Angola's Catoca Mine Says Undervalued Diamonds Cost It Nearly $500M

Rough Market
12/06/2018 15:13

Angola’s Catoca, the world’s fifth largest diamond mine, estimates it lost $464 million over the past six years due to a government-imposed marketing system that obliged it to sell production below international prices, writes Reuters after having been shown in March a company presentation. President João Lourenço has vowed to reform Angola’s diamond industry, increasing its transparency in order to facilitate the exportation of goods and services and attract direct foreign investment, all in the interest delivering greater revenues from the country's natural resources. Speaking in Antwerp last week to leading figures in the Antwerp diamond trade on his first visit to an international diamond trading hub, President Lourenço said, “Due to our country’s policies, we have not been able to benefit properly from our diamond resources. We have a great responsibility. It is time to reverse the status quo.”

All production in Angola must be sold through state-owned diamond purchasing and trading company Sodiam, which makes the stones available to buyers of its choosing, as producers are not able to sell their diamonds independently, Reuters reports. Two industry sources with knowledge of the matter told Reuters what many in the trade have known all along, namely that under the previous administration of Jose Eduardo dos Santos, politically connected “preferential buyers” were given access to rough diamonds below fair market price: “The current marketing process, where diamonds are sold to ‘preferential buyers’, destroys the value for the producer (less revenue) and the government (less tax),” the presentation said. It is worth noting that on his visit to Antwerp, President Lourenço said he had instructed the state-run diamond companies Endiama (diamond exploration, mining and licensing) and Sodiam to reverse their policies to the benefit of the country and private companies.

According to the presentation, diamonds from Catoca were on average sold for 24 percent below market prices over the last six years up to and including 2017. A spokesman for the Ministry of Natural Resources and Oil confirmed the presentation had been made to the minister. “The minister declared the necessity to find a more balanced model in which everyone wins and the producers are not the most impaired,” he said. During his visit to Antwerp last week, Lourenço said Angola would shortly unveil a new business framework for the sector that would help to attract investment and overhaul the current marketing arrangement. The leaders of Antwerp diamond industry are well aware of the situation in Angola, consistently explaining their added-value proposition, expressing their commitment to transparency and to maximizing the value of Angolan diamonds through Antwerp’s unique business model. 

At this point, only about one percent of Angola’s rough diamond production (9 million carats worth over $1.1 billion) is traded in Antwerp, in part due to Angolan legislation and in part due to the strict controls Antwerp places on the rough diamond trade. The fact that the new president visited Antwerp to see how its diamond trade operates seems to indicate he is serious about cleaning up the heretofore murky trade of Angola’s diamonds by partnering with Antwerp, and he indicated as much during his address. “It has been said that Angola has been absent from Antwerp, but that is set to change," said Lourenço. "We are going to be represented in Antwerp, and will work together in partnership.” As Ari Epstein, CEO of the Antwerp World Diamond Centre said to the Angolan President, “Knowing the resources that AWDC is capable of mobilizing to help you achieve your goal of achieving greater value from your rough diamonds, I can tell you right now: you have come to the right place. The critical mass of diamond companies and services here in Antwerp is unparalleled, enabling diamond producers to achieve the best possible price for their goods. I have every confidence that as you come to learn more about our exceptional value proposition, you will leave Antwerp having no doubt that this is the place that will help you in your effort to further modernize Angola’s diamond industry.”