JOHANNESBURG (miningweekly.com) – The West African country of Angola has been badly hit by the decline in oil prices. In 2012, according to the US Geological Survey (USGS), Angola was responsible for 2% of global oil output and oil accounted for 90% of the country’s exports, 80% of government revenues and 47% of its gross domestic product. From June to December 2014, the price of oil fell by about 50% and, during 2015, the price of oil oscillated between $45/bl and $60/bl. While the Angolan economy grew at an average annual rate of 9.8% from 2003 to 2008, the Great Recession and subsequent oil price declines saw this decelerate to an annual average of 4% from 2010 to 2014. However, no significant improvement over this level is expected for the next few years – the International Monetary Fund forecasts that Angola’s annual average growth rate will be between 3% and 5% from 2015 to 2020.
One consequence has been a significant decline in the country’s international liquid reserves, which, in turn, caused the Angolan National Bank (the country’s central bank) to reduce its sales of foreign currency to the country’s commercial banks by 30% during the first five months of last year, compared with the same period in 2014. This created a currency crisis in the country which, in turn, affected business operations. Last June, the bank dramatically increased its sales of foreign currency to local banks, beginning a gradual devaluation of the Angolan currency, the kwanza. By September, compared with January last year, the kwanza had been devalued by 30% on the official markets and by more than 50% on the informal markets.
All this has taken place in a country which, in 2014 and according to the African Development Bank, had 36.6% of its people living in poverty, an unemployment rate of 26% (and higher among the youth) and high income inequality (a Gini coefficient of 55.3, although that is actually significantly better than the figure for South Africa, which was 63.4 in 2011).
Little wonder then that Angola is looking to diversify its economy. In 2011, it adopted a new mining code intended to attract foreign investors. The 2011 code modernised, clarified and simplified the regulations governing the award of concessions. It brought in a single mining investment contract, which covers both exploration and mining. With all mineral and metal resources belonging to the State, it requires a minimum 10% share in any project through a State-owned company (or participation in kind in the minerals or metals produced). Other requirements include the training of local workers and technicians.
Last February, at an Angola-Canada Investment Seminar, held on the eve of Mining Indaba 2015, Angolan Geology and Mines Minister Francisco Queiroz highlighted that the mining sector was clearly one of the options for the diversification of the country’s economy and could be a major source of revenue for the government. To this end, the government developed a strategy for mining which was seen as correct and sustainable and which would produce results. Further, in April last year, it was announced that the Sovereign Fund of Angola would create an investment fund specifically for the mining sector, which was granted $250-million for investment in mining, including exploration, expansion and modernisation. Although projects in sub-Saharan Africa outside Angola can be considered, understandably the principle focus is on projects in Angola.
To deal with the problem of illegal artisanal mining, in November 2014, government announced its intention to help organise artisanal miners into cooperatives, which would then be granted mining rights, thereby legalising their activities. Granting rights to individual miners had proven to be too difficult. By September last year, two such cooperatives had been set up and licensed and two more were in the process of being licensed and should have received their licences before the end of that year.
Regarding industrial mining, the country issued 33 licences last year. These included 21 for the production of ornamental stones and aggregates, three for diamonds and one for gold.
According to the USGS, in its publication 2012 Minerals Yearbook: Angola (the most recent available), in 2012, the African country produced cement, diamonds, gold (produced by artisanal miners), granite, gypsum, marble and salt. There were also other mineral resources which had not yet been developed. These included beryllium, clay, copper, iron-ore, lead, lignite, manganese, mica, nickel, peat, phosphate rock, quartz, silver, tungsten, uranium, vanadium and zinc.
But, just as the Angolan economy as a whole is dominated by one commodity – oil – so, currently, is the country’s mining sector dominated by one product: diamonds. Angola is the world’s number five diamond producer and, in 2012, accounted for 6.5% of global rough diamond production, bringing government reve- nues of $1.1-billion in that year. The precious stones are the country’s second-most important export. Angola produces diamonds from both kimberlites and alluvial deposits. The country has more than 600 kimberlite pipes, but only a few have so far been confirmed to hold diamonds in sufficient quantity and quality to be commercially viable.
