Professional Jeweler Archive: Tanzanite Takes a Hit

July 2001

Gemstones & Pearls/News

Tanzanite Takes a Hit

Violence between newcomer Afgem and other tanzanite miners has caused American dealers to wonder what will happen to supply and prices

I n April, someone hurled a homemade bomb at the African Gem Corp. – or Afgem – mining plant in Merelani, Tanzania. Then two independent miners who allegedly trespassed onto Afgem’s mine were shot to death, though it’s unclear who is responsible for the shootings. Other reports describe attacks by guard dogs at the mine.

It was a troublesome turn of events in the weeks leading up to Afgem’s scheduled launch of large-scale tanzanite mining this month. Concern about Afgem’s control of such a large deposit has brought protests by hundreds of miners, written complaints by the Tanzania Mineral Dealers Association and concern among dealers and traders around the world. In response to the unrest, Tanzania’s energy and minerals minister, Edgar Maokola-Majongo, visited the region. But the government clearly supports Afgem. Merelani remained tense at press time.

At stake is who will ultimately control the lion’s share of this new find of tanzanite – a popular gem now in short supply – and how it will be marketed. How the dispute plays out will affect pricing and future supplies of tanzanite, given that Merelani is the world’s only known commercial source.

A New De Beers?

Last year Afgem announced far-reaching plans to develop its product from mine to market (see “Tanzanite Futures,” Professional Jeweler, July 2000. pp.41-42). Afgem President Michael Nunn unveiled Afgem’s ambitious, albeit sketchy, marketing and distribution plans for tanzanite and announced development of the Tanzanite Foundation, which he said will serve dual purposes: as a financial foundation to help local Tanzanians and as a springboard for branding tanzanite.

Dealers seemed eager to be penciled in on Afgem’s secret list of distributors. But there were concerns. The South African-based company’s plans sounded to many like a De Beers reenactment, complete with tightly controlled distribution through a sightholder system, maniacal security and a branded product.

Afgem says the tight control is justified to protect its sophisticated and expensive mining technology. High fences, guards and trained dogs safeguard the multimillion dollar investment (which has reportedly surpassed $10 million, an unheard-of figure in gem-mining development at Merelani).

At press time, production was moving into high gear, though distribution and branding plans were pending. Estimates indicate the new technology used at Afgem’s concession will yield 22 million carats of tanzanite over the life span of the mine – which is calculated at 19 years.

Afgem’s technologically advanced operation contrasts sharply with that of its neighbors, the dirt-poor independent miners working dangerous pits for small yields at hundreds of concessions in surrounding blocks. For months before violence erupted, tension escalated between the major players at Merelani. Independent miners and local tanzanite dealers working on Blocks B and D are on one side of the argument while Afgem, working Block C, is on the other.

Distribution Blues

Gem mining and sorting at Afgem began at a limited level last year, with rough transported to Johannesburg, South Africa, for cutting. Afgem initially approached some U.S. dealers as potential distributors and pressed them for information about the tanzanite market.

Now these dealers say Afgem has bypassed them and appears to be selling goods directly to manufacturers in the international market. Nunn says Afgem intends to distribute the top 10% of its production through selected dealers once its mine is fully operational. The rest of the rough tanzanite will be sold into the main cutting centers, possibly on an auction basis.

Plans to Brand

The greatest sticking point for the traditional gem industry is Afgem’s advertising and branding plans for tanzanite, scheduled to be unveiled in South Africa later this year. A U.S. branding introduction is supposed to follow. Afgem’s tanzanites will be distinguished by a laser mark. The company says special viewers have been developed to see the mark. “We will provide retailers with training, point-of-sale material, packaging, brochures, certification and access to our Tanzanite Foundation Web site,” says Nunn.

Concern Remains

In the U.S., tanzanite dealers say they fear Afgem’s close contact and support of retailers inevitably will cut dealers out of the tanzanite picture. Independent miners in Tanzania fear Afgem’s branded product ultimately will degrade their product and force local miners to market their goods through Afgem. However, the company says it looks forward to incorporating small-scale mine production. “This would develop a channel for small-scale miners to sell their goods at fair market prices,” Nunn says.

Battles on the Homefront

Meanwhile, back in Tanzania, three mining associations have filed suit against Afgem (at press time, the Tanzania Mineral Dealers Association had not), questioning the company’s mining license, business practices and export figures.

Afgem says the government backs its license and methods. “The authenticity of our license has been reendorsed by the Ministry of Energy & Minerals,” says Nunn. “Our export figures and taxes are paid 100% up-to-date and fully accounted for. Our business practices reflect those of a public company: Uphold the highest international standards of ethics and accounting practices and commit to social uplifting of the Tanzanian community.

“Once Tanzania starts to benefit from the foreign exchange income Afgem will create, and once the communities are able to enjoy the fruits of our social investment initiatives, we are confident that sentiment will reflect our true intentions.”

For now, Afgem’s true intentions remain unclear to those who have worked in the tanzanite business since the gem was discovered 33 years ago. Its intentions will remain unclear until Afgem settles its distribution plan and rolls out its brand – and the market rejects or accepts the proposition.

– by Robert Weldon, G.G.

Independent miners in Merelani, Tanzania, fear they will begin to lose market share against Afgem, a well-financed company that has invested millions of dollars in mine infrastructure and marketing efforts. Photo by Robert Weldon
An effort to brand and market tanzanite will begin later this year. The South African mining and marketing company Afgem says the tanzanites will bear laser inscriptions that can be seen with special optical viewers. These non-branded tanzanites are courtesy of gem-cutter David Brackna, Germantown, MD. Photo by Robert Weldon

Copyright © 2001 by Bond Communications