Output at Rio Tinto Zimbabwe diamond mine down 40 percent

HARARE (Reuters) - Zimbabwe's Murowa diamond mine recorded a 40-percent decline in production in 2007, hurt by frequent power cuts, equipment failures and a delayed expansion program, Rio Tinto Zimbabwe said on Wednesday.

The mine, which is 78-percent owned by London-based mining firm Rio Tinto Plc (RIO.L: Quote, Profile, Research), produced 145,000 carats in 2007, compared to 240,000 carats in the previous year, the company said in a statement to shareholders.

While a decline in the grade of diamonds had been expected, the company said it had not anticipated the extensive impact of electricity outages, which have been increasingly common in the economically devastated southern African nation.

State power utility ZESA has been unable to guarantee electricity to residents and industry.

"Besides the anticipated decrease in grade with depth and the delay in the implementation of the expansion project, production was adversely affected by ZESA power outages and contractor mining fleet breakdowns due to lack of spares," the statement said.

A number of miners, including Rio Tinto Zimbabwe, entered a deal late in 2007 to import power directly from Mozambique to overcome the electricity crisis. They pay for their supplies in foreign currency.

Rio Tinto has said it intends to spend $200 million to raise Murowa's production, but it wants assurances the investment will be safe amid plans by President Robert Mugabe's government to place the control of all mines in the hands of Zimbabweans.

Mugabe's government introduced a bill to change the ownership of foreign-owned firms last year.

Rio Tinto Zimbabwe chairman Eric Kahari has warned that Murowa could start winding down in 2009 without the expansion.