De Beers, the world’s biggest diamond producer, said it’s confident of finding a gem deposit in Angola that will allow it to more than recoup the $250 million it has spent on exploration.
The company, owned by London-based Anglo American Plc (AAL), has found diamonds in a 3,000 square-kilometer (1,158 square-mile) concession near Lucapa in the Lunda North province, Pedro Lago de Carvalho, De Beers’s business manager in the country, said in a Jan. 16 interview in Luanda, the capital. The site is the only remaining concession out of five De Beers has explored in the country since 2005, he said.
De Beers pulled out of Angola in 2001 after losing the right to sell more than $800 million of gems. It went through three arbitration rounds with Endiama EP, the state diamond company, before returning in 2005. Angola, which had the fifth- largest gem output by value in 2011, lies behind only Russia and Canada in unexplored potential, Lago de Carvalho said.
“We are confident we can find something that will allow us to recover all our investment,” he said. “The contract is clear, there is no debate.”
The results of evaluation studies of three ore bodies known as kimberlites at Mulepe, about 800 kilometers (500 miles) east of Luanda, are expected in about two months, and will be followed by meetings with Endiama to decide how to proceed, Lago de Carvalho said.
Diamond producers have struggled to find new, large deposits to replace aging assets. Production at many of the biggest operations is falling as supplies of more accessible gems near the surface are depleted.
Typically only 1 percent of kimberlites, which are eroded remnants of ancient volcanoes that sometimes formed diamonds under intense heat and pressure, hold gems.
A reserve’s economic viability would have to be determined and a mining contract would still need to be negotiated, Lago de Carvalho said.
“We don’t have a deposit per se, it’s still in the exploration phase,” he said. “There is no formal time line.”
The country is a “high priority” for De Beers, which has allocated a $30 million annual prospecting budget that’s unlikely to diminish soon, he said.
Angola, Africa’s biggest oil producer after Nigeria, sold 8.33 million carats valued at $1.16 billion in 2011, according to the Kimberley Process, an international treaty with 54 participants representing 80 countries to prevent the sale of gems mined in war zones. The top producers by value that year were Botswana, Russia, Canada and South Africa.
De Beers has a 49 percent share in the Mulepe concession, with Endiama holding the rest, according to an exploration deal signed before a new mining law enacted in late 2011.
The legislation lowered the minimum stake the government has in future projects to 10 percent and reduced taxes to 25 percent from 35 percent.
Mines Minister Francisco Queiroz, who was appointed following elections in August and who drafted the new code, said in November that Sodiam, the state-run gem seller, will hand its market-regulating duties to a new, independent institution. Queiroz is also promoting diversification into gold and iron-ore mining.
While this fits into Anglo American’s options to pursue other minerals, the company, which raised its stake in De Beers to 85 percent last year after buying the Oppenheimer family’s 40 percent for $5.1 billion, hasn’t yet taken a decision on whether to do so, Lago de Carvalho said.
The 27 million carats De Beers planned to produce last year represents a 43 percent decline from its pre-crisis output in 2008. The company slashed output by 50 percent in 2009 amid the global financial crisis.
The simplified legal framework, which assures sales, and the partnership with Endiama will help counter a slowdown in demand for gems as debt crisis in Europe and slower growth in Asia and the U.S., the largest consumer of diamonds, Lago de Carvalho said.
To contact the reporter on this story: Colin McClelland in Luanda at email@example.com
To contact the editor responsible for this story: Antony Sguazzin at firstname.lastname@example.org