Thursday, October 22, 2009

Shangri-La Chapter 3

DECEMBER 6, 1978

Diamonds can be profitably mined in some of the most inaccessible locations in the world precisely because the operation does not require the construction of a vast transportation infrastructure to remove the final product. Almost all other mining enterprises, such as iron, copper, lead, zinc and potash, need to build railroad, pipelines or ports to bulk ship thousands of tons of ore a day. Most precious metals, such as gold, silver and platinum, must be chemically separated from the surrounding matrix of ore in a smelter that in turn usually requires massive daily shipments of coal and other materials. A diamond, however, requires only a primitive landing strip and a light plane to transport its final product which, though it may be worth tens of millions of dollars, seldom amounts to more than a few pounds of stones a day. Perhaps the best example of this phenomenon is the Letseng-La-Teral mine in the Kingdom of Lesotho.
The twin engine Otter, which De Beers had bought from the U.S. Air Force in Vietnam-and which still carried bullet scars from that war-flew low over the 10,0000-foot-high mountains. The kingdom, a landlocked enclave roughly the size of Belgium, was, up until 1966, the British protectorate of Basutoland. Below, I could see the ruins of fortresses used centuries before by the Basutos to defend themselves against the invasions of Zulus and other tribes. The land in the valleys looked green and rich, and trails through the mountain passes led to clusters of huts with conically shaped roofs.
Suddenly, the plane headed directly into a mountain wall shrouded by dense clouds. Everyone aboard, even the South African engineers who made this trip each week, gripped the edge of the seats. There was dead silence in the cabin. The wings of the plane looked as if they were about to touch the rocks they were flying through. Only then did I see the landing strip. It had literally been carved out of the mountainside. The wheels touched with a dull but reassuring thump. The Otter then slowly taxied up a rocky hill, screeched to a stop on the edge of a cliff and in a moment a dozen Basuto workers had tied it down with ropes firmly lashed around its wings and tail.
Through the morning mist, I could discern the rectangular shape of a corrugated iron tower built against the side of the mountain, which, oddly enough, resembled some of the ancient citadels that the plane had passed over. It was, I realized, the separation plant for the diamonds. "Welcome to Letseng-La-Tcrai," the pilot said over the intercom. "It's the highest mine in the world." We were io,ooo feet above sea level on what is called "the roof of Africa." The pilot explained to me, as I sat for a moment recuperating from the landing, that this Otter was the only means of getting in or out of the mine in winter weather.
When I finally disembarked, I found standing on this mountaintop a tall, slender man impeccably dressed in a three-piece pin-striped suit and wearing a school tie. He seemed completely unruffled and impervious to the icy wind that blew across the mountain. He looked, in fact, as if he had just got out of a cab in the center of London.
"Rogan MacLean," he said, introducing himself. He explained that he worked at the Diamond Trading Company in London, and he had been sent to Lesotho to evaluate the diamonds coming out of its mine. He said that he was in charge of evaluating "large stones," which De Beers defined as any uncut gem diamond weighing over 14.8 carats.
"How many large stones are found every year," I asked.
"Very few. I'd say well under 200.. This mine is one of the two places in the world we regularly get them from. The ,I her place is Sierra Leone, but the fields there are just about exhausted." MacLean explained, as we waited for a Land Rover to pick us up, that this mine had only been opened for some thirteen months, and it had already produced nearly too large stones. Most of these Lesothan diamonds had a brownish tint to them but aside from that, according to MacLean, they were of first-rate quality.
"How much are these diamonds worth?" I inquired.
McLean explained that the value of diamonds increases practically geometrically with their size. He estimated that whereas a one-carat diamond in good condition would be sold by the Diamond Trading Company for $3oo, a two-carat diamond of comparative quality might bring $2,000 (or 1,000 a carat), and a similar three-carat diamond would fetch $5,400 (or $1,800 a carat). "When you come to my little specialties, a forty-carat diamond might bring a half million dollars."
Just then a bell began furiously ringing. Something extraordinary had apparently happened at the mine. A moment later, the Land-Rover arrived, and the driver talked with great excitement to MacLean. As we drove off in the Land-Rover, MacLean explained to mc that they were ringing a bell because a large diamond had just been found- the first in nearly two weeks.
When we pulled up in front of the sorting house, we were by a youthful man with a craggy face and blue eyes. He introduced himself as Keith Whitelock, the manager of the mine. He seemed visibly elated about this diamond. "Thought we might never find another big stone," here,~ he said, as he led us past armed guards into the sorting house.