The country achieved record diamond production of 8 837 000 ct in 2015, which earned the country just over $1.1-billion. Unfortunately, the fall in diamond prices meant that the revenues from diamonds last year were lower than those realised in 2014, which had come to a little more than $1.3-billion. “Nevertheless, we are satisfied, because we reached a very good production mark, which amounts to 103% of what was foreseen in the revised National Development Plan,” affirmed Queiroz. Angola’s diamond production this year is forecast to be 8 960 000 ct, of which 8 100 000 ct will come from the industrial sector and 860 000 ct from the artisanal sector.
The industry is dominated by national State-owned group Empresa Nacional de Diamantes de Angola, better known by its acronym of Endiama. This is not surprising, given that it holds exclusive rights over the country’s diamond sector. Founded in 1981, it undertakes exploration, mining, polishing and trading. Exploration, research and mining fall under Endiama Mining (set up in 2012). However, the group is happy to enter into partnerships on projects with other companies, including foreign enterprises. Indeed, it is eager to encourage such investments. The development of strategic partnerships with well-known foreign miners and attracting national private-sector investment are two of its strategic objectives. On its website (which has an English version), it reports no fewer than 108 prospecting concessions open to investors.
Endiama does not require a majority share in joint projects. In February 2014, it set up a 50:50 joint venture (JV), reportedly named Kimangue, with Russia’s Alrosa to explore for diamonds in kimberlites in Angola. The two companies were already well-established partners in the Catoca Mining Company, which owns and operates the Catoca diamond mine, in Lunda Sul province, which is by far the biggest diamond mine in the African country, with an annual production of about six-million carats. Endiama and Alrosa each hold 32.8% of Catoca Mining. The other shareholders in Catoca Mining are Brazil’s Odebrecht and China’s LLV. Catoca Mining also holds a majority shareholding in a number of other diamond concessions in the country. Last year, Alrosa announced that it would invest $1.2-billion in two new joint diamond projects with Endiama. Of this, $1-billion would go to the Luaxe project, which should, when developed, have an annual production of ten-million carats and is expected to have a life of 35 years. (The development of Luaxe may require another partner or partners.) The remaining $200- million will be for the Tchuizo project, which is forecast to have an annual production of 2.5- million carats. Successful implementation of these projects will more than double Angola’s diamond production.
Endiama is also a partner with Odebrecht in Sociedade de Desenvolvimento Mineiro de Angola (SDM – Mining Development Company of Angola). This is another 50:50 JV, which exploits alluvial diamonds in the Luzamba region along the Cuango river. And, in 2014, the biggest and best known diamond company of them all, De Beers, restarted exploration in Angola. The company had undertaken exploration activities in the country from 2005 to 2012, without finding any commercially viable deposits. Endiama itself is undertaking the Cangandala, Milando and Chinguvo alluvial diamonds prospecting campaigns and the Gambo, Gango, Luangue, Quitubia, Tchegi, Tchiafua and Vulege kimberlite exploration projects. And in February last year the group re-opened a diamond polishing facility near Luanda, after it had been upgraded at a cost of $7-million. Previously, it could polish 40% of a diamond but now it can do 100% of the polishing. It has a capacity of 5 000 carats/month.
Last month it was announced that Portuguese State-owned company Sociedade Portuguesa de Empreendimentos (SPE – Portuguese Enterprises Company) was to transfer to Angola a geological archive containing more than 100 years of data about diamond prospecting in the African country, as part of a settlement of a dispute between SPE and Endiama, who had been partners in three projects in Angola. SPE also transferred its shares in these projects to Endiama. In return, the Portuguese company received $130-million. Endiama sees the securing of this archive as a win for the company and country.
