Rio's Zimbabwe diamond unit 2008 output at record

Niels Kristensen, the managing director of Murowa, 78-percent owned by Rio, said the local business environment had improved but urged the government to do more to attract investors.

"We achieved record production in 2008. Production was in the region of 260,000 carats in 2008 and there is potential to increase that substantially," Kristensen told Reuters in an interview on the sidelines of a mining conference.

"The local environment has improved in Zimbabwe… but there are a number of changes that are needed to improve confidence and we are watching what happens in the medium and long term."

Kristensen would not say why production had risen at a time most mines in the country were closing due to an escalating political and economic crisis.

He also did not give production targets for 2009.

Diamond sales have been hit by the hard times brought on by the global financial crisis, and other bigger producers, including De Beers, the world’s biggest source of rough diamonds, have significantly reduced output levels, costs, and capital expenditure at its mines.

Murowa has the potential to expand production six-fold from current production, Kristensen said, but plans were hampered by uncertainty over ownership laws which require foreign companies to cede 51 percent shareholding to locals. 

The empowerment laws and frequent changes to Zimbabwe’s fiscal and monetary policies had discouraged Murowa going ahead with a $250-$300 million expansion.

The diamond mine is situated south-west of Harare and has 19 million tonnes of diamond-grade ore.

"Confidence needs to be rebuild but it is easily destroyed and thats what the country needs to work on," Kristensen said.

"The current legislation in its current form is not practical and workable. It will not lead to investments in the country. We fully support the principle of indigenisation but it should be done in a workable way."