AFGEM Wins OK to Mine

By Gary Roskin, G.G., FGA, Senior Editor -- JCK Online, 11/1/2001 2:00:00 AM

AFGEM, the South African mining company that leases a prolific tanzanite site from the Tanzanian government, has successfully fended off a legal challenge to its right to mine there.

"In a unanimous decision of the full bench of the High Court of the United Republic of Tanzania, the lawsuit faced by African Gem Resources Limited ( 'AFGEM') has been struck off in its entirety with costs," says Joanne Herbstein, AFGEM company spokesperson. "Three mining associations in Tanzania filed various charges against AFGEM, members of its directorate, and the previous Tanzanian minister of energy and minerals. The allegations related to the legality of AFGEM's mining license, taxes paid, alleged misconduct by AFGEM staff towards small-scale artisanal miners, and AFGEM's alleged monopolization of the tanzanite market."

AFGEM legally leased Block C, one of the more productive mine sites, from the Tanzanian government, and local small-scale miners had to move off the hill. Over the past year, a dispute between the local miners and AFGEM has turned violent, with at least one shooting death. Locals accuse AFGEM of breaking a promise to improve the Tanzanian infrastructure in exchange for the lease.

The local miners also had concerns about AFGEM's marketing strategy, which they claim would make it impossible for small-scale miners to survive. AFGEM says its marketing campaign will only increase the popularity of the gem, but it has yet to implement any large-scale campaign. Meanwhile, tanzanite sales—like sales of most gemstones—have slowed.

Still, AFGEM says it plans to make the mine a successful venture. "With the positive outcome of the court case, AFGEM's management hopes to commence commercial production in the latter portion of this year," notes Herbstein.

AFGEM has been trying to position itself as "a marketing company that mines." It intends to be involved in not only the cutting and polishing of tanzanite but also grading, certification, laser inscription, packaging, point-of-sale materials, trade education, training, and merchandising as well as consumer advertising, publication of brochures, promotions, and interactive Internet platforms.

AFGEM anticipates, however, that only 10% of the rough tanzanite produced will be cut and polished in its own factories. The remaining 90% is to be sold in the traditional manner to cutting centers at the best market price. "We will make production available to cutting and polishing facilities within Tanzania, as and when they are developed," says Mike Nunn, chairman and CEO of AFGEM.

AFGEM believes that strategy should answer local Tanzanian concerns, noting that it would be poor strategic management not to embrace the trend toward branding.