However, the fall in diamond prices is a concern. In real terms, the prices of high quality gem diamonds have fallen by 80% over the past 30 years. (Real term prices actually reached their peak in 1980.) Last month Endiama’s Chief Executive, António Carlos Sumbula, revealed that his group and other diamond miners would be launching an international unit to promote diamonds. A Las Vegas-based US company would implement a publicity campaign for the precious stones, while diamond producing countries would cut their output.
Diversifying while Beneficiating
In 2012, according to the USGS, Angola’s only other significant mineral products were cement (1.6-million tons produced in that year), gypsum (200 000 t), salt (40 000 t) and granite (80 000 m3). In 2015, the country also produced 39 500 m3 of ornamental stone, worth $8.3-million, and 4 500 000 m3 of aggregates.
This is a situation the country is seeking to change. The country has a Mining Industry Diversification Programme which will run until next year (if it is not extended). On its website, the Instítuto Geológico de Angola (Angola Geological Institute) points out that the country used to be a major producer of copper, gold and iron ore. At the Angola-Canada seminar early last year, it was pointed out that Angola again has major iron-ore, gold and copper projects, as well as quartz and ornamental stone projects. The counterpart to Endiama in the nondiamond mining sector is the Empresa Nacional de Ferro de Angola (Ferrangol); although this State-owned company’s name translates as Angola National Iron Company, it now serves as the national representative partner company for most metals and minerals other than diamonds and it also involved in the energy and steel sectors.
And, perhaps, the most ambitious project under way at the moment is in the iron and steel sector. This is the Cuchi pig iron project, in Cuando Cubango province, which is a JV between Ferrangol, the Sociedade Mineira do Cuando Cubango (Cuando Cubango Mining Company) and Brazilian group Modulax. This will see the mining of iron-ore at Cutato (where iron-ore mines have lain idle since the 1970s), which will then be used to produce pig iron at nearby Cuchi. Phase 1, now well advanced, will cost $199.5-million and involves the construction of a blast furnace, a crushing plant and charcoal production plants. It will have a capacity of 96 000 t/y and production of the pig iron will start in May. The JV is called the Companhia Siderúrgica do Cuchi (CSC – Cuchi Iron & Steel Company) and it will export its pig iron along the Moçâmedes railway line and through the Port of Namibe. CSC’s Phase 2 will cost an estimated $94-million and will add two more blast furnaces, bigger crushing plants, a concentration plant and a sintering plant. This will increase production capacity to 420 000 t/y. By the time Phase 2 is completed, CSC should have created more than 3 000 direct jobs.
Another project aimed at both mining and beneficiating a mineral resource is a phosphates project in Zaire province. Last October, Minister Queiroz signed at memorandum of understanding with private-sector company Vale Fértil (literally, Fertile Valley, and a subsidiary of Israel’s LR Group; the Angolan company should not be confused with a totally unrelated Brazilian company of the same name), which opens the way for the start of phosphates mining in the Lukunga district and their processing into fertilisers in the Soyo industrial zone. Vale Fértil started prospecting for phosphates in the area in 2008 and invested some $8-million in the search. The additional investment to bring Phase 1 of the project into operation is about $100 000. Production should start next year and production capacity will be 450 000 t/y, with output aimed at both the domestic and export markets. The project will also serve as the anchor tenant for the Soyo Zone and should create 500 jobs. Phase 2 will need an investment of $1-million and would produce high-quality value-added fertilisers for export. There is no timetable for Phase 2 yet.
Regarding precious metals, Ferrangol has a JV with Australian junior Rift Valley Resources – through its Angolan subsidiary, Ozango Minerais (Ozango Minerals) – to explore for precious metals. Currently, the focus is on copper/gold, gold and rare earths targets. Ferrangol has a 30% share in the project. Meanwhile, exploration by the Ministry of Geology and Mines had, it was reported last year, revealed deposits of the semiprecious stone tourmaline in the Chinguar district of Bié province. According to Angolan news agency Angop’s report last August, this tourmaline “could” be mined “by a State-owned company”.