Tanzanite, the icy blue colored gemstone that originally was catapulted into fame by Tiffany’s has had an up and down history in recent years. In fact, tanzanite has long boasted a quirky past. Legend has it that, after the famed New York jewellery company was introduced to the product by John Saul, a founding member of the International Colored Gemstone Association (ICA) and the first geologist to identify this beautiful blue-purplish variety of the mineral called zoisite in the late 1960s, the jeweller’s marketing people found the name unpalatable. And so the name “tanzanite” was born, after the East African country in which it is found.

Today, tanzanite remains extremely popular in the marketplace. But is dogged by unsubstantiated rumors of illicit trading, as well as difficulties along its supply chain.

Single Source :

The world’s entire supply of tanzanite comes from the Meralani area of Tanzania. There, a large-sized mining company called TanzaniteOne—which is an offshoot of the South Africa-based Afgem Corporation—rubs shoulders with smaller mining operations and wildcatters.$$Meralani covers an area of a few square kilometres, divided up into four blocks. Blocks B and D are where the independent miners are located, but Block D remains relatively untouched. Block C, which is worked by TanzaniteOne, is the only section to be mined by modern mechanized methods. It is thus responsible for the bulk of tanzanite output.

Dismal Mining Conditions :

Smaller operators in the tanzanite mining sector have long struggled to survive in an industry dominated by a large operator like TanzaniteOne. For Badresh Pandit, an ICA board member from Tanzania and Chairman of the ICA Mining Committee, the solution to the problems facing the independents lies in organized, commercial-scale mining. He describes current mining conditions over most of the region as dismal. “Lack of facilities and equipment make the whole process of mining quite difficult. Shoestring budgets, poor technologies and mining by people who do no planning all have a negative impact on future production,” he says.

ICA Warning :

The proliferation of low-budget tanzanite mining operations has caught the attention of the ICA, whose President, Joseph Menzie, recently issued a statement noting that “ICA promotes fair trading practices and mining safety and calls upon the Tanzanian Government to regulate and enforce legislation which will remove any illicit and dangerous mining and trading by Tanzanian wildcatters.”$$For its part, the Government of Tanzania has little incentive at present to curtail the dominance of TanzaniteOne. In 2004, the company reported payments of $400,000—or 6.5 per cent of its $6.2 million in revenue—into the state coffers, in the form of royalties, , according to Guardian newspaper. This makes TanzaniteOne, which has been listed on the London Stock Exchange since August 2004, the largest contributor of royalties from the tanzanite industry.

Mineral Bank Needed:

The underwriting of independent operators is a problem for smaller companies. The Tanzania Mineral Dealers Association (Tamida), which represents the bulk of the tanzanite trade and whose members finance over 90 per cent of the independent mining of tanzanite in one way or another, has asked the government to establish a mineral bank that will specifically cater to local miners and gemstone dealers.$$ Pandit notes that a problem for bankers and investors is the difficulty they experience in forecasting production. Even where deposits are plentiful, as they are in the case of tanzanite, bad mining practices have made production inconsistent. “If, however, we could merge the various operations, it would be possible to reach critical mass from a financial perspective. In such a scenario, mechanized mining is an option, and our entire economic equation would be changed,” Pandit says.$$Another financial obstacle, says Sammy Mollel, the Tamida chairman who is also an ICA member, is created by a 20 percent value added tax placed on gemstones, and even those that are destined for export. “Gem stones should be zero-rated,” he insists. “The VAT applicable to gemstone transactions prevents inter-dealer trade, limiting buying capabilities and free trade.” Tamida has requested the government to reconsider the tax regime, as it is applicable to gemstones, and we are expecting changes in this year’s budget.”$$Mollel believes that there is even more at stake. “For a cutting industry to be established in this country, this inter-dealer VAT must be abolished,” he says.

Local Cutting :

The development of indigenous cutting industries in Africa has become a popular calling cry of late, led by the South African and Madagascan governments, which have been extremely critical of the decades long custom of exporting raw materials out of the continent, in order that they be processed elsewhere. The popular catchword at present is “beneficiation” and it refers to a demand that a major part of local production be earmarked for local cutting, in order to retain as much as added value at home.$$In Tanzania, there has been talk about severely curbing the export of rough tanzanite, in order to force dealers to polish the stone within the country. Tamida supports such moves and recognizes the need for rapid establishment of the lapidary industry. Mollel said that while this would cause hiccups and some initial suffering, it will be “mostly for foreign-commissioned agents who don’t care about establishing a lapidary industry in Tanzania.”$$ Eric Saul, the newly appointed ICA Ambassador to Tanzania and one of John Saul’s sons, is doubtful that any ban on exports has much chance of being successful. “There are some risks involved such as smuggling the rough out of the country,” he says.$$At present, all gemstone cutting in Tanzania takes place in Arusha, where by Saul’s estimate, approximately 95 percent of the activity involves the cutting and polishing of tanzanite alone. “At this point, according to my calculations, there are 150 to 200 cutters at work in Arusha, with 30 to 40 of them thought to be skilful craftsmen. The biggest cutting workshop employs at most 20 cutters. However, things could evolve rapidly if training programs are planned,” he says.

Small Deposit, Significant Opportunity :

For Tanzania, a great deal is riding on the success or failure of its tanzanite sector. Indeed, it is a rare that so small a deposit has achieved so significant an opportunity. The reasons for this are many. Clearly, one is that tanzanite has been fortunate to enjoy a concerted marketing effort—unparalleled in the gemstone trade, perhaps, outside of diamonds. Never a gemstone has been found in such a small deposit.$$Success will not only be measured in terms of sales and price per carat. In Tanzania it also will be gauged by the degree to which the tanzanite sector is able to re-channel its good fortune back in the local economy. To great degree this will depend on a mixture of government incentives, the integration of modern mining methods, and the marriage of foreign investors and local mining companies.

Processing at Home Proposed :

Mollel is confident that Tanzania has the capacity to manufacture all rough, if systems such as those used by Sri Lanka, Israel or India are adopted. If that is done, hundreds of cutters could be trained within six months, he said. He estimates that there are hundreds of experienced cutters in Tanzania and at least 20 viable lapidaries, which are capable of expanding rapidly. “We must approach the banning of rough exports in steps, in order to allow us time to train more cutters,” he says.$$Tamida is encouraging the Tanzanian government to demand a 5 per cent royalty payments on all minerals if they are exported unprocessed, and at the same time abolish an existing 3 per cent royalty payment on exports of locally processed gemstones. The Tanzanian Minister of Privatization and Planning, Dr. Abdalla Kigoda, recently reported to the country’s parliament.

Preferred Supply Strategy :

For its part, TanzaniteOne does not appear to be developing its marketing strategy around a predominantly Tanzanian-based manufacturing complex. At the Tucson shows earlier this year, it introduced its Preferred Supply Strategy, which is clearly modeled on the Supplier of Choice strategy of De Beers’ Diamond Trading Company.$$ “TanzaniteOne has committed to supply six parcels per year to each of six sightholders for a three year period. TanzaniteOne has initially appointed six Sightholders, with plans to increase this number.