THIS week the Zimbabwe Independent — which in December last year began publishing fresh stories based on a ground-breaking investigation into the Marange alluvial diamonds discovery and subsequent plundering at various stages by state and non-state actors — will continue focussing on Mbada Diamonds, one of the companies which were involved in diamond mining in Chiadzwa, Manicaland province.
By Elias Mambo/Obey Manayiti
Currently our attention is on how companies involved in Marange were formed, their roles in the dramatic mining saga, ownership structures, production levels and other issues associated with their presence at the contested diamond fields until they were forced out by government in February last year.
This special series is supported by the Investigative Journalism Fund and will continue for months.
In this installment we are carrying an exclusive interview with seasoned miner and investor David Kassel, former chairman of South Africa’s New Reclamation Group (Pty) (Reclam) Ltd, which owned 50% of Mbada through Grandwell Holdings, a limited liability company incorporated under the laws of Mauritius on July 15 2009. Grandwell’s principal business address was Level 3, N0 31 Cyber City, Ebene, Mauritius.
Kassel was a key private sector actor in the Chiadzwa diamonds story, hence the Independent tracked him down for the interview on July 22 last year at his Illovo offices in Johannesburg, South Africa.
He worked closely with Robert Mhlanga — the face of Mbada — who as it now transpires was not a shareholder in the company as widely thought. Mhlanga brokered the deal and became chairman of Mbada representing government’s interest in the deal, as Kassel confirmed in the interview.
Although he was initially viewed as a scrap metal dealer, the investigation shows that Kassel had solid mining credentials. Prior to Reclam’s founding, from 1970 to 1999, he served as joint chairman and chief executive officer of Lenkas Metals, Welkom Scrap, Alpha Metals, Tswana Metals, Alrode Scrap, Makas Metals and Estrella Metallica.
Kassel was appointed Reclam chairman in 1998 and served as it CEO from 1998 to 2005. He is one of the original founders of Reclam which traces its origins to a metal recycling business in 1970.
Prior to 1998, he was involved in the re-opening and commissioning of the Roberts Victor Diamond Mine — the 21st largest producer of gem quality diamonds in the world — near Kimberley which was an underground kimberlite deposit. He also had interests in Monarch Gold Mine, Shashi mines in Botswana, Denver Metal Works, a truck spares firm, a pharmaceutical company and multi-media companies.
Kassel resigned as Reclam chairman on October 1 2009 after all relevant agreements on Mbada had been signed prior to the commencement of mining and was going to get a monthly consultancy fee of 5% net of all dividends received by Reclam from Grandwell.
Mbada was supposed to pay Grandwell a management fee of 5% of turnover.
While government, which controlled 50% of Mbada through the state-owned Zimbabwe Development Mining Corporation (ZMDC)’s subsidiary Marange Resources, provided the resource and chairman of the company (the position was initially supposed to be rotational), Grandwell provided management, hence supervision of the day-to-day running, control, planning and operation of the company.
The Mbada chair was supposed to be rotated every two years between Marange and Grandwell, with the first appointee being a government representative.
Grandwell was entitled, although not obliged, to appoint the CEO, chief financial officer and chief operating officer.
Given these arrangements, Mhlanga inevitably became powerful and the face of the company as he was its chairman representing government interest and his daughter Patience Khumalo was the CEO before her departure in 2014.
These clarifications, gleaned from piles of company documents, clear a lot of confusion and shed light on Mhlanga’s potential conflict of interest debate raised by MPs’ probe in 2010 and critics, highlighting how Mbada was structured, organised and controlled, as well as run, and who was in charge.
President Robert Mugabe in his birthday interview last week made it appear as if government had no control over Mbada affairs, claiming it only made money for itself and not Treasury in a bid to justify the authorities’ failed diamond mines seizures and consolidation project, as well as his claims that US$15 billion was looted.
Mbada made over US$1 billion in gross revenues as of January 31 2014, with the largest chunk of the money going towards honouring its tax obligations and paying government dividend — Treasury got US$472 million.
During the interview, Kassel began by explaining how Reclam and himself got involved in Chiadzwa before going into detail about the process.
“Sometime around 2007/2008 after a lot of talk and reports about a diamonds discovery in Zimbabwe, we registered an interest with authorities to invest in the diamond sector in the country. The Ministry of Mines then asked for a formal expression of interest, but for some time there was no response after we had indicated we were interested in investing there,” Kassel said.
“At the time Zimbabwe was in the middle of a deep economic crisis and there were very few investors willing to come in, but in that sector there were however several companies interested in taking the risk which included Steinmetz Diamond Group, Alrosa and Gem Diamonds, very big companies.
“After some period of silence, at the beginning of 2009, I received a call from a friend who I shall not name, saying there was an opportunity of investing in diamond mining in Zimbabwe after all. I then contacted Mhlanga to help introduce me to the Zimbabwean authorities, since he is from there, to start discussions over the issue.”
