High Power Costs Threaten Tanzanian Diamond Mine
A JOINT REPORT
THE EASTAFRICAN
MWADUI, TANZANIA'S most productive diamond mine, located in Shinyanga region in the Lake Victoria zone, faces imminent closure unless the government acts to reduce the high costs of mining.
Mwadui is one of the biggest diamond mines in the world, but produces low grade diamonds for lack of appropriate mining equipment, which cannot be bought at the moment because of its high cost.
The company's majority shareholder, De Beers of South Africa, says the cost of mining had risen, making it impossible to sustain the operation of the mine. The company projects that the grades mined at Mwadui will drop from the current nine carats per hundred tonnes of dump material to six carats by next year, owing to inefficiency at the current production plant.
The 60-year-old Mwadui mine is operated by a De Beers subsidiary, Williamson Diamonds Ltd (WDL), which has a 75 per cent stake in the mine, while the Tanzania government owns the remaining 25 per cent.
The mine's production manager, Mr Johanny Velloza, told The EastAfrican recently that to overcome the problem, WDL needs $1.5 million to purchase a new machine with the capacity to process 600 tonnes of dump ground per hour.
Mr Velloza blamed the high production cost on high electricity tariffs that account for up to 19 per cent of total expenses. He said that for the mine to be profitable, these charges should drop to nine or eight per cent, as is the case in other countries.
The firm says that, until the September 11 New York and Washington DC terrorist attacks, the diamond market was predictable. But the situation has changed, thus the need to reduce the royalties to cope with fluctuations in demand for the gemstone.
Seventy-five per cent of the world's diamonds sales are through the New York market, with half the sales by Arab countries. The firm pays mandatory royalties to a London-based Tanzanian sorting firm, Tansort, at $4.5 per carat.
Between 1994 and 2000, the firm paid $4.05 million to Tansort for sorting 901,300 carats. Production (in carats) for seven years was: 1999 (20,800), 1995 (35,000), 1996 (121,500), 1997 (121,000), 1998 (87,500), 1999 (196,5000) and 2000 (319,000).
However, it was difficult to establish how much money has been paid to Tansort since the early 1940s, when Williamson Diamond Mine at Mwadui started operations. The acting principal secretary, Mr B. Mrindoko, and the ministry's acting commissioner of minerals, Mr G. Nyelo, said Tansort was a government department, but declined to give details.
Government sources said that few people, if any, had access to Tansort's books.
"It is even difficult to establish why WDL is paying money directly to a government department in London instead of transferring it through the Treasury," the source said.
A director, a Tanzanian national, appointed to Tansort in the early 1960s still runs the outfit to this day. He was supposed to have retired many years ago, but since few people are aware of his existence, he has stayed on.
During a recent visit to Mwadui, the deputy minister in the Ministry of Minerals and Energy, Dr Ibrahim Msabaha, ackowledged the problems the government was facing in collecting the money. He said that the government had begun working on ways of ensuring that the money reached the Treasury.
"We appreciate Dr Msabaha's visit and his promise, but discussions over the problems have taken over two years without any concrete action from the government," a WDL director, Mr Mark Stanley, said.
Mr Nyelo confirmed that his ministry had been informed of the WDL problems.
"The government is informed of their problems; we are working on them," he said. He said WDL would have to inform the government in advance of the decision to close the mine.
On the issue of high electricity tariffs, Mr Nyelo said it was not possible to reach a decision overnight. In the past two months, WDL lost $500,000. It was expected to pay $15 million in loans at the end of this year, he said.
According to Mr Stanley, there were at least five options if Mwadui were to survive. These are: a recovery in the world diamond market; buying a new crusher; increasing the capacity of the plant; looking for new alluvial gravel; and procuring an IPJ (inland pressure jig).