipes of 18.7 million tonnes grading 0.9 carat per tonne.

Included in the US$40 million so far spent on the project was a US$5.5-million cost in 2002-03 to relocate more than 900 people in 140 families to six farms purchased by the joint venture under a government resettlement program.

The Murowa partnership provided the families with new homes and newly prepared plots for seeding.

For the mine, the partners built a treatment plant, security facilities, access roads, office buildings and a power supply. The mine employs about 90 people, including about 30 locals.

With production getting underway in the third quarter of 2004, Murowa produced 3,000 carats from 4,000 tonnes of ore in the third quarter, and 44,000 carats from 27,000 tonnes of ore in the fourth quarter.

The mine should be producing at a rate of about 200,000 tonnes per year in 2005, and there remains plenty of room for expansion of mining rates.

Rio Tinto reckons the value of Murowa’s diamonds should average around US$65 per carat over the life of the mine, though better quality and larger stones will likely be recovered during initial mining.

Worldwide for all of 2004, Rio Tinto’s share of diamond production totalled 25.2 million carats, divided between: Argyle in Australia (100% interest), 20.62 million low-value carats (but nearly a quarter of the world’s diamonds by volume); Diavik in Canada (60%), 4.545 million top-quality carats; and Murowa (78%), 36,000 carats.

Under its diamond-sales strategy, the recently established unit Rio Tinto Diamonds sells its Argyle, Diavik and Murowa output separately so that the national identity of each production remains identifiable.

Diamond sales are held 10 times per year in Antwerp, though some Murowa diamonds could also be sold locally. The first sale of Murowa diamonds was to have been held in Antwerp in December, but the results are not yet public.

Despite this initial success, Rio Tinto has developed the Murowa mine against the backdrop of a Zimbabwean economy that is disintegrating yearly under the harsh and erratic rule of Zimbabwe President Robert Mugabe and his Zanu-PF party.

Further troubles surfaced last March as the national government introduced abd then withdrew a bill — the Mines and Minerals Amendment Act (2004) — that would have forced the Murowa partnership to sell 49% of its interest in the mine to black Zimbabweans, who most likely would have had strong connections to the ruling party.

The Zimbabwe Chamber of Mines President Ian Saunders responded last year to the bill by suggesting that selling a 25% stake to local blacks over 10 years would be a more realistic target, and in line with South Africa forcing companies to sell 26% of their mining assets to local blacks over 10 years.

Other foreign mining houses with investments in Zimbabwe include Impala Platinum, Anglo American Platinum, Metallon Resources, Mwana Africa Holdings.

The Zimbabwean government has also said that it would like to make room for China to invest in the Zimbabwe mining industry, particularly in the platinum sector.