Rio Tinto launches $300m Murowa expansion

[] — RIO Tinto’s diamond unit in Zimbabwe said it has begun work on a $300m expansion programme to raise output six-fold, and was discussing with the government ways to improve the investment climate in mining.

Neils Kristensen, head of Murowa, the 300,000-carat-per-year diamond mine in southern Zimbabwe, said the firm had begun preparatory work for the planned expansion.

Rio Tinto owns 78% of Murowa, while Rio Zim -a wholly Zimbabwean-owned unit spun off from Rio Tinto in 2004 – controls the remainder.

“We have reinvigorated our feasibility study for a major expansion. The expansion will increase production by a factor of 6 to 7 times and double jobs,” Kristensen told Reuters on the sidelines of a weekend mining conference.

“That would push our capacity to 1.8 million carats per year of high quality production, which is predominantly gem.”

Rio Zim said last week the possibility of an improved investment climate in Zimbabwe had prompted Murowa shareholders to commission a review of expansion feasibility studies, to be completed by the end of 2010.

“This expansion project should take place in the medium-term,” Kristensen said.

“We’re looking at up to $300 million for which we would put up an investment proposal to both shareholders and get approval for what should be a fairly big expansion.”

Operating environment

Kristensen said the company was also in negotiations with the government over the operating environment.

Some foreign investors in Zimbabwe are in talks with the government over a law that seeks to transfer majority control in all foreign-owned firms, including mines and banks, to local black people.

President Robert Mugabe told the conference on Friday his government would not expropriate mines and said he realised the need to promote the industry’s growth when applying the law.

Murowa is also currently talking to the government about the state’s decision last week to ban diamond sales from the country, including from Murowa, until stones from the government’s Marange fields are certified by global industry regulators.

Kristensen told Reuters on Friday he was disappointed that Murowa had been drawn into these issues, which concerned the east of the country and had nothing to do with his company.

We have seen a significant improvement in the economy and the operating environment over the past year

On Monday he declined to comment further on the ban but said that business conditions in Zimbabwe had improved.

“We have seen a significant improvement in the economy and the operating environment over the past year. Internally, there have been many positive developments, but externally, we have experienced very low prices as a result of the global financial crisis,” he said.

“The good news, though, is that prices have recovered on the strength of demand from India and China, although the US is still weak.”

Kristensen said production at Murowa was improving and would surpass 2009 output, which declined to 124,422 carats compared to 263,000 carats produced in 2008.

“Going forward, we are well positioned. We’ve made some investment in plant and equipment. We commissioned a plant which will increase throughput and deal with the hard ore in October 2009.”