"Now you don't have to worry about closing the mine," MacLean said, with a broad smile.
Whitelock winced at this joke. It contained a grain of truth.. He told me that he had lived and prospected in Lesotho for over ten years. It was his personal Shangri-la.
"It's a pity it has this crack in it," he said, "otherwise it could have been cut into a marquise shape." He explained that because of this almost invisible crack, the diamond would have to be cut into two separate jewels. "The most you could get out of this is two twelve-carat round diamonds."
MacLean concluded that more than half the weight would be lost in cutting and polishing; depending on the shape of the diamond, somewhere between one-third and one-half of the weight is lost in cutting.
"What about the color? " Whitelock asked.
"The color is superb," MacLean answered, pronouncing "superb" as if it were two distinct words. He pointed out that it was extremely fortunate that the diamond was pure white. If it had a brownish tinge to it, as had the last large diamond he had examined from Lesotho, it would be worth only a tenth as much."This mine depends on big stones-we need to produce two or three a month just to stay in business," he explained.
When we got to the sorting room, Whitelock instructed the chief sorter to show MacLean the big stone that had just been found. A Basuto guard with a shotgun looked on as the sorter handed the diamond to MacLean.
The diamond itself looked like a large piece of broken glass, except that its edges were smooth. MacLean placed it on the scale. It weighed exactly fifty-eight carats. He nodded approvingly and pulled out his jeweler's loupe from his pocket. Looking through it, he examined the diamond for about a minute.
Whitelock perked up and asked MacLean how much money this diamond would fetch in London. This in turn would determine how much money De Beers would credit to the mine's account.
I'd say it should bring between six and seven thousand dollars a carat," MacLean responded, without hesitating. At minimum, then, this single diamond would be sold to a dealer for $342,000.
"Well, that's enough to keep the mine going for another two weeks," Whitelock said smiling.
It seemed extraordinary that a single stone, weighing a fraction of an ounce, could support for a half month a mining enterprise that employed 800 workers. It turned out, however, that Whitelock was not exaggerating. The Basuto workers earned on the average $25 a week-the highest wages for labor paid in Lesotho. From this amount, De Beers deducts the cost of each worker's food and lodgings. The South African engineers and supervisors, most of whom commute to South Africa weekly in the Otter, earn about $25 a week. With other operating expenses, such as fuel for the trucks and electricity for the machinery, the mountaintop mine cost about $150,000 a week to operate.
Whitelock drove us from the sorting house to the mine itself. Like the desert mine at Orapa, it was a kimberlite pipe. It was, however, only one-thirtieth the size of the pit I had seen the day before in Botswana. "This is the smallest diamond mine that De Beers operates," Whitelock said, as we stood on the edge of the shallow pit. Below, about a dozen Basuto workers were loading a truck with a power shovel. "We also have the dubious distinction of mining the lowest-grade ore of any De Beers mine." He explained that they had to sift through three to four tons of kimberlite at the separation to find a single carat of diamonds. And most of the diamonds found are not of gem quality. In all, this mine had produced only 17,000 carats of gem diamonds in its first year of production.
Oppenheimer had told me that De Beers had invested more money in this mountain venture than in any other diamond mine outside of South Africa. It had cost some $45 million to develop. Why had such a huge investment been made in a mine that could yield, compared to other mines, only a trickle of diamonds?
"There is only one reason for this mine to exist: large stones," Whitelock answered. "Nearly io percent of the total caratage taken out of this mine is in the form of large stones. The world is running out of large diamonds."
MacLean wholeheartedly agreed. "They are the romance of the diamond business. Movie stars won't want diamonds if you need a magnifying glass to see them." MacLean explained that an important part of his mission to Africa was to determine why the supply of large stones was so rapidly diminishing. He said that part of the problem was that most of the older mines fed the ore directly into the giant crushers which, though they speeded the automated separation of the diamonds, also tended to smash larger diamonds into smaller ones. He had just visited Premier mine in South Africa, which had, seventy-three years ago, yielded the world's largest diamond-the 3000-carat Cullinan diamond. "Today, the crushers at the Premier would break a diamond that size into a thousand fragments." He argued that mines capable of yielding such large stones should install a bypass system in . which the ore, before it goes through the crushers, is screened by X-ray machines to detect any larger diamonds.
