REGIME ELITES LOOTING DEADLY DIAMOND FIELD

C O N F I D E N T I A L SECTION 01 OF 05 HARARE 001016

SIPDIS

AF/S FOR B. WALCH
DRL FOR N. WILETT
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
STATE PASS TO USAID FOR E. LOKEN AND L. DOBBINS
STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN

E.O. 12958: DECL: 11/12/2018
TAGS: PGOV EMIN ASEC PHUM ZI
SUBJECT: REGIME ELITES LOOTING DEADLY DIAMOND FIELD

REF: 2007 HARARE 319

Classified By: Ambassador James D. McGee for reason 1.4 (d)

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SUMMARY
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1. (C) The CEO of a British mining company described to us
how high-ranking Zimbabwean government officials and
well-connected elites are generating millions of dollars in
personal income by hiring teams of diggers to hand-extract
diamonds from the Chiadzwa mine in eastern Zimbabwe. They
are selling the undocumented diamonds to a mix of foreign
buyers including Belgians, Israelis, Lebanese, Russians and
South Africans who smuggle them out of the country for
cutting and resale elsewhere. Despite efforts to control the
diamond site with police, the prospect of accessible diamonds
lying just beneath the soil's surface has attracted a swarm
of several thousand local and foreign diggers. The police
response has been violent, with a handful of homicides
reported each week, though that number could grow as diggers
arm themselves and attract police and army deserters to their
ranks. END SUMMARY

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High-Ranking Officials Trading Diamonds
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2. (C) On November 6, poloff met with Andrew Cranswick, the
CEO of African Consolidated Resources (ACR),the
publicly-traded British firm that had its Chiadzwa diamond
claim in the Marange district of Manicaland seized by the
government parastatal Minerals Marketing Corporation of
Zimbabwe (MMCZ) in 2006 (reftel). According to Cranswick,
there is a small group of high-ranking Zimbabwean officials
who have been extracting tremendous diamond profits from
Chiadzwa. Cranswick said that RBZ Governor Gideon Gono,
Grace Mugabe, wife of President Robert Mugabe, Vice President
Joyce Mujuru, Mines and Mining Development Minister Amos
Midzi, General Constantine Chiwenga and wife Jocelyn, CIO
Director Happyton Bonyongwe, Manicaland Governor Chris
Mushowe, and several white Zimbabweans, including Ken Sharpe,
Greg Scott, and Hendrik O,Neill, are all involved in the
Marange diamond trade.


3. (C) On October 14, econ specialist traveled to the
periphery of the no-go area around the Chiadzwa diamond site
located about 60 km southwest of Mutare in Manicaland.
Repeated inquiries about who was involved in the diamond
trade elicited many of the same names mentioned by Cranswick.


4. (C) Econ specialist also met with Manatsawani Mutasa, a
ZANU-PF Central Committee member and Manicaland resident, who
added that Justice Minister Patrick Chinamasa, Women's
Affairs Minister Oppah Muchinguri, and Sabina Mugabe--sister
of President Mugabe--have also been profiting from the
purchase and sale of Chiadzwa diamonds.

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How the Chiadzwa Diamond Trade Works
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5. (C) The GOZ possesses the diamond mining rights to
Chiadzwa, but the Zimbabwe Mining Development Corporation
(ZMDC) does not do any extraction itself. The ZMDC brought
in some mining equipment in 2006 after seizing the mining
rights from ACR, but their efforts were minimal and soon
halted altogether. According to Cranswick, all extraction is
now being done by hand panners who merely sift the top meter
of soil. Some of these panners operate in teams that sell

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their diamonds to representatives of the above-named
officials and connected elites. Other panners are individual
operators who merely sell to the highest bidder. Often the
panners who are affiliated with a particular regime buyer,
will only sell a portion of their diamonds to that person's
representative, holding back the remainder to sell for higher
prices to foreign buyers offering hard currency.


6. (C) The diamonds that are sold to regime members and
elites are sold for freshly printed Zimbabwean notes issued
by the RBZ. These diamonds are aggregated and resold to
foreign buyers for US dollars or rand in nearby Mutare, in
Harare, over the border in the Mozambican towns of Manica and
Chimoio, or even in South Africa. (NOTE: Econ specialist
reported that Mutare was awash with diamond money. The
Holiday Inn was booked with guests checking in for weeks at a
time. Food prices in shops near Marange were exorbitant, with
meat prices four times higher than in Harare. END NOTE.)


