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Angola's Diamonds Rock

Article - December 2, 2014

Already the world's fifth-largest diamond producer, Angola is set to benefit from the surge in demand for the gems among consumers in rising economies such as China and India.
 

“A DIAMOND IS FOREVER.” THIS SIMPLE PHRASE HELPED TO POSITION DIAMONDS IN POPULAR CULTURE AS A TOKEN OF LONG-LASTING, LEGITIMATE LOVE AND, FOR THE MEN WHO BUY THEM, A SYMBOL OF SOCIAL STATUS.

In 1948, a copywriter for the American advertising agency Ayer created a slogan for one of its major clients, the De Beers Group, the world’s largest diamond producer: “A Diamond is Forever.” This simple phrase helped to position diamonds in popular culture as a token of long-lasting, legitimate love and, for the men who buy them, a symbol of social status.

It also helped the growth of the diamond business worldwide. According to the U.S, consulting firm Bain & Company, the share of American brides receiving diamond engagement rings grew from 10 percent in 1939 to 80 percent by the end of the twentieth century, while the share of Japanese brides grew from 6 percent in the 1960s to nearly 80 percent.

Today, a new tide of brides is rising in China and India, two countries which are seeing the emergence of a huge middle class eager to adopt the Western way of life. China surpassed Japan in 2010 as the second-largest buyer of diamonds behind the U.S., where demand rose 7 percent that year, compared with 25 percent in China and 31 percent in India. This surge in demand among the nouveaux riches in the Far East is today driving the market for diamonds, and one of the countries set to benefit is Angola.

Already the world’s fifth largest producer by value, and seventh by volume, Angola’s diamond industry still has enormous, untapped resources that are already attracting renewed interest from foreign investors.

“Our potential is huge,” says Carlos Sumbula, CEO of the state-owned diamond mining company, Endiama.  He explains that the government recently decided to update its National Geology Map (PLANAGEO), in order to get an overall picture of the country’s potential in diamonds and other precious gems.

One of the companies already responding to this potential is De Beers itself. In April, the company successfully negotiated a new diamond exploration license with the Angolan government. De Beers had been in the country between 2005 and 2012 but had given up its license because of poor results.

According to the World Diamond Council, an estimated $13 billion worth of rough diamonds are produced each year, of which approximately $8.5 billion (65 percent) are from Africa. The diamond industry employs some ten million people around the world. Global diamond jewelry sales have increased three-fold in the past 25 years, and are currently worth in excess of $72 billion annually. And the sector is buoyant: natural, rough diamond prices are expected to rise by 5 to 10 percent in 2014, due notably to higher sales in India, China and Japan, according to Reuters. Bain & Company as the Antwerp World Diamond Centre (AWDC) say they will continue to soar at least until 2018.

“So, you can understand why prices are going to increase and why this is a very, very good business to be in,” De Beers Group CEO Phillipe Mellier said recently. Mellier has said that he expects the demand for polished gems to grow by up to 4.5% in 2014.

Angola’s diamond industry began a century ago under Portuguese colonial rule and is today emerging from a long period of difficulty as a result of the civil war and, more recently, the worldwide financial crisis. Production has remained relatively stable at around eight million carats per year since 2006 and, according to government figures, provided revenues of $1.17 billion in 2013. Geology and Mines Minister Francisco Quieroz said in June he expects diamond production to surpass 10 million carats this year.

However, Angola is keen to avoid the curse that has plagued other countries blessed with a wealth of minerals by keeping control over its resources,  This is why its diamond industry is run through the state company Endiama, under the supervision of the Ministry of Geology and Mines.

Endiama is responsible for negotiating concessions and holds the largest stake in each of the joint ventures that operate Angola’s diamond mines. Among the private partners in these joint ventures are some of the largest companies in the world, Apart from DeBeers, these include Odebrecht (Brazil), BHP Billiton (an Anglo-Australian conglomerate headquartered in Australia), Alrosa (Russia), and Petra Diamonds, a diamond mining group headquartered in Jersey. Most of the joint ventures also grant minority participation to private Angolan companies, many of which lack high-level technical capabilities.

The biggest diamond mining operation, Catoca, is owned by a consortium composed of Endiama, Alrosa, Odebrecht, and LLV of China. Founded in 1995, Catoca is the world’s fourth largest-diamond mine, accounting for about 75 percent of the country’s production, It is located in the northeastern corner of Angola, where most of the extracting is conducted and the greater part of the known reserves are located.

What is particularly attractive for mining companies is that, according to government and independent experts, only 40 percent of the Angola´s diamond potential has been explored.

Just recently, the Australian mining company Lucapa Diamond discovered a giant, 32.2 carat white diamond in its Lulo mine, northeastern Namibe province.  Lucapa said in June that it expects the Lulo mine to outproduce Catoca within two years and that it may hold deposits of up to 500,000 carats. In 2012, another Australian company, Lonrho Mining, discovered an exceptional, 131.5 carat stone in the same area. This diamond was even bigger than the legendary 106-carat Koh-i-Noor (“Mountain of Light”) presented to Queen Victoria in 1850 and set in the crown made for the late Queen Elizabeth for the coronation of King George VI, in 1937.

There are currently 10 mines in operation in Angola – three to explore primary deposits (kimberlites) – Catoca, in Lunda Sul province, Camutué and Luô, in Lunda Norte– and seven for secondary deposits (alluvial deposits) –Cuango, Chitotolo, Canvuri, Luminas, Chimbongo, Somiluana and Calonda, in Lunda Norte. Angola plans to increase production at an annual average rate of 5 percent and in order to do so, it hopes to attract more foreign investors. Sumbula of Endiama is keen to emphasize that, “the industry offers business opportunities for prospecting, mining, trading, cutting and polishing and jewelry. It also provides investors with economic, social and political stability, a good customs regime, attractive mining legislation, excellent diamond quality and important investments in infrastructures. These will contribute to cut costs and increase revenues.”

Before a diamond reaches the pocket of a nervous young man about to propose to his fiancée, it goes through a lengthy and complicated process, which explains in part why it is so pricey. To begin with, diamond fields are extremely rare. There are only about 20 major diamond mines in the world, and 11 of them provide about 62 percent of the world’s production of diamonds by carat, according to Bain & Company. The majority are in Africa, but there are also mines in Russia, Australia, and Canada. A great deal of drilling must be done in order to obtain just few of the gems:  production varies by mine, but the world’s richest mine, Jwaneng in Botswana, has to move on average a ton of rock to get 1.4 carat of rough diamond.

All this has a cost on the environment, and that’s another aspect that Angolan authorities are keen to control. Under the slogan “Mining is necessary, preserving is possible,” Catoca carries out a number of programs aimed at controlling the environmental impact of mining (air, water and soil), the recovery of degraded areas - notably by planting trees - and the management of solid and liquid waste. Furthermore, Catoca is in the process of obtaining the ISO 14001 quality certification for its Environmental Management System.

Once extracted, rough diamonds are sorted, then cut and polished. In the process, they lose about half of their original weight. Traditionally, most of the stones were cut and polished in only a few centers in the world, Antwerp (the Netherlands), Tel Aviv (Israel), New York, and Russia. Nowadays, the smaller stones are increasingly cut in India and China, where labor costs are cheaper. Once cut, the diamonds reach the manufacturers, of which it is estimated that there are some 10,000 worldwide. Most are anonymous, but some have become global brands that have contributed to the legend of diamonds: Blue Nile, Cartier, Tiffany, Bulgari andHarry Winston, to name a few.

Now, if a diamond can (arguably) make a woman happy in the so-called first world, does it make a man happy in Africa? What is the cost of diamond mining and trading for local people? In the age of global and instantaneous information, that’s a question that an increasing number of customers worldwide ask themselves before making a purchase.

Here it should be noted that the history of diamonds has been closely linked to cinema, from Mae West to Marilyn Monroe. One film alone contributed a great deal to raising awareness about a dark chapter of the diamonds saga. Blood Diamond (2006), starring Leonardo DiCaprio, showed how the illegal trade of diamonds fuelled bloody civil wars in Africa throughout the 1990s. Angola was no exception, as UNITA (União para a Independencia Total de Angola) rebels sought to control diamond-producing regions to finance their war against government forces.

In order to stifle UNITA’s supply sources and to preserve its all-important diamond sector, Angola was one of the first countries to adhere to the idea of certifying the origin of diamonds. In 2002, it was one of the founders of the Kimberley Process, an initiative carried out jointly by governments, industry and civil society to stem the flow of conflict diamonds, following a 2000 resolution by the United Nations.

As proof of Angola’s commitment to keeping the diamond industry transparent, it was recently elected Vice Chair of the Kimberley process for the year 2014, and Chair for 2015. “It is a proud moment for the Kimberly Process that a country which, once afflicted by civil conflict, has now regained political and economic stability and, as a consequence, is able to assume a position of leadership in the very institution that helped set it on its way to recovery,” said the President of the World Diamond Council, Avi Paz. 

Diamonds are also a key factor in the current economic boom; they account for 5% of GDP, still a far second to oil at 45%, but nonetheless an important contributor to raising living standards. A recent Boston Consulting Group report notes that, “Angola’s progress continues to overcome the advances recorded by other countries rich in natural resources.”  According to a 2013 study by the Boston Consulting Group and the Tony Blair Africa Governance initiative, Angola is among the countries whose well-being has improved most in the past five years in Africa: not only has it enjoyed rapid growth in GDP per person (an average of 11.1 percent per year between 2001 and 2010), but it has also done well at translating that strong growth into improved well-being.

But you don’t need to read a lengthy report to see that for yourself. In Luanda, Angola’s vibrant capital, nestled on a horse shoe-shaped bay, the skyline has dramatically changed over the past ten years, with dozens of skyscrapers now crowding the landscape.

The white sand beaches are lined with elegant cafes, and there’s almost an air of dolce vita around, which is felt throughout the night as young clubbers dance to the mesmerizing beat of Angolan music. It would be a cliché to say that diamonds are Angolans’ best friends, but they are certainly part of the hope of a better future. After such a troubled and painful past, there’s no doubt that for Angolans, diamonds rock.

By Nathalie Bourgeois

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