Kassel said immediately questions started being raised about his mining background and this would culminate five years down the line in him receiving threatening letters at his hotel rooms and mysterious gangs storming his house in Johannesburg at one point baying for his blood.
“Soon after the process began, some people started asking: how does a scrap metal dealer gets involved in diamond mining? There is something dodgy going on here. Yet they didn’t know that I owned Roberts Victor Diamond (Rovic) Mine — the 21st largest producer of gem quality diamonds in the world. I reopened it and mined there at the Free State for 10 years — from 1984 to 1994. Let it be known to those who don’t know me, that I’m a qualified diamond cutter and lectured in diamond theory here in South Africa during the 1970s. I was also involved in gold mining.
“The friend who called me knew I had a long history in mining. I called Mhlanga, who is a friend and business associate, telling him about the issue. I also met with Clifford Elphick (the CEO and founder of Gem Diamond) and told him there is an opportunity in Zimbabwe and there is a possibility of meeting with the Minister of Mines (Obert Mpofu). He said ‘it’s ok, I will come with you’ and so we flew to Harare to meet him. Mpofu said ‘if you are serious I can arrange for you to meet ZMDC officials to discuss the issue’ and he did that the same day. We met the then ZMDC CEO (Dominic) Mubaiwa and the process started unfolding.
“After that we visited Zimbabwe again the following week, but there was miscommunication with the Gem Diamond team; we were supposed to meet in Mutare to visit Chiadzwa, however due to communication breakdown we couldn’t. All the same we proceeded to the diamond fields. What we saw was scary; there was terrifying chaos. There were artisanal miners digging around with steel bars, picks, shovels, and other such rudimentary equipment, carrying buckets and diamonds in bags.
“We estimated people swarming the diamond fields were between 30 000 and 35 000. No one was really in control.
Soldiers around were firing in the air, while artisanal miners were also armed fighting back and digging in the face of danger. There was mayhem, it was like a city of anarchy — a blood diamonds mining stampede, the Sierra Leone type, was evolving; we were witnessing what looked like an incipient stage of a potential civil war over diamonds.
“After all this we had the job of convincing our company executives and board that it was worth taking a risk. We held more meetings in South Africa and Zimbabwe, and eventually the process of drafting agreements started. We engaged Werksmans Attorneys (a leading South African corporate and commercial law firm serving multinationals, listed companies, financial institutions, entrepreneurs and government) to negotiate contracts before taking that to the board. I could not just push for us to go in, the contract took four months to negotiate before we signed a memorandum of agreement and shareholders’ agreement (on July 21 and August 13 2009 respectively). We then got the concession comprising the northern portion of Special Grant 4720 in Chiadzwa. Gem Diamond had, given that their boss was from De Beers which had done exploration work in the area for years, given us the history of the place. Prior to that there had to be due diligence work and drafting of business plans, and other such things.”
Kassel said he then went to meet Mugabe in the company of Mpofu and other officials to talk about the investment deal.
“We then met the president with the minister and he first asked about my history and business background to ascertain if we were serious investors. After some discussions, the president then said ‘Mr Kassel I can see you are a serious investor so let’s work together’. He added ‘I can personally guarantee you security of tenure and that your investment would be safe in Zimbabwe, no one will interfere with your business’. Given the situation in the country, we were very happy to get those assurances from the highest level of government. All the while the minister was there,” Kassel said.
“We then proceeded to sign all the agreements with the involvement of our lawyers and the Attorney-General’s Office in Zimbabwe and made all the necessary arrangements to execute our business plan.
“We spent a lot of money and in total we invested US$50 million. There was no turning back. We had to ensure security of the place, put systems, build necessary structures, buy equipment, and purchase an aircraft (which was last year in August bought for about US$1 million by Zanu PF MP Kenneth Musanhi) to safely transport the diamonds to avoid risks.
“However, not before long after we started mining, the sale of Zimbabwe’s Chiadzwa diamonds was suspended amid claims of blood diamonds. This created huge problems for us.”
The Kimberley Process Certification Scheme (KP), the system put in place to stem the flow of conflict diamonds, later nominated Abbey Chikane as the KP monitor for Zimbabwe. Chikane was tasked with addressing Zimbabwe’s serious non-compliance with KP minimum requirements identified by a review mission in July 2009.
Chikane, the founder chairman of the KP, was to visit Zimbabwe from March 1 to 3 2010 on a fact-finding mission to assess the situation and to prepare for monitoring the implementation of the joint work plan.
At the Swakopmund Plenary meeting in November 2009 in Namibia, the KP designated the KP monitor under a joint work plan that provided for a series of commitments by Zimbabwe to bring diamond mining in the Marange area in full compliance with the KPCS.
“After mining for a while and producing substantial goods, Zimbabwe was suspended and there were serious worries and panic among us as investors. The KP had set its own benchmarks for the freeze to be lifted; so it became a huge task to get the suspension lifted,” said Kassel.
To be continued…