2 March 2018

Zimbabwe: ZCDC Got Us$80m Capital Injection From Govt - Mpofu

Photo: The Herald
Diamonds (file photo).
interview

TK: Can you briefly describe what led to the formation of the ZCDC shortly after government ordered companies mining in Chiadzwa to stop operations in 2016?

When Zimbabwe discovered vast deposits of alluvial diamonds in 2008 in the Eastern Highlands region, it was widely claimed the country's find could potentially account for 25% of global deposits. But after a decade of commercial extraction, Zimbabwe reportedly lost a staggering US$15 billion -- an assertion which is yet to be substantiated -- through dodgy operations amid allegations of corruption and looting. Government eventually cancelled mining licences of companies operating in Chiadzwa and subsequently formed the Zimbabwe Consolidated Diamond Company (ZCDC) to mine in Marange. The Zimbabwe Independent business reporter Tinashe Kairiza (TK) spoke to ZCDC chief executive Moris Mpofu (MP) on the firm's mining activities and efforts to foster transparency in the mining of gemstones. Below are excerpts of the interview:

MP: ZCDC is registered under the Companies Act Chapter 24.03. It is 100% owned by the Government of Zimbabwe through the Zimbabwe Mining Development Corporation (ZMDC), a state enterprise incorporated under an Act of Parliament. ZCDC was formed in July 2015 before the former diamond mining companies ceased mining in February 2016. ZCDC was issued with a Special Grant 6026 on February 22 2016, in terms of the Mines and Minerals Act Chapter 21:05. Upon realising that there was lack of transparency and accountability in the operations of former mining companies in Chiadzwa, government did not renew the Special Grants of mining companies operating in Chiadzwa and Chimanimani. Chief among authorities' concerns was the failure of diamond mining companies to fully declare and account for diamond revenues and profits; hence there was no significant contribution to the fiscus. Contrary to government's expectations, there was also no meaningful development in the surrounding communities and environmental rehabilitation of mined out areas.

The objectives of the company, among others, are to carry out prospecting, exploration and evaluation, mining, processing and sale of diamonds. ZCDC was established with the following mandate:

  •  To achieve better responsibility, accountability and transparency in the mining of diamonds;
  •  To enhance adequate investment in diamond mining beyond alluvial;
  •  To explore for alluvial, conglomerate and kimberlitic resources and build bankable reserves;
  •  To enhance contribution to the fiscus and community development; and
  •  To enable government to manage more efficiently operations and exploitation of the country's diamond resources.

TK: How easy or difficult has it been, to build operations on the foundation of companies which in essence had largely failed to contribute anything meaningful to the fiscus?

MP: ZCDC conducted a comprehensive diagnosis in March 2017, which identified crippling bottlenecks and challenges in the sector such as, inter-alia, lack of transparency and accountability in declaring diamond revenues and profits to government.

It therefore crafted its business strategy to effectively address some of these legacy challenges, through the development and implementation of a comprehensive business strategy known as, the "Diamond Mining Business Model (DMBM)", anchored on organisational stability, business growth and mining sustainability. It has not been easy to build operations against a myriad of challenges emanating from legacy issues and negative perceptions associated with the previous diamond mining model.

However, the implementation of the DMBM has seen ZCDC positively transform diamond mining through operational efficiency, production effectiveness and community responsiveness.

TK: How are you trying to do things differently?

MP: When we took over this mammoth responsibility of implementing ZCDC's mandate where there are huge stakeholder expectations in making a difference, we never underestimated the importance of our role. Having noted that negative perceptions had damaged the brand of diamond mining, ZCDC had to re-model its operations and rebrand its corporate identity to inculcate a new culture of management and build stakeholder confidence. ZCDC had to do things differently by ensuring that transparency and accountability become the core tenets of its business operations. The company had to take bold strategic decisions such as:

l Conducting a comprehensive corporate diagnosis -- to identify business risks obtaining in the diamond mining operations to assist in crafting an optimal framework that will deliver effectively the Government mandate;

  • l Mobilising capital -- to build adequate capacity across the entire diamond mining value chain -- this having been identified as a major bottleneck impacting negatively on diamond production;
  • l Conducting an intensive exploration and evaluation exercise to establish the present status of the inherited mining concessions since the diagnosis indicated that there were no meaningful resource statements of a qualified nature available. All geological information was on an inferred basis. ZCDC's production geology exercise was meant to increase confidence levels and upgrade the identified diamond resources to an investment grade;
  • l Transition from an alluvial to a conglomerate mining model -- the geology team noted with disappointment that the so-called alluvial reserves were depleting fast. This motivated ZCDC to design its business model with a view to transition from alluvial to conglomerate mining. It is interesting to note that if such a bold strategic decision had not been taken at the right time, the life of alluvial mining would come to an end without a proper transitional plan;
  • l Investing in Diamond Value Management (DVM) and benchmarking with established regional diamond producers for best practices -- given that the diagnosis identified loss of diamond revenues resulting from ineffective DVM due to inadequate cleaning and subsequent undervaluation of diamonds;
  • l Strategic exit from the market -- to allow reorientation and realignment of key processes in downstream DVM processes which include, inter alia, cleaning, sorting, valuation and marketing and sales framework. This has consequently resulted in an improvement in Gem/Near Gem content and diamond values. ZCDC has since returned to the market in the first quarter of 2018 and will be resuming regular periodic sales up to end of the year;
  • l Adoption of a dedicated Corporate Social Responsibility programme and Environmental Management framework -- the diagnosis identified these areas as grossly neglected. ZCDC has budgeted a total of US$20 million towards correcting the environmental degradation caused by the former miners;
  • l ZCDC has subscribed to the Kimberly Process Certification Scheme (KPCS) pursuant to the need to comply with KPCS best practices that advocate for ethical, responsible and orderly mining and marketing of diamonds.
  • l ZCDC takes the role of correcting legacy mistakes with full responsibility and pledges to apply best practices in the mining of diamonds for the benefit of all Zimbabweans.

