Treasure Island

If you're a treasure hunter, you might want to consider flying down to Madagascar, an island in the Indian Ocean about twice the size of California. About half of all the sapphires in the world are buried there.

The gems were discovered only two years ago, so the riches have barely been tapped. Bob Simon reports.

And everyone shares the same dream: striking it rich in sapphires.

Gilot is a prospector, and the bucket at the end of his rope holds the stuff that his dreams are made of. After four months of digging, Gilot has found one sapphire. He got $200 for it.

Gilot's mine is small, so small that his kid brother actually does the digging for hours at a time, 50 feet down in the dark. Some of the mines are a bit bigger. But it doesn't take much for the fragile walls of those shafts to give way, burying the diggers alive and turning the mines into graves.

The technology of sapphire mining in Madagascar consists of a shovel and a strong back. The diggers claw rocks out of the earth then haul them down to the river which pulses with the rhythm of hope that, among all those stones, there might be just one that sparkles.

But even that stone will not spell treasure, at least not for these people, who know so very little about the true value of what they find.

A $30-gem is almost two months' pay for the average Malagasy. But when the sapphire finds its way to the gem markets of Bangkok or Tel Aviv, it could fetch a hundred times that. And that's the kind of mark-up that has lured fortune hunters from far away.

Dave Schaffer works for a Canadian-Israeli mining venture that's been looking for sapphires in Madagascar for four years without much success. "I've seen some sapphires that have been sold for millions of dollars come out of this place."

Schaffer described the area as "the last frontier," a phrase often used in connection with the Wild West 150 years ago.

And if Madagascar is like the Old West, then a town like Ilakaka is Dodge City. Built on a dream of rare stones and riches, more people are coming to this boomtown all the time. That's why there's so much new construction. A year and a half ago, there was nothing in the area, just a dip in the road.

Today, you can get just about anything you want in the streets of Ilakaka, and it is all driven by sapphires. The diggers sell their stones to small-time buyers, who sell them to bigger buyers, who export them to gem markets in Asia and Europe. There's a lot of cash, but you'll have a hard time finding a cop or a court.

That means people in the sapphire business, like Schaffer and his Israeli partner Dror Morodov, have to know how to take care of themselves.

B>"I do carry a handgun," said Morodov before pulling out a hefty pistol. "In South Africa, where I bought it, it was described as 'a woman's gun.'"

As for Schaffer, he said he only carries pepper spray unless he is escorting gems. What does he carry then? "I carry a shotgun," he said.

In his line of work, Father Joseph Shea is armed only with the Bible. He left Boston to become a missionary in Madagascar 40 years ago. He sees through the dreams here right into the future of this island nation's children.

"The majority of those little kids are not going to get enough to eat. They're certainly not going to get any medicine, medical treatment. And when the very smallest little contagion comes in and touches their lives, they're going to pass away," said Father Shea.

According to Father Shea, death is a way of life in Madagascar. But he prays that sapphires will change that way of life for the better. "It has the potential of bringing a level of prosperity to Madagascar, of answering some of the needs that these young people have," said the priest.

The experts estimate Madagascar could ship up to half a billion dollars' worth of sapphires to the world market every year. Taxes on all those gemstones could build a lot of roads and schools and hospitals in a poor country. The problem is, the authorities collect only a small fraction of the taxes because most of the sapphires just disappear from Madagascar without a trace.

It seems that a lot of foreigners are getting rich from sapphires in Madagascar, but poverty is as bad as ever. But Didier Ratsiraka, the country's president, said the corruption is a two-way street. "Foreigners are exploiting Madagascar. But we are exploiting foreigners, too."

Everyone is exploiting, but no one is getting exploited, except, of course, the people of Madagascar. Gem dealers are paying big bribes to government officials but a lot less than they would have to pay in taxes.

"In Canada, a lot of that's perceived as heavily illegal, where here it's day-to-day business," said Schaffer.

Ratsiraka admitted corruption is a problem but suggested it really isn't as bad as all that: "I don't think that any people in the government (are) involved - maybe one or two. But I don't think that the government is involved. "

The president said he is going to make sure gem dealers start paying taxes instead of bribes to get their stones out of the country. He even sent a few soldiers down to the sapphire area with strict orders to round up the usual suspects.

But Father Shea called the effort "window-dressing." After all, police haven't touched the really big dealers, guys with names like Svetkoff, and Werner - names only whispered on the streets of Ilakaka.

Schaffer reluctantly disclosed what he knows of the two secretive dealers: "Well, from my dealings that I've only, you know, met them once, was...Werner's a Swiss buyer and e's in here buying gems. And Svetkoff, he's been around for a long time in the industry here."

For days, 60 Minutes II asked about those big men who export millions in sapphires every month and was answered with shrugs. Finally, it was rumored that Werner was on his way.

A truckload of heavily armed men headed to a remote dirt airstrip. A Cessna with a Swiss flag on the tail came in low, landed and taxied to a stop. Next to the pilot sat Werner carrying a bag full of cash to buy stones.

When asked why he was in town, Werner answered: "I'm buying, selling stones."

And what does he think of the quality of the sapphires here? "It will control the world market, no question," he replied.

Werner said he is simply a businessman who, due to circumstances beyond his control, needed a brace of bodyguards.

And he said he has had some close calls with enemies. "I didn't come the day they were expecting me," said Werner. "They put up an ambush, but I missed it."

Werner wouldn't say much about his sapphire business. All he would say - and he may have been joking - was "I am the big man."

And Werner's name is known in the highest places. "I know a little bit about Werner," said Ratsiraka. "He has a Malagasy fiancée. He has his own plane."

"I think that from time to time, he's, he operates legally. And, illegally, I don't know, because if I knew he would be in jail."

Werner does not appear to be worried about going to jail. He told 60 Minutes II the good times had just begun to roll for him and others with access to international markets.

But what about the guys with the shovels, and their wives and their children? Right now the question isn't even whether they will get a fair share of the wealth. It's how many will make it through the rainy season.