THIS week the Zimbabwe Independent — which in December last year began publishing fresh stories based on our ground-breaking investigation into the Marange alluvial diamonds discovery and subsequent looting — will start focussing on companies that were involved in the mining of diamonds. Attention will be on how these companies came about, their roles, ownership structure, production levels and other matters associated with their presence until they were forced out of Chiadzwa in February last year.
By Elias Mambo/ Obey Manayiti
This special series is supported by the Investigative Journalism Fund and will continue for months.
Mbada Diamonds (Private) Limited, which became the biggest mining company in Marange, is a limited liability company incorporated under the laws of Zimbabwe on August 13 2009 under registration number 417/2009.
Initially referred to as Condurango Investments trading as Mbada Diamonds, the company was owned 50% by Marange Resources, a Zimbabwe Mining Development Corporation (ZMDC) subsidiary, while the other 50% was owned by Grandwell Holdings Limited, a subsidiary of the New Reclamation Group of South Africa.
Grandwell Holdings is a limited liability company incorporated under the laws of Mauritius on July 15 2009 under registration number 089386 C2/GBL.
Prior to the formation and incorporation of Mbada, the state-controlled ZMDC concluded the memorandum of agreement with two approved strategic investors, namely: Core Mining and Minerals (Pvt) Limited and the New Reclamation Group (Pvt) Limited for the exploration and exploitation of the Marange diamond fields in July 2009.
Before the agreement came into effect, ZMDC sent a board select committee—comprising the chairperson, chief executive officer, chairperson of finance and investment committee and a member of the technical committee as well as the board secretary—to South Africa for a due diligence assessment.
This is contained in the minutes of the ZMDC board select committee on the due diligence investigation exercise on approved strategic investors for Marange diamond field.
According to the minutes, “the select committee visited the investors in South Africa between the 4th and the 6th August 2009.”
“The select committee emphasised on financial capacity, technical capacity and the management systems in place,” read the minutes.
“The select committee observed that Reclaim is not a mining house and is currently not involved in mining, let alone diamond mining. Further, they have no diamond mining as part of their vision and growth strategy. However, the enthusiasm to enter diamond mining in partnership with ZMDC was noted.
“No diamond mining equipment was viewed save for Reclam representations to the effect that they were already mobilising the relevant equipment as per the business plan,” the minutes reveal.
The select committee also noted that there was a need for Reclam to recognise the ZMDC board’s authority, independence and effectiveness vis-à-vis Reclam’s interaction with the ministry of mines and mining development.
“ZMDC must safeguard its interests in the agreement with the investors through the board control as well as operational management control such as security, finance, mining and the plant.
“The investor must also capitalise the joint venture company to the extent of US$100 000 000 (US$100 million) until such amount is exhausted. The project funds must not be used to finance the operations. The investment or capitalisation must not be by way of loan. The amounts used to capitalise the joint venture company must not be deducted from the cash flow of the company,” it also noted.
The select committee also recommended that the acquisition of equipment for the joint venture company and tender procedures and valuations were to be observed and values be agreed to by both parties in order to avoid overpricing by the investors.
After the visit and incorporation of Mbada, the then minister of Mines and Mining Development Obert Mpofu proceeded to appoint nominees to the Grandwell joint venture as Gloria Mawarire and Robert Mhlanga.
According to the minutes, Mpofu identified and nominated Mhlanga as the chairperson of the joint venture company.
Mhlanga, who is a business associate of former New Reclam chairman David Kassel, brokered the Marange deal through Mpofu and his ministry officials. Kassel had some experience in mining, including diamonds, contrary to reports he was just a scrap metal dealer.
Mhlanga, before going into business, was among the first black Air Force pilots in independent Zimbabwe.
On January 15 1982, Mhlanga and three other officer cadets were commissioned and presented with wings by the then prime minister Robert Mugabe at a ceremony at Thornhill Air Force base in Gweru, after spending three years training in Romania.
Kassel said in an exclusive interview on July 22 last year at his Illovo offices in Johannesburg, South Africa, Mhlanga was not a shareholder in Mbada as widely thought. An investigation by a parliamentary select committe in 2010 and his critics claimed he was double-dipping on both the private investors and government’s sides through a labyrinth of hidden offshore corporate structures under Grandwell, a claim he has denied. The Independent will next week carry the interview with Kassel as part of its investigation.
Investments made by joint venture companies in Marange were also brought into the limelight by the parliamentary portfolio committee on mines and energy then led by the late Guruve South legislator Edward Takaruza Chindori-Chininga, who died in a mysterious car accident. Some Zanu PF insiders claim Chininga was murdered as a result of his diamond report which exposed the scandalous goings-on in Chiadzwa. His death remains a mystery.
