Rio: Zim diamond output abnormal

Harare - The head of global miner Rio Tinto's diamond unit in Zimbabwe said on Thursday the operation could produce six times its current output, but the country's economic climate was not conducive for investment.

Niels Kristensen, head of Murowa, Rio Tinto's diamond mine in the southern African country said the group produced 260 000 carats in its last financial year, but this could soar if the country brought certainty to the mining sector.

"I cannot give an indication on when we will start (expansion), but the investment climate in Zimbabwe needs greater clarity," Kristensen told Reuters on the sidelines of a mining conference in the capital Harare.

"I hope it will be sooner rather than later that we can get clarity and greater certainty so we can consider expansion of Murowa. We are looking at a potential expansion of sixfold the current production," he said in an interview.

Zimbabwe is holding the conference as part of efforts by a new power-sharing government to attract mining companies to invest into a sector shunned by foreign investors over fears that their businesses could be expropriated.

Kristensen said he was impressed that the country was keen to improve its mining sector, but more needed to be done to resolve uncertainty on the mining law, monetary and fiscal policies and marketing arrangements.

Following the collapse of commercial agriculture, mining has emerged as the top foreign currency earner, with gold alone raking in a third of total export earnings.

Analysts say uncertainty over policies was likely to hold back big new mining investments in Zimbabwe for years.

Kristensen declined to give production estimates for the current year, but said the mine had not reduced output owing to the global economic downturn, which had forced much bigger rivals such as De Beers' operations in the region to scale down.

"We are fortunate at Murowa that we have not had to reduce production, and hopefully the worst is behind us," he said.

"The diamond market is starting to recover, but is early days and we will see how it plays out. The long term fundamentals are very strong and we are in the game for the long term," Kristensen said.

De Beers, which is 45% owned by mining giant Anglo American, temporarily closed mines in Botswana and Namibia, which it runs as joint ventures with the country's governments, and announced plans to reduce its workforce to cope with slack demand for diamonds owing to the credit crunch.

Kristensen said power supply to its diamond mine was not a concern, because diamond mining is not energy-intensive. Other mining firms have said there was an urgent need to resolve a power shortage, which could limit their operations.

- Reuters