THIS week the Zimbabwe Independent which in December last year began publishing fresh stories based on new and original material into the Chiadzwa alluvial diamonds discovery and subsequent plundering at various stages by state and non-state actors -- continues with its exclusive interview with South African miner and investor, David Kassel, who was deeply involved in the saga.
Kassel this week spoke about how United States sanctions hurt Mbada Diamonds.
He also dealt with the "blood diamonds" tag, seizure of diamond parcels, freezing of accounts, use of front companies by diamond teurs, pricing of diamonds, alleged looting, his company's debts and social corporate responsibility issues.
On December 9 2011, the US Treasury Department's Office of Foreign Assets Control (Ofac) imposed sanctions on Marange Resources and Mbada Diamonds - the two companies in which the state-owned Zimbabwe Mining Development Corporation (ZMDC) had an interest. Marange Resources, representing government, and Grandwell, an investment vehicle for South Africa's New Reclamation Group, were 50% shareholders apiece in Mbada.
Prior to that, ZMDC has already been designated by Ofac on July 25, 2008, pursuant to executive order 13469, ensuring property and interests in Mbada Diamonds and Marange Resources were blocked.
Once placed on the Ofac Specially Designated Nationals and Blocked Persons (SDN list), it takes time and effort to have the sanctions removed.
While there is an administrative process for removing the measures, access to US federal courts for review of Ofac decisions is often limited for SDNs, because they are mainly foreign nationals with no access to US courts.
So those on the sanctions list have to ask the very same agency and its managers to change their mind; which makes this very difficult. Although the sanctions list is difficult to remove, it is not impossible and Ofac does fairly frequently reconsider its restrictions.
Kassel, who is New Reclamation Group chairman, said the US sanctions changed the operating environment for Mbada which had to battle Kimberley Process Certification Scheme (KP) compliance demands for it to start reselling diamonds in 2010 after a ban in 2009 in the trade of Zimbabwe's "blood diamonds".
Kassel said after Zimbabwe fulfilled KP benchmarks, it became unfair to continue to refer to the Chiadzwa diamonds as "blood diamonds" as the mining companies had put in place tight security systems to prevent theft and ensure diamonds were extracted and sold through legitimate means.
He said Mbada only resorted to sanction-busting dealings after the Ofac measures.
"There are various issues to consider on this sanctions issue," Kassel said.
"First of all, why were Mbada and Marange Resources targeted? Why were they placed on the sanctions list? For us it merely confirmed what I said last week that Mbada had fought hard on behalf of all companies and Zimbabwe as a country to ensure organised and legal mining took place in Chiadzwa.
"For so doing, we bore the brunt of the backlash. Why is it that other mines associated with ZMDC and Marange were not placed on sanctions? It's because we fought the war to secure KP compliance and normalise the Marange situation; some people did not want that for whatever reason, hence we were punished for that in the process.
"On account of sanctions, some diamond teurs (diamond industry players) were not able to trade and deal with us directly under their normal banners or names for fear of sanctions and retribution. So they had to find other entities to trade with us, but there were serious business and cost implications to that.
"Sanctions-busting is not necessarily a cheap exercise; it can lead to discounts on prices of goods and thus distortions in the market. It changes ways of doing business.
"As a result of the Ofac measures, Mbada could not receive payment for its diamonds in US dollars because transactions in that currency are cleared and settled via New York. This came after some incidents of seizure of our diamond parcels and freezing of payments."
Most international wire transfers moving to and from the US pass through one of New York City's large money centre banks in order to access Chips -- a US payments clearing system; the largest private sector US-dollar funds transfer system in the world which clears and settles an average of US$1,5 trillion payments daily.
"Since we couldn't trade in US dollars, we had to find new ways of trading and transacting. Buyers had to convert their dollars into other currencies to purchase our diamonds. After that we also had to convert whatever currencies we received into US dollars," Kassel said.
"In the process of switching currencies and conversions, we lost value. The process had serious cost implications. This means only those buyers prepared to be subjected to this conversion process would come to us, otherwise others refused.
We had to deal with those who were willing and could actually do that. This limited the market for us."
Currency exchange rate fluctuations in general affect travel, imports, exports, business and the economy. Over time, currency values can vary quite dramatically.
However, individuals, investors and businesses can take steps to mitigate the risks and take advantage of currency movements to their benefit. "For us it was a harsh environment. In order to procure equipment, for instance, we had to go through third parties sometimes and that also had cost implications. People don't do things for free, there is no free lunch. They made us pay for that.
"Insofar as the Mbada directors were concerned, we became politically exposed persons, meaning it was no longer business as usual for us. We would not have proper access to banks and other financial institutions as they had to be cautious with us.
"The Grandwell account in Mauritius was closed because of sanctions. This is how bad it was for us."
Kassel also dealt with allegations of looting by mining companies and their directors.
"When you invest in a high risk environment, or you take a huge risk you naturally expect substantial or good returns.
Business is all about risk-taking. We were not an exception. We went into a risky environment and we made a decent return. We are not shamed of that, but that's not looting.
What looting? We take serious exception to that characterisation.
"I have been in mining and diamonds business for 47 years, operating with honesty and integrity. So all these allegations of looting are just nonsense. If anyone has evidence of looting, they must bring it forward.
"We have said we are prepared for an audit. We have informed them (government) that we are ready for a forensic audit. Reclam had bonds listed or traded on the Irish Stock Exchange from 2006 to 2013, so we were obliged to submit quarterly reports to the stock exchange; we also have companies like Old Mutual and other shareholders.
How on earth would such companies accept looting at Marange in their name?
"Besides, Mbada was audited by a reputable auditing firm, KPMG (one of the Big Four auditors, along with Deloitte, EY and PwC) twice a year.
This was because Reclam's financial year ended in June, while Mbada and other companies in Zimbabwe have their fiscal year-end in December. We had tight security systems and proper accounting and audits. It was difficult to steal; perhaps it happened in the fields because it was a vast tract of land not at the mine.
That is why we are ready for a forensic audit, subject to all the issues we have raised with authorities, which include the terms of reference, who pays for the audit and that we get the report of the audit when it's done."
Kassel said Mbada, which he admitted is now mired in mounting debt due to lack of production and revenue, had diamonds seized in 2009 soon after it started selling.
"When we started producing and selling, we had about 600 000 carats of diamonds worth US$300 million seized in Dubai because of KP compliance issues.
They were only released after almost about a year after the KP approval. We dealt with such issues."
On the pricing of diamonds, Kassel refuted claims Mbada was siphoning through under-pricing of diamonds.
"We never sold our diamonds at US$23/carat as some have claimed," he said. "It was First Element and MMCZ (Minerals Marketing Corporation of Zimbabwe) which did that after 2013 when they introduced a new system. Otherwise, our diamonds were always sold at about US$50/carat. Some people think we were just a bunch of crooks, but that's not true. We invested with government and paid in total over US$600 million to Zimbabwe's Treasury.
"We did a lot; invested US$50 million, got US$14 million in new capital from other investors; we sacrificed US$11 million in management fees for the good of the company and put at least US$40 million in exploration. We also used millions for corporate social responsibility. That is what was actually happening at Mbada."