Claiming that mining companies were "robbing the State," Zimbabwe president Robert Mugabe announced today that all diamond mines are now property of the government. On February 22, the government ordered all mining companies to vacate their holdings and leave all equipment behind. The nation's diamond mines will now be run by a new state-owned company. The action has thrown the nation's important diamond mining sector into turmoil, and serves notice to all foreign companies that the mercurial 92-year old Mugabe is still as unpredictable as he has ever been.
Using the excuse that the mining companies let their leases lapse as far back as 2012 (something the miners say was the responsibility of the government to handle,) Mugabe charged that all mining operations were illegal. The government offered the mining companies a 50% stake in the new state-controlled company that will have a diamond mining monopoly, but that 50% will be divided among all private companies according to the size of their operations.
Ramzi Zalik, head of the Diamond Mining Corporation told CNN Money that the offer was "absurd," noting that the government expects the foreign mining companies to spend the money needed to operate and build new diamond mines for a fraction of the proceeds. Zalik said "I would have to capitalize these new untapped resources. If I invest $10-$20 million in a new mine I would want to have a big share." Zalik said DMC's stake in the new state-run miner that is confiscating his mine would be only 4%.
While disdainful of the protests of Western companies (and nations,) Mugabe owes a tremendous debt to China. When the country was still Rhodesia, China backed Mugabe's rebel group. After gaining control of the nation, ties between Zimbabwe and China grew even closer, with Beijing sinking millions of dollars into projects there. This has resulted in Mugabe having to exempt Chinese businesses from some of his anti-foreigner decrees.
This "special relationship" may be in danger after Mugabe's latest actions. One of the diamond mines targeted is/was run by Chinese company Anjin as a joint operation with the Zimbabwean government. Anjin petitioned the High Court over the eviction, claiming it a breach of contract and violation of shareholder rights under the terms of a bilateral trade treaty that was signed with China. The largest diamond miner operating in Zimbabwe, Mbada Diamonds, successfully obtained a ruling nullifying the seizure of its assets. However, Mbada security personnel were barred from entering company property by police.
The diamond mining industry accounts for 30% of Zimbabwe's income, but volumes have shrunken from 10% of world diamond production in 2013 to an expected 3% this year.
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