 Diamonds |
 De Beers may not be forever |
Diamonds are Angola's second source of foreign exchange after crude oil. In 1997, a record year, Angola was the world's 3rd largest producer in terms of value, and last year the industry added $66 million to the government's coffers. But for thousands of Angolans, diamonds have been a source of more misery than riches. Despite a UN embargo forbidding the purchase of diamonds from UNITA (a Portuguese acronym for National Union for the Total Independence of Angola), its leader Jonas Savimbi continues to use so called blood diamonds to finance it, and run guerrilla tactics against Angolan government forces and civilians.
A mining village in the diamond rich northeast
There are signs however that the government is making progress in regaining control of production and trade of diamonds. Military successes against UNITA positions in the late 1990's helped government forces regain control of the Cuango Valley and other diamond rich parts of the northeast.
Then in February last year it founded the Angola Selling Corporation (ASCORP) a mixed company between state owned Sodiame (51%) and Welox (49%) a subsidiary of the Leviev Group controlled by Israeli businessman Lev Leviev. 'The government had been planning the creation of a single marketing channel for the diamond industry for several years already.
The solution came as a response to several issues: to control the production and commercialization channels of artisanal miners, comply with UN resolutions in the fight against conflict diamonds and establish a steady and growing source of revenue for the government to re-invest in Angola's development' explains Mr. Noé Baltazar, Administrator of ASCORP.'
According to figures issued by ASCORP, government revenue from the diamond industry was $66 million up from $21 million in 1999, an increase of more than 46%. This result is attributed to the growing formalization of artisanal miners. 'between 1999 and 2000 the volume of official exports from the artisanal market grew by 41% explains Mr. Baltazar. If ASCORP had not set up a single marketing channel for Angola's diamonds this figure would be very small. We are trying to give technical and financial support to garimpeiros (artisanal miners) for small mining projects. We expect the official artisanal diamond trade to grow steadily in 2001'.
'While a monopoly may not appeal to the international community it is the best way to prevent the illegal export of diamonds that help finance rebel UNITA forces. Thanks to this policy, the government aims to get Angola off the list of conflict diamond exporting countries. Angola's diamonds will no longer be perceived as blood diamonds, they will be prosperity diamonds' says Mr. Baltazar.
But the creation of ASCORP has not pleased everyone. De Beers, the diamond mining and marketing giant had been marketing Angolan diamonds under the terms of a contract with the state Diamond Company Endiama dating back to 1989. However, the contract was cancelled in February 2000 with the creation ASCORP as a single channel for the commercialization of Angola's diamonds.
The decision did not affect De Beers who seemingly smelt the wind of change and closed its buying offices in Angola in 1999. But the company carried on negotiating with the government to recover a $50 million loan granted in 1991 in exchange for marketing rights of any alluvial diamonds produced by or for Endiama in the region of the Cuango Valley situated in the northeast of the country. By gaining a stake in ASCORP, Mr. Leviev managed to convince the Angolan government that he was the best-suited candidate to market Angola's diamonds. But De Beers considers this contravenes its contract with the government as indicated by an article published in June by the Angola Peace Monitor; The article states that 'in April 2000, De Beers tried to stop officially produced Angolan diamonds being sold in Belgium by applying to a court for the seizure of two consignments of rough gems belonging to ASCORP, to which De Beers claimed prior ownership'.
After 14 months of negotiations with the government to find a way out of this impasse, De Beers announced in May that it was suspending its prospecting operations in Angola. The decision leaves Mr. Leviev with exclusive rights to market Angola's official diamond output.
Throughout the nineties the government put a lot of effort into attracting foreign investment in the diamond industry. The campaign was successful, attracting several consortiums into exploration and production projects in partnerships with Endiama. Output jumped from 1.5 million carats in 1997 to 4 million in 2000. The figure reflects the government's armed forces success in driving Unita rebels out of diamond rich areas but is also largely thanks to the beginning of kimberlite mining in Angola.
Kimberlite deposits form pipes that become narrower with increasing depth. Unlike alluvial deposits, which cover large areas of land, they can be found in smaller areas, which are easier to protect from rebel attack and allow more control over smuggling and production. The trouble with kimberlite deposits is that they require a large amount of capital expenditure before they can be mined. While the security situation is improving companies are reluctant to risk millions in Angola's diamond concessions. | 
The Catoca diamond mine produced 70%
of Angola's diamond output in 2000
So the De Beers' pull out puts a dampener on the growth of Angola's diamond industry. According to De Beers the company was planning to build a kimberlite mine at Saurimo, a concession it had spent $28 million dollars on prospecting in partnership with Endiama since 1996. The mine would have created 1000 much-needed jobs in the region and 6000 more indirectly.
But De Beers is not the only company capable of investing in kimberlite mining in Angola. SMC (Sociedad Minera do Catoca) a mixed company owned by Endiama (32.8%), Russia's Almazy Rossii-Sakha (32,8%), Brazil's Oderbrecht Mining (16.4%) and Israel's Daumonty Finance (18%) a member of the Lev Leviev group, has been in production since 1997. The Catoca mine is Angola's only kimberlite mine and the worlds fourth largest of its kind.
The mine accounted for 72% of Angola's diamond production in 2000 and 42% of export revenue. Marcelo Gomes, Administration Director at SMC in Luanda says 'Catoca has the strongest cash flow of non oil sector companies in Angola with a gross turnover running at $160 million per year. $120 million have already been invested in SMC and we are investing another $50 million over the next two years to increase our output from 2 million to 4 million carats per year. At such a level of production it is estimated that known reserves will last between 35 and 40 years. But the increase in production is not just a matter of capital investment. While the armed forces have secured the region, small rebel groups are still active in the communities around the mine. 'Operating in war conditions imposes extra costs' says Mr. Gomes.' We have to fly about four Boeing 727 cargo flights per day between Luanda and the mine. Without road access between our mine and Luanda it will be impossible to increase our production to 4 million carats because airlifting so much is not feasible' he adds.
Mining companies have to consider the risks of a land mine on the road, or acts of terrorism against their vehicles and power supply. In such conditions security is a top priority. Such is the case for the Associacao Chitotolo, Angola's biggest alluvial diamond project. Founded in August 1996 to mine high quality alluvial deposits, Chitotolo is a joint venture between the Angolan State mining company Endiama (35%), the Sociedad Mineira de Lumanhe (15%), and British, ITM Mining (50%). The company has a 5400km² alluvial concession in the province of Lunda Norte situated in the north east of the country.
Industrial action and war prevented the company from achieving profitability until mid 1999. With revenues of USD $60 million versus costs of $42 million the company had a 43% gross profit margin in 2000. 'We are going to double the mining area over the next year from approximately 10% to 20% of the concession' says Mr Naim Cardoso, Managing Director of Chitotolo'and we will be adding another 80 security personnel to the 213 we already employ' he adds.
Contrary to what one might anticipate, improvment in the country's military sitiation is causing a surge in the demand for protection services in Angola. 'We started with 120 men and today we employ over 2400. We also have an important social role providing work for ex military personnel re-integrating civil society'.explains Mr Morais, Managing Director of Teleservice, Angola's largest security company. Mr Morais who counts multinational mining and oil companies amongst his clients, predicts his company will carry on growing as the civil war loses intensity and more companies start investing in Angola.
In the mining sector alone other companies such as Australia's Ashton Mining, Brazil's Oderbrecht, Portugual's SPE, Canada's Southern Era, Diamond Works (through its wholly owned subsidiary Branch Energy) and American Mineral Fields have all answered the government's business friendly calls for foreign investors. This puts De Beers in a dilema. Angola is known diamond territory and De Beers knows more about the the territory than anyone else. The disputed $50 million loan and interest weigh little in comparison with the capital its owners command: Last March, the Oppenheimer's, De Beers' founding family, led a $17,6bn buy out of the company.
In the meantime, Angola's diamond revenues are forecast to rise from $650 million in 2000 to $1 billion per annum by 2004. Known reserves are expected to last 35 years. Should this target be reached Angola would become the world's third largest diamond exporter in terms of revenues. By staying out of the territory De Beers risks losing its place in an increasingly long queue to exploit Angola's diamond fields. Lev Leviev and his associates may consider that has already happened. |