7. (C) The diamonds that are not sold to regime members and
elites, but instead are sold directly to foreign buyers,
actually constitute the majority of the diamond trade in
Chiadzwa. Cranswick said that around 85 percent of the
diamonds extracted from Chiadzwa are sold directly to foreign
buyers. Even so, he conservatively estimated that Mujuru,
Gono and the rest were probably each making several hundred
thousand dollars a month.


8. (C) Whether bought first by regime members or not,
eventually the diamonds are sold to a mix of Belgians,
Israelis, Lebanese (the largest contingent),Russians, and
South Africans. A well-known buyer named Gonyeti fronts for
Gono, as do two other buyers named Tendai Makurumidze and
Takunda Nyaguze, according to Mutasa. Once sold to
foreigners, the majority of the diamonds are smuggled to
Dubai and sold at the Dubai Multi Commodities Centre
Authority, a dedicated economic free-trade zone created in
2002 for the exchange of metals and commodities, most notably
gold and diamonds. Although Zimbabwe is a participant in the
Kimberley process, the diamonds from Chiadzwa are
undocumented and therefore are not in compliance with
Kimberley, which requires loose uncut diamonds to be
certified.


9. (C) The highest quality diamonds are not sent to Dubai,
but are shipped to Belgium, Israel, or South Africa for
cutting. Despite this wide dispersal, Chiadzwa diamonds are
very distinctive because of their age, color, and clarity and
can easily be traced back to the Marange mine, according to
Cranswick. He implicated Ernie Blom, president of South
Africa's Diamond Merchants Association in the illicit trade
of Chiadzwa diamonds, and said that Blom had been known to
boast of his involvement in illegal Zimbabwean diamonds.
When asked why purportedly reputable diamond dealers would
involve themselves in Chiadzwa, Cranswick said that the site
was "massive" with tremendous profit potential that was
attracting numerous buyers. One such group consisted of
Russians who had recently bought US$500,000 worth of diamonds
at an MMCZ auction, paying US$29/carat. They bought eight to
ten carat rough diamonds, five to ten percent of which were
gem quality.

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Diamond Trade a Violent Business
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10. (C) The diamond frenzy in Chiadzwa has led to hundreds
and possibly thousands of homicides. Word of easy diamonds
spurred a rush of Zimbabwean and foreign diggers to the area
including Angolans, Congolese, Mozambicans, South Africans
and Zambians, as well as diggers from as far away as Sierra

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Leone and Cote D'Ivoire Cranswick estimated there are
currently around three or four thousand diggers swarming over
the 70 hectare Chiadzwa site. The police have unsuccessfully
tried to prevent the site from becoming overrun, and
routinely use live fire to chase away diggers. Anyone trying
to enter the area has to present a Zimbabwean national
identification card with a registration number that ends in
"75", signifying the person is a resident of the Mutare
region of Manicaland.


11. (C) During the first weekend of November, police killed
at least five panners in Chiadzwa, according to the on-line
newspaper Zimbabwe Times. While usually operating on foot
with attack dogs, this time the police used a helicopter to
shoot at panners. Passmore Nyakureba, a lawyer with the
Zimbabwe Lawyers for Human Rights said, "This has become an
everyday scenario. Up to five people die every week as a
result of being shot at by police or after being bitten by
dogs." Cranswick said that at the peak of the frenzy in
2007, up to a hundred panners were shot in a week.


12. (C) In response to aggressive police action, diggers
began arming themselves with handguns and in some cases
automatic weapons. They also formed loose gangs in an
attempt to protect themselves as well as "claimed" areas.
Cranswick said that some members of the police and army have
deserted in order to join the digging, and they typically
brought their firearms with them. Some former police even
still wear their uniforms as they search for diamonds.

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Police Corrupted; Community Destroyed
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13. (C) Cranswick said that the police were rotated into the
area on two-week shifts to control the mining and keep
unauthorized diggers out, but they were immediately
corrupted. Police officers routinely charged 100 rand or
US$10 a person for a day's digging in Chiadzwa. The military
has largely avoided the area out of fear that commanding
officers would lose control of their troops, according to
Cranswick.


