Diamonds in the Rough Market

Global demand takes a big hit

The nation’s significant reserves of diamonds, 60% of which remain to be explored, have attracted the attention of two of the largest mining groups in the world: Rio Tinto and Anglo-American’s De Beers, who previously operated in Angola between 2005 and 2012. Both groups are negotiating their possible entry with Endiama, according to Ganga Junior.

Russia’s Alrosa, the world’s biggest diamond mining company, is already established in the country with a 41% stake in Sociedade Mineira de Catoca, which produces three quarters of the country’s diamonds. Catoca has experienced a difficult year as it reduced mining and processing operations as demand fell due to the pandemic. Angola now foresees rough diamond output in 2020 at 2 million carats, relative to 9.2 million produced in 2019. “Over the last couple of years, Catoca had to overcome many obstacles, mostly as a consequence of the global economic recession. Luckily, it did not have a huge impact on Catoca’s production. Nevertheless, it did have an impact on the expansion plans for our new concessions and related investments,” confirmed Dr. Benedito Paulo Manuel, director general of the company. “The new concessions, such as Luaxe, did not go through because of the difficulty of accessing the financial markets. This was aggravated by the pandemic. The operation in Luaxe has been delayed, contradicting the expectations of starting production in 2020.”

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The Luaxe diamond mine, owned by Alrosa and Endiama, has been under development for over six years after it was discovered in 2013 and was scheduled to begin trial mining in mid-2020. The mine has a potential to produce over 10 million carats annually. It was on track to produce 1 million carats by the end of 2020, which has been delayed as a result of the pandemic.

Dwindling demand for diamonds was a growing concern even before the pandemic, exemplified by De Beers reducing production by a fifth in 2020, Canadian Dominion Diamond Mines filing for insolvency protection and Rio Tinto announcing the closure of its Argyle mine in late 2020. The future of diamonds rests on the creation of demand through rebranding and taking advantage of opportunities in China. Recycled diamonds can satisfy demand and man-made diamonds could cover any shortfall.

Synthetic diamonds continue to threaten demand for traditionally mined diamonds as lab-grown diamond sellers position their product as a sustainable, ethical and eco-friendly alternative, appealing to young conscious consumers around the world. For diamonds mined in Angola the use of block chain technology is essential for the survival of the industry, allowing each diamond to be traced throughout the entire value chain. The use of this technology to identify the provenance of a diamond can increase its value and is one of the prime reasons the diamond mining market expects to grow by US$3.48 billion from 2020 – 2024, at a compound annual growth rate of 5%.

“Catoca had to overcome many obstacles, mostly as a consequence of the global economic recession, in the last couple of years. Luckily, it did not have a huge impact on Catoca’s production. Nevertheless, it did have an impact on the expansion plans at our new concessions and related investments.”

Dr. Benedito Paulo Manuel, Director General, Catoca

At present, this figure seems very optimistic. Alrosa and De Beers have lowered their prices in an attempt to spur sales which stood at US$130 million for both players combined in Q2 of 2020, compared to US$2.1 billion in the same period in 2019.

For Angola to focus solely on diamonds as it attempts to unleash the potential of the mining sector would be a mistake, as the long-term future of demand for diamonds is less promising than that of battery metals such as copper and manganese. The Copperbelt region extends to the Angolan territory by at least 116,00 square kilometres, according to the Angolan minister for geology and mining. As the Angolan economy diversifies from oil to mining, it must also spread its risk within the mining industry and take advantage of its mineral wealth that includes manganese, copper, gold and iron ore.

Image courtesy of Catoca