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Angola Mining Report Q1 2009
Business Monitor International, March 2009, Pages: 48
This Angola Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Angola's mining industry.
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 operation 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 that disrupted its infrastructure resulted in significantly slowing the pace of exploitation of its considerable metals and minerals base. After the end of the 27-year-long conflict, the Angolan mining industry, along with the economy, is treading towards rapid growth. Angola is globally the fifth-largest producer of diamonds by value and supplies 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. South African mining giant De Beers has invested in a kimberlite concession in northern Angola. However, mining in kimberlite is both expensive and technically difficult meaning that Endiama has had to partner with global companies such as De Beers and BHP Billiton, who have the expertise. 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. 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 under 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.
Meanwhile, in line with BMI’s expectations, the ruling Movimento Popular de Liberação de Angola (MPLA) party secured a strong victory in the recent elections in September, enabling it to extend its stronghold in parliament. Looking ahead, however, the publisher believes the new government will face a challenging time as the lifeblood of the Angolan economy - oil revenue - comes under threat. While Angola has enjoyed double-digit economic growth and booming oil earnings for the past few years, 2009 will likely prove a less hospitable macroeconomic environment as global growth slows and oil prices continue to moderate. This could slow investment in infrastructure and the mining sector.
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 sales of diamonds. 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 and global production is estimated to fall from 160mn carats to 120mn in 2009. South Africa’s 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 Huila 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$63.97bn.
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