According to the report “the committee observed that government may have been prejudiced through the overstated amount of investments that were made by its joint venture partners.”
“In 2010, the committee was informed that the shareholders’ agreement stipulated that Mbada Diamonds and Canadile Miners were to contribute US$100 million each, for purposes of financing the operations. In 2012, Mbada Diamonds informed the committee that it had made investments worth US$185 million.”
“However, ZMDC in its due diligence report expressed reservations on this matter when it stated that ‘the acquisition of equipment and other assets for the joint venture company, tender procedures and valuations must be observed and values be agreed to by both parties. This is important in order to avoid overpricing by investors.”
The report also states that ZMDC had not conducted a full audit of the investments made by the two companies.
According to the report, the true value of investments made into Chiadzwa cannot be ascertained in the absence of a proper valuation from government agencies.
“It is possible for these companies to finance their operations from the proceeds of the mining operations which is in violation of the Companies Act,” reads the report.
Matters pertaining to equipment that was brought into the country were also questioned by the parliamentary portfolio committee.
“At the same time the committee was concerned about the manner in which certain equipment was brought into the country, for instance in 2010, ZMDC was given a directive to purchase equipment at Hot Springs that belonged to J W Lotter for R5.6 million and Zimra (Zimbabwe Revenue Authority) was paid US$46 000. However, the owner of the equipment demanded a further US$125 000 for transport charges and yet under normal circumstances when duty is paid it includes transport.”
The report also raised issues of transparency and accountability in the diamond sector.
“Since the inception of formalised mining in Chiadzwa, the committee observed that the sector has been dogged with issues of transparency and accountability in the production, marketing, fiscal contributions and general administration,” reads the report.
“The committee noted with concern that there was a lot of work that still needed to be done to improve on transparency and accountability in the entire value chain of the country’s diamonds.
“The key areas that the committee observed which touched on transparency and accountability include: the aborted auction sale, the selection process of joint venture partners, corporate governance systems in the joint venture companies, the smuggling and leakages of diamonds from Marange as well the mining contracts signed by government.
“In January 2010 Mbada Diamonds attempted to auction its diamonds, in violation of both national and international law. The aborted diamond auction sale opened Pandora’s Box, revealing several irregularities and loopholes in the entire diamond value chain.”
Relevant government institutions involved in the entire diamond value chain professed ignorance about the auction sale.
This was a sign that the institutions were not well co-ordinated in the production and marketing of the diamonds in Marange.
The relevant institutions include the ZMDC, Minerals Marketing Corporation of Zimbabwe, the Zimbabwe Republic Police Minerals Unit and the Mines and Mining Development ministry.
“It seems Mbada Diamonds took advantage of this weakness and attempted to auction the diamonds without the knowledge or presence of these institutions.
“Mhlanga and Kassel admitted of having knowledge of the attempted auction sale. So a major decision of auctioning the diamonds was made by a minority board decision which is uncharacteristic of any healthy company,” states the report.
Besides issues of transparency and accountability, the Chindori-Chininga-led portfolio also questioned the selection criteria used in appointing joint venture partners.
“In 2009, government through ZMDC entered into joint venture partnerships with Reclaim and Core Mining companies, leading to the establishment of two companies, Mbada Diamonds and Canadile Miners respectively. The number of companies operating in Marange has since increased to four excluding Canadile Miners which has been de-listed.”
“The committee noted with concern that the selection process of the companies to operate in Marange had a number of flaws which include lack of any known precedents, procedures or with reference to any legislation in the country.”
“Former ZMDC board chairperson, Mawarire, tried to mislead the committee into believing that the choice of the two investors was made through a cabinet decision.
“Later she withdrew her submission when the committee informed her that it had documentation of the cabinet decision pertaining to that issue. The cabinet minutes of 22nd of July and 27th of August 2008 simply stated that ZMDC was to form joint ventures.”
“Cabinet simply encouraged ZMDC to enter into joint venture partnerships and did not specifically state that ZMDC should enter into joint ventures with Reclaim and Core Mining.”
The report also exposed how Mpofu “could not be drawn into revealing who chose the two investors to partner with ZMDC but stated that ‘I was a new Minister and directed to go that way and that is the way it is.”
“However, the minister went on to justify the selection of two joint partners on the grounds that the economic situation prior to the formation of inclusive government was untenable and very few investors were willing to risk investing in the Zimbabwe.”
According to the report, “the committee observed with dismay that the minister and his officials did not want to disclose who selected the joint venture partners. They created the impression that the selection process was done by an unknown person or body and this is clearly unacceptable.”
The question of who chose the joint venture partners was not resolved because even the due diligence report by the ZMDC says that the two investors were probably not the best suitors for the country.