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Biggest Emerald Miner Targets Colombia Amid Mafia Tension

March 27 (Bloomberg) -- Gemfields Plc, the world’s top emerald producer, is scouring for assets in Colombia where the government is seeking to halt a drop in output and prevent a new mafia war in the country’s colored-gemstone heartland.

“Colombia’s got some wonderful emeralds,” Chief Executive Officer Ian Harebottle said in a telephone interview March 25. “We’ll move there when we find the right asset.”

Colombia, the setting of the 1984 movie ``Romancing the Stone,'' starring Michael Douglas about a hunt for a giant emerald, is looking at ways to improve security and attract investment in an industry traditionally dominated by feuding clans. Annual production has slumped to 2.6 million carats from 9 million carats over the past decade.

A mine’s potential for expansion, security and reliable partners are key factors determining where and when Gemfields will invest in Colombia, Harebottle said. Shares fell 4.1 percent to 35 pence in London, the biggest decline in two months. The company bought Faberge Ltd. last year and owns 75 percent of the world’s biggest emerald mine in Zambia.

The Andean nation is still one of the world’s three main emerald-producing nations, alongside Brazil and Zambia. A lack of investment and mechanization at aging mines is behind the industry’s decline after easily accessible gems became scarce.

In the late 1980s, thousands died when Gonzalo Rodriguez Gacha, the Medellin cocaine cartel boss, attempted to wrest control of the emerald zone from Victor Carranza, dubbed the “emerald Czar” by Colombian newspapers. Carranza, who survived wars with Marxist rebels and rival emerald clans, died from cancer in April sparking fears of a battle for control of the industry.

Reinforcements Called

In November, President Juan Manuel Santos ordered the army to reinforce security in Boyaca’s gemstone region, a six-hour drive north of Bogota, after emerald baron Pedro Rincon was injured in a grenade attack.

“We definitely don’t want to go into an area where there is a risk of crime and irregularities,” Harebottle said. “The government is very supportive of getting things right and moving in the right direction, supporting foreign investment and increasing transparency.”

‘Incredibly Skeptical’

Authorities don’t have control over public order in emerald-producing areas, Congressman Ivan Cepeda, who wrote a biography of emerald boss Carranza said by phone from Bogota.

The idea that it’s impossible to enter the industry and that it’s controlled by mafia groups is incorrect, Deputy Mining Minister Cesar Diaz said in a March 25 interview from his Bogota offices.

Investment in Colombia would make sense for Gemfields given the quality of the Andean nation’s emeralds, provided the government gives the company adequate backing, said Kieron Hodgson, an analyst with Charles Stanley Securities.

“Investors would be incredibly skeptical if they were to establish an operation in Colombia without government support,” Hodgson said by phone from London.

To contact the reporter on this story: Andrew Willis in Bogota at awillis21@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Keith Gosman

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