"We have the bypass system," Whitelock interrupted, "but it has never turned up any colossal diamonds for us."
"It will," MacLean answered confidently. "You'll save the cost of it with a single diamond some day." He recounted how at the Premier mine he had reconstructed a million dollar diamond from fragments he found at its sorting house. "A bypass system would have saved that diamond, and that alone would have paid the entire cost of the system twice over.
"We could certainly use a million-dollar diamond here," Whitelock said, as we continued walking around the site. "Have you ever been to any place this beautiful?" he asked me.
I looked down the mountain to where he was pointing. A stream cut through the emerald green hill below, and then cascaded down over white rocks. Surrounding the hill were snow-covered mountain peaks. The roof of Africa was indeed extraordinary. I asked the mine manager how he had found this Shangri-la of his.
"I came here with Colonel Jack Scott twenty years ago and I never left." He explained that Scott was a South African adventurer looking for diamonds, and he had heard of a Kimberlite pipe in Lesotho. Even before diamonds had been discovered in South Africa, he continued, Basuto tribesmen mined these kimberlites. They had been looking not for diamonds but for ilmenite, a mineral used as a bright cosmetic by the Basuto women. Scott managed to persuade the paramount chieftainess of Lesotho to give him a concession to sift through the kimberlite pipe for diamonds. "We came up on horseback then, and had to hack a jeep trail up the mountain," Whitelock recalled.. "We were stranded for a week in a blizzard, but Scott got about 1,800 carats of diamonds out. Shortly thereafter Scott gave up the concession."
Whitelock continued to prospect on his own in Lesotho, enjoying the trout-filled streams and endless game. Then, in 1967, a Basuto woman found a mountain diamond weighing 601 carats. It was the eleventh largest diamond ever found in the world. Rio Tinto Zinc, a London mining conglomerate, rushed in to buy the mining concession from the newly independent government of Lesotho. At this point, Whitelock joined Rio Tinto Zinc as a field geologist.
"They built the airstrip that you landed on this morning and they began digging out the mine," he continued. Even though Rio Tinto Zinc excavated large amounts of kimberlite, it found that the ore yielded too low a percentage of diamonds to be economically profitable. In 1972, it abruptly abandoned the concession.
Chief Jonathan, the prime minister of Lesotho, then went to the "logical candidate," as Whitelock put it, Harry Oppenheimer. Oppenheimer's gold mines in South Africa were already the chief employer of Basuto labor, and Oppenheimer's companies had invested in timber and land in Lesotho as part of a diversification strategy. Chief Jonathan proposed that Oppenheimer go into partnership in Mining diamonds with his kingdom.
Oppenheimer, according to Whitelock, found the idea of discovering magnificent diamonds in this mountain wilderness , to be an "especially romantic" undertaking. He likened it to salvaging great works of art and took the gamble of finding large stones in Lesotho, even though the economics remained at least problematical. "And he hired me to manage the mine," Whitelock concluded his story.
I looked around at the too-foot-high separation plant erected on the side of the mountain, the Swiss-chalet style dormitories for the workers, and all the mechanized equipment in the mine. It seemed that an enormous amount of capital had been invested in this Shangri-la. Could this all be merely a romantic conceit of Oppenheimer?
Oppenheimer had opened the Orapa mine less than a year before he negotiated the venture in Lesotho. He had also during this period acquired prospecting rights to other countries adjacent to South Africa-Swaziland and Rhodesia. This sudden expansion by De Beers into four neighboring countries-Botswana, Lesotho, Swaziland and Rhodesia-seemed to me to have been more than a coincidence. It was a time, after all, of increasing racial unrest in South Africa, and these neighboring countries could provide safe havens for De Beers.
We dined with the supervisory staff in a wood-paneled room that overlooked the spectacular mining site. They had a visitor from the Soviet Union, a geologist named George Smernoff. Smernoff, it turned out, had been stationed in Lesotho for nearly a year to observe De Beers' mining techniques. This arrangement with Smernoff was part of an "exchange" between De Beers and the Soviets..
This remote kingdom seemed an odd place for an "exchange." On the other hand, since the Soviet Union was supposedly boycotting South Africa because of its racial policies, Lesotho provided a convenient official residence for a Soviet mining expert whose unofficial business was in South Africa. "Does Smernoff have access to other De Beers mines?" I asked.. No one at the table answered.

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