ZIMBABWE COURTING FOREIGN DIAMOND INVESTMENT IN

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000049 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: 01/22/2019 TAGS: EMIN ECON PHUM PREL ZI RS IN IS ASEC SUBJECT: ZIMBABWE COURTING FOREIGN DIAMOND INVESTMENT IN CHIADZWA REF: A. 08 HARARE 1035 ¶B. HARARE 24 Classified By: Ambassador James D. McGee for reason 1.4 (d) -------------- SUMMARY -------------- ¶1. (C) Discussions in mid-January with private sector mining executives Ndodana Mguquka and Greg Sebborn revealed further details of a possible diamond deal between the Zimbabwean government and either Russian or Indian diamond investors. The Russian group may only be interested in purchasing several hundred million dollars worth of extracted, loose diamonds, in lieu of an ongoing mining arrangement in the conflict-ridden Chiadzwa diamond fields. Little is known of the Indian group's investment priorities. Meanwhile, a Reserve Bank of Zimbabwe economic turnaround plan courts foreign investors and anticipates generating badly-needed foreign exchange from diamond mining royalties. END SUMMARY. -------------- Talk of Diamond Deal Heating Up -------------- ¶2. (C) On January 15, POLOFF met with Ndodana Mguquka, a member of the board of African Consolidated Resources (ACR). Mguquka said that the Zimbabwean government has been seeking to consummate a diamond deal in the Chiadzwa region of eastern Zimbabwe with either a group of Russian or Indian mining investors. (NOTE: ACR is the UK-listed mining firm that held the mining rights to the Chiadzwa diamond fields prior to seizure of the area by the Zimbabwean government in ¶2006. END NOTE.) ¶3. (C) Mguquka said he understood that the Russian group was only interested in purchasing loose, uncut diamonds that had already been extracted from Chiadzwa and transported to Harare. He suspected, but could not confirm, that the group involved the Russian diamond monopoly ALROSA. Mguquka also told us that the CEO of ACR, Andrew Cranswick, had threatened ALROSA with litigation if it signed a long-term deal with Zimbabwe to mine the fields. Mguquka believed this threat may have persuaded the Russians not to pursue an extraction deal. ¶4. (C) On January 16, Greg Sebborn, a member of the board of directors of the Zimbabwean platinum mining firm, Zimplats, 
and a consultant to ACR, confirmed to polecon chief that a group of Russians were pursuing a loose diamond purchase. Sebborn said that Lev Leviev, a major Russian/Israeli diamond dealer, was in Harare and negotiating the purchase of US$100 million to US$150 million in loose, uncut Chiadzwa diamonds. Sebborn also believed that the Russians were steering clear of an extraction deal because of risks associated with ACR's legal claim to the fields (Ref A). Sebborn noted that the diamonds were currently Kimberly Process-certifiable, but cautioned that Leviev or other buyers might substitute non-certified quality diamonds for Chiadzwa industrial diamonds before reselling them. ¶5. (SBU) Little is known about the degree of interest from the Indian mining group. A contact in the mining industry provided us with recent pictures of new mining equipment that was brought in to the Chiadzwa area in December 2008 by a group of Indian miners. The excavation equipment was prevented from entering the diamond fields by the police and military and remains unused. HARARE 00000049 002 OF 002 -------------- -- ZANU-PF Counting on Diamonds to Fund Government -------------- -- ¶6. (SBU) The Reserve Bank of Zimbabwe (RBZ) in January 2009 produced a draft report entitled, "Comprehensive Economic Reforms Needed to Turnaround the Economy." The report estimates that diamond royalties could provide the GOZ with an estimated US$1.2 billion per month, against estimated monthly government expenses of US$350 million per month. An excerpt from the recently obtained copy states, "The clean-up operation at Chiadzwa (Ref B) has created an opportunity for the engagement of experienced diamond mining companies. These companies are expected to form a joint venture with partnership with the Government of Zimbabwe." -------------- COMMENT -------------- ¶7. (C) We strongly suspect the RBZ's monthly diamond profit estimate, as contained in the RBZ report, to be wildly optimistic, and even in the event of a deal for mining rights in Chiadzwa, a substantial amount of diamond profits would assuredly be siphoned off to corrupt officials. Given the legal uncertainties surrounding Chiadzwa and the precarious nature of investment in Zimbabwe in general, a deal at this time appears doubtful. However, if used judiciously, several hundred million dollars realized from the sales of uncut diamonds could be enough to pay debts and temporarily quell growing dissatisfaction within the military's rank and file who continue to be paid in local currency. END COMMENT. MCGEE