Angola’s largest diamond mine says undervaluation cost nearly $500m

Luanda – La Catoca, the fifth largest diamond mine in the world, has lost $464m over the last six years due to a government-imposed marketing system that forces it to sell below International price.

The figure was presented at a private meeting in March between the diamond industry and the Minister of Natural Resources and Petroleum, Diamantino Azevedo.

President João Lourenço is committed to reforming the Angolan diamond industry to increase production and improve yields, while Africa’s second-largest oil producer seeks to diversify its economy.

Although the world’s fifth-largest diamond producer, major international miners have largely avoided Angola because of unattractive investment conditions.

All production in Angola is to be sold through the state-owned Sodiam diamond trading company, which makes the stones available to buyers of its choice.

Two industry sources familiar with the issue told Reuters that under José Eduardo dos Santos’ previous government, these “preferential buyers” were often politically linked and able to negotiate prices below fair value. Producers are not able to sell their diamonds independently.

“The current marketing process, where diamonds are sold to” preferential buyers “, destroys value for the producer (less revenue) and the government (less tax),” said the presentation dated March 16.

The Angolan diamond company Endiama, of which Sodiam is a subsidiary, did not respond to requests for comments by telephone or e-mail.

According to the presentation, Catoca diamonds were sold on average 24% below market prices over the last six years until 2017 inclusive.

A spokesperson for the Department of Natural Resources and Petroleum confirmed that the presentation had been made to the Minister.

“The minister talked about the need to find a more balanced model in which everyone wins and where producers are not weaker,” this he said in a response sent by email.

The spokesman declined to comment on claims that privileged buyers were often politically connected individuals.

Alrosa, Russia, and Endiama, the Angolan diamond company, each own 41% of Catoca, which produces three quarters of Angolan diamonds. LL International Holding holds 18%.

Alrosa did not immediately respond to a request for comment. Reuters could not join LL International Holding.

“This does not encourage producers to increase production or invest in exploration,” adds the presentation of the marketing system.

Last week, during a visit to the diamond city of Antwerp in Belgium, Mr Lourenço said Angola would soon unveil a new business framework for the sector that would help attract investment and revise current marketing agreements.

Since taking office in September, Lourenço has decided to open the third largest economy in sub-Saharan Africa, introducing a new investment law in parliament and introducing new attractive conditions for the oil and gas industry.

Much of the country’s diamond outlook remains under-explored due to 27 years of civil war and a closed and difficult trading environment since the end of the fighting in 2002.