TK: You recently received recapitalisation resources from the Reserve Bank of Zimbabwe (RBZ), how has it enhanced your operations? And how much are you producing now?

MP: ZCDC received US$80 million equity injection from its shareholder, the government of Zimbabwe which has been used to build capacity in its operations. The RBZ has only been responsible for disbursement of the capitalisation proceeds from Treasury. It was from this capital injection that ZCDC funded investment into a 450 tonnes per hour (450 TPH) conglomerate plant which is being installed in Chiadzwa. Using proceeds from the equity injection, ZCDC also enhanced its mining capacity with investment in additional mobile crushers, earth moving equipment and drill rigs to enhance operational efficiency and production effectiveness. Part of the capitalisation proceeds was also used to build exploration and evaluation capacity of ZCDC to improve the resources from inferred to higher levels of confidence. In addition to this equity injection, ZCDC also benefited from a PTA facility of US$35 million which was used to purchase 52 pieces of earth moving equipment from Belarus.

ZCDC experienced foreign exchange availability challenges towards the end of 2017, which delayed the completion of the conglomerate plant which is expected to produce between 200 000 to 250 000 carats per month. However, ZCDC managed to procure 100 TPH mobile crushers, which have assisted to produce diamonds from conglomerate ore before commissioning of the conglomerate plant. In 2017, ZCDC doubled production from 962 000 carats in 2016 to 1,8 million carats. In January, 2018 the mobile crushers produced over 130 000 carats.

TK: In the short term, are you on course to meet the production targets set by RBZ?

MP: ZCDC gets its production targets from its shareholder the Government of Zimbabwe through its board of directors. ZCDC has managed to mobilise foreign exchange in this quarter to complete its conglomerate project by end of the first quarter of 2018.

The 450 TPH conglomerate plant is scheduled to be commissioned in the second quarter of 2018. The new earth moving equipment, comprising the Belarus equipment and other units is expected to be commissioned in March 2018.

TK: How much have you spent towards purchasing new equipment?

MP: To date ZCDC has spent US$60 million on the purchase of the conglomerate plant, mobile crushers, drill rigs, earth moving equipment and processing equipment.

TK: How big is the stockpile you are currently sitting on?

MP: ZCDC is currently sitting on 1,6 million carats from 2017 production of 1,8 million carats. Part of 2017 production was last sold in February 2017. From March 2017, ZCDC exited the market to realign and reorient downstream processes to achieve effective cleaning, sorting, valuation, marketing and sales.

TK: Are there plans to expand operations, how much would be required to do so?

MP: As inscribed in its business strategy, ZCDC will implement a mining sustainability program which is aimed at increasing the life of mining for ZCDC. Three more mines (Portals D, Q and R) will be opened in 2018 to complement production at Chiadzwa and Chimanimani. Extensive investment has been made in exploration and resource evaluation to discover and validate new diamond resources and reserves across the country. Work has already begun in various areas with reported diamond resources. New mines will be opened in areas were diamonds are discovered in quantities which are economic to mine. In 2018, ZCDC has budgeted to invest close to US$200 million across the diamond mining value chain. The Company will have invested US$400 million towards capacity building in diamond mining in fulfilment of its five-year strategic vision, which will see production being ramped up to 10 million carats per year by 2022.

TK: What are you doing to plug revenue and diamond leakages?

MP: Since its establishment in 2016, ZCDC put in place measures to ensure that access into the diamond fields is controlled and prevented. In 2017, ZCDC further invested into an enhanced security framework through introduction of unmanned aerial surveillance equipment such as drones, expanded CCTV framework, illumination of diamond fields, purchase of dogs, armoured security vehicles and increasing physical security personnel through recruitment of additional security guards. ZCDC has embarked on redesigning its Security Risk Management Framework which is aimed at tapping into international best practices and ensure the creation of a KPCS compliant security model. To facilitate the process ZCDC has also commissioned a comprehensive audit of the entire diamond mining value chain from an independent and external security consultant. Anticipating growth in its mining operations, plans are afoot to further enhance ZCDC's security systems through the procurement of horses, additional security dogs, quad bikes, special purpose security vehicles and perimeter fencing. Government is in the process of developing a new deterrent diamond law, which will also designate all diamond mining zones as protected areas.

TK: What is the future of diamond mining in Zimbabwe?

MP: We expect investment into the sector to increase as confidence builds up. ZCDC will reopen viable dormant diamond mines in Chiadzwa. Intensive exploration and resource evaluation in search of kimberlites will be conducted in Mwenezi, Binga, Chihota and Kezi. Our investments in exploration will unlock sustainable diamond value for the nation through the discovery of new diamond deposits across the country.

The sector is expected to employ more than 8 000 employees in the next five years. Zimbabwe is poised to be among the top diamond producing countries with an estimated output of 10 million carats per annum by 2022. Over this period, ZCDC expects to invest a total of US$400 million which will be funded from both local and foreign sources.

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