High-risk rush for Angola’s diamonds By Tom Burgis
Published: September 3 2008 17:45 | Last updated: September 3 2008 22:54
Access to Angola’s diamonds used to come at the barrel of an AK47. Today, as peace takes hold after three decades of civil war, some of the world’s leading mining companies are rushing to exploit what is considered one of the last great repositories of the precious stones.
This is in spite of exacting terms that do not guarantee their share of the spoils once production begins.
Driven by excess global demand and a government in a hurry to exploit its resources, diamond companies are spending hundreds of millions of dollars prospecting as minority shareholders in joint ventures with the state company.
“The challenging thing is that you have an agreement for prospecting. Then you produce a viability study and you negotiate the rights to your mining contract,” Charles Skinner, head of exploration at De Beers, told the Financial Times.
“What’s the rule book going to look like? Nobody knows. It’s high risk.”
Angola produced diamonds worth nearly $1.3bn last year, a tenth of the global total, 70 per cent of which came from the lone kimberlite mine – which is yielding substantial amounts – with the balance from small-scale alluvial mining.
Endiama, the state diamond company that controls all concessions, aims to increase production from almost 10m carats last year to 17m in 2010.
Endiama takes a stake of at least 51 per cent in all exploration ventures with foreign companies, which are obliged to fund prospecting under tight deadlines.
The terms are far more onerous than in traditional diamond countries such as South Africa, Australia or Botswana, where companies typically control concessions and pay royalties on what they extract.
But as stocks elsewhere dwindle, miners have been lured to Angola by the potential for high-quality diamonds long prohibited by international sanctions against the rebels who until 2002 controlled the fields.
Sebastião Panzo, Endiama’s head of communications, said a wholesale review of the current diamond laws, drawn up under the strain of war, would be completed early next year.
The overhaul could see changes to the stipulation that Endiama always holds majority stakes and might separate the state company’s conflicting functions of concessionaire and industry regulator.
Dave Lenigas, executive chairman of Lonrho, the London-listed Africa conglomerate that this month completed a year of negotiations to explore the Lulo concession, said: “The government is very, very mindful that this is their resource and they are very active in management.”
The excitement of geologists notwithstanding, there would be “nothing jumping off the page” in the viability study De Beers would shortly deliver to Endiama, Mr Skinner said, in spite of spending $71m over the past three years on three sites.
Given that the ruling party fought an insurgency bankrolled by illicit sales of so-called “blood diamonds” – and that its members now enjoy their benefits – a desire to keep tight control over the resource is hardly surprising.
However, Johan Dippenaar, chief executive of Petra Diamonds, now the lone foreign investor in the Alto Cuilo concession following the withdrawal of BHP Billiton, said: “If they followed a system à la Botswana, there would be 20 more companies there.
“Supply of rough diamonds to the market is extremely tight. If you have any rough production you are sitting in the pound seats.”
The risks, however, are sizeable. Foreign investors in Angola echo activists and diplomats in noting the dangers of operating in a country where corruption is endemic.
Mr Panzo acknowledged that forced evictions of locals from diamond areas were “a problem we have to solve” and said the government had removed thousands of migrant artisan miners.
Angola, which boasts one the world’s fastest-growing economies, is getting ready to exploit bountiful mineral stocks and pumping some of the proceeds of an oil bonanza into a massive infrastructure programme.
The government is about to launch a comprehensive aerial survey to identify potential new diamond reserves.
Mr Panzo said Endiama was in talks with several big foreign diamond companies about new exploration ventures, suggesting the onerous terms would not deter a hungry industry. “You can argue it’s the wrong way to do business,” said De Beers’ Mr Skinner. “But if you can’t take the heat, don’t go in the kitchen.”
CVI Price at posting:
8.9¢ Sentiment: Hold Disclosure: Held