14. (C) Cranswick maintained that local chiefs were on ACR's
side in its pending court battle to win back its claim. They
realized that the "curse" of diamonds had wreaked havoc in
the community. Children were no longer attending school, the
environmental degradation was severe, lawlessness and
violence reigned, and the community was not benefiting from
the resource. According to an independent weekly newspaper,
three quarters of the schools in Marange, Buhera, and
Chimanimani districts failed to open this term because
teachers and students alike were digging for diamonds.

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What's At Stake?
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15. (C) Chiadzwa has the potential of being a major source
of industrial and gem quality diamonds. What makes it so
commercially valuable is that it possesses a diverse mix of
different size and color stones, all within just a few meters
of the surface. It also has a high carat per hundred tons
(CPHT) ratio, a measure the industry uses to characterize the
diamond concentration. Cranswick told us he was
confidentially shown a report prepared for the De Beers
Corporation by noted geologist John Ward. The report
estimated that Chiadzwa had a CPHT of over 1,000. By
comparison, the Rio Tinto/Rio Zimbabwe-owned Murowa diamond
mine near Zvishavane in Midlands province has a CPHT of 120.


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16. (C) Eye witnesses and panners told us that they were
extracting both industrial and gem quality stones, but
predominantly the former. Cranswick believed that the site
had 30 to 40 percent industrial diamonds and the rest gem
quality, including very good quality five to 30 carat colored
diamonds. In his view, the area could be commercially
exploited for five to 25 years, including excavation of
diamond yielding hard rock that ran deeper than the one meter
depth currently being worked. Econ specialist also was told
that another diamond field was discovered this year within
five km of Chiadzwa at the village of Chirasika. Panners had
begun working the site and it had not yet become a
police-restricted area. We have no estimates for the
potential of this new diamond discovery.


17. (C) On October 27, Gono publicly declared that the
Zimbabwean economy could be turned around by stemming losses
caused by illegal mining at Chiadzwa. According to Gono, "A
reliable estimate shows that US$1.2 billion per month would
be realized from diamond sales in the country, enough to
solve the economic challenges the country is currently
facing." Cranswick said that while the estimate is probably
exaggerated, Gono may be looking for a large one time
dividend by selling a share of the mine or the mining rights
to an outside investor. This would dwarf the relatively
small profits he is now accruing from the mine.


18. (C) ACR has offered the government a deal in which ACR
would take a 49 percent share of all diamond proceeds and
give the rest to the GOZ, but Cranswick did not seem
optimistic that the government would accept the deal.

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Two Other Major Diamond Mines
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19. (U) Murowa is a well-regulated mine operated by the
British multinational mining giant Rio Tinto, which since
2004 has held a 78 percent share in the open-pit Murowa
diamond mine in Zvishavane district, in southern Masvingo
province. Murowa is a deep kimberlitic deposit that requires
heavy machinery to extract the soil and rock.


20. (U) River Ranch is partially owned by retired General
Solomon Mujuru (husband of Vice President Joyce Mujuru) and
is located in Beitbridge in Matabeleland South. Mujuru
gained a 20 percent stake in the mine at the expense of a
local company, Bubye Minerals, which was pushed out to
Mujuru's benefit. Bubye Minerals contested the ownership
change, but was thwarted by the Zimbabwean courts. It is
unclear if Mujuru purchased his stake.

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COMMENT
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21. (C) In a country filled with corrupt schemes, the
diamond business in Zimbabwe is one of the dirtiest. Mining
in general remains the largest single source of foreign
exchange, but the potential of Chiadzwa is being lost to
Zimbabwean corruption. While Gono talks about using diamonds
to stabilize the Zimbabwean economy, he would only do so if
he thought he could personally make more in the process. At
present, police trying to bring order to Chiadzwa are
benefiting Zimbabwean officials who see the diamond field as
a new source of illegitimate income; the people of Zimbabwe
are seeing little return.


22. (C) It is also clear that Cranswick is a businessman
trying to find any pressure point he can through which to
leverage his own claim. At the same time, he sheds light on

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an industry that is enriching many of the same old corrupt
Zimbabwean elite--and causing violence and deaths that so far
have received little attention. END COMMENT.

MCGEE