Zimbabwe began selling a fifth of a $1.7 billion stockpile of diamonds extracted from a deposit where Human Rights Watch said security forces killed 200 illegal miners in 2008.

Today’s sale of 900,000 carats from the Marange fields in the east of the country comes after the Kimberley Process approved the auction of a portion of the 4.5 million carats of gems in stock. The Kimberley Process was formed in 2002 by governments and the diamond industry to halt the sale of so- called blood diamonds, or gems used to finance conflict.

After as many as 20,000 illegal miners swarmed onto the property soldiers drove them off two years ago, firing bullets and teargas from helicopters in an operation known as Hakudzokwi, or ‘No Return’ in the Shona language, New York-based Human Rights Watch said last year. At the time Zimbabwe’s central bank said gem smuggling was costing the country $40 million a week.

“This is the richest diamond field found in a century and it will do much to uplift Zimbabwe’s economy,” Obert Mpofu, the country’s mines minister, said in an interview from the capital, Harare, today. “It has the potential to raise as much as half of Zimbabwe’s budget.”

Mpofu provided the estimates of the value and size of the stockpile.

Legal Challenge

The deposit, initially discovered and not pursued by De Beers, was seized from African Consolidated Resources Plc by the government in 2006. Zimbabwe’s police say there have been no reports of abuse at the fields.

Nelson Chamisa, the country’s communications minister, said earlier today buyers from the U.S., Europe, Israel and India were arriving in the country to take part in the sale.

African Consolidated, based in Maidstone, England, last month warned that the sale of diamonds from the field would be illegal because it is challenging the seizure in Zimbabwe’s courts.

Last year the government awarded the mining rights to the state-owned Zimbabwe Mining and Development Corp. and two closely held South African companies, Canadile Mining and Mbada Miners.

The Kimberley Process said on July 19 that Zimbabwe could sell the gems under the group’s supervision. The group represents 49 countries including South African the members of the European Union and its members account for 99.8 percent of global diamond production.

‘Horrific Violence’

Last year Kimberley Process investigators found that Zimbabwe’s military had committed “horrific violence” against villagers and illegal diamond miners in Marange, according to a statement on the group’s website. The area is also known as Chiadzwa.

Kingdom Financial Holdings Ltd., a bank based in Harare, said on Aug. 6 that a lack of liquidity would hold back economic growth in Zimbabwe “unless the Chiadzwa diamonds start bringing in much-awaited revenue inflows.”

The southern African nation is recovering from a decade- long recession that ended last year when President Robert Mugabe’s Zimbabwe African National Union-Patriotic Front formed a coalition government with the Movement for Democratic Change of Prime Minister Morgan Tsvangirai, easing a political crisis.

“We need to be realistic and not promise Zimbabweans the earth,” Tsvangirai said in an interview from Harare. “Estimates of billions being raised today are exaggerated. This auction will certainly help the country’s fiscus, but it won’t solve all Zimbabwe’s problems.”

By Staff reporter and agencies