Angolan diamonds sparkle again as reforms put mining back on track

Six hundred miles east of the Angolan capital Luanda is a small city named Saurimo, whose primary industry has traditionally been agriculture. So, visitors might be surprised to come across a sprawling new development of large buildings, a power station and empty plots of land awaiting new construction on its outskirts.

The $77m Saurimo Diamond Development Hub, built on the road toward the large Catoca diamond mine, was inaugurated by President João Lourenço last August. It represents the southern African country’s efforts to shake off its troubled past – one that has made it a no-go zone for many miners in the past – and finally realise the promise of its immense, largely untapped diamond deposits.

It’s an invitation to which global investors and miners have responded. Most recently, industry leader De Beers Group announced that it has signed two mineral investment contracts to begin diamond exploration and mining in Angola, after exiting the country due to unfavourable business conditions 10 years ago.

“The signing of these contracts represents an important milestone in our new partnership with Angola,” said De Beers CEO Bruce Cleaver in a statement.

“Angola has worked hard in recent years to create a stable and attractive investment environment and we are pleased to be returning to active exploration in the country.”

The announcement marks the return of all three diamond majors to the country. Sector leader Alrosa and third biggest Rio Tinto are already active in Angola. 

“Angola is probably the most prospective jurisdiction for diamond exploration and development in the world right now,” says global diamond analyst Paul Zimnisky. “There is a lot of pent-up demand as many companies considered it off-limits until recently.”

This demand for diamonds is set to only become more intense, as Western sanctions against Russian diamond miner Alrosa and the crises in Ukraine cut off supply and send the industry scrambling to find more diamonds. 

Putting diamonds within reach

Angola is the world’s fourth biggest diamond producer but has yet to explore approximately 60% of its potential diamond-bearