Abstract
The slump in global commodities prices is likely to have a severe impact on
Angola’s mining sector, with
producers already beginning to scale
back operations in the country. The diamond sector is likely to be
the
hardest hit, as demand falls and prices drop. In January 2009, Russian diamond
company ALROSA
announced that it was unlikely to resume exploration at its
Catoca venture in Angola in 2009, due to the
impact of the global
downturn. However, the company has said that it has no plans to leave
Angola.
Angola was historically a major producer of diamonds, iron ore,
gold and copper before its independence.
However, the ensuing civil war
disrupted its infrastructure, significantly slowing the pace of
exploitation
of its considerable metals and minerals base. Following the
end of the 27-year-long conflict in 2002, the
Angolan mining industry,
along with the economy, has grown rapidly. Angola is globally the
fifth-largest
producer of diamonds by value, supplying 7-9% of the world
diamond output. The country hosts
intensive diamond reserves, principally
in the provinces of Lunda Norte and Lunda Sul.
The majority of
Angola’s diamonds comes from alluvial deposits. However, state-owned
mining
company Endiama is confident that there could be large-scale
deposits in shafts of volcanic rock
throughout the country. However,
mining in kimberlite is both expensive and technically difficult,
meaning
that Endiama has had to partner with global companies, such as South
Africa’s De Beers and
BHP Billiton, who have the necessary
expertise. De Beers has invested in a kimberlite concession in
northern
Angola, while Russia’s ALROSA also has a partnership with Endiama.
Companies that wish to explore for diamonds in Angola have to do so in
partnership with state-owned
mining firm Endiama, as is stated in Angolan
law. Moreover, their ownership in any diamond mine is
limited to 40%.
According to the latest reports, the company has around 100 mines throughout
the
country that are ready for exploration. Indeed, some market watchers
claim that less than 50% of
Angola’s diamond potential is currently
being realised. For example, of the 61 concessions currently
operating in
the country, only around 14 are thought to be producing diamonds.
Global
overview
On page 9 of this report, BMI examines the phenomenon of
increased Chinese activity in the global
mining sector and what this means
for the industry moving forward.
Industry Forecast
Falling consumer
spending power is forcing people to cut back on expensive purchases in the
retail
market, which is having a negative impact on global diamond sales.
Meanwhile, those that are still buying
are trading-down to poorer quality
and less expensive diamonds. As a result, the majority of diamond
producers have started to cut production, with global production forecast to
fall from 160mn carats to
120mn in 2009. De Beers, for example, is
reported to be decreasing production by as much as 30% over
2009.
Meanwhile, banks are cutting back on loans used by diamond traders to purchase
the stones in
countries such as Angola. As a result, the diamond mining
sector in Angola is likely to face a tough year
in 2009.
In the longer
term, experts still believe there is strong prospective potential for base
metals and gold in the
country. Indeed, Angola is set to resume mining in
the Chipindo region in the next two years. Meanwhile,
there are reports of
gold reserves being discovered in southern Huíla province. BMI has
considered all
these factors and the amount of unexplored deposits in the
country, and expects the mining sector to reach
a value of US$94.78bn by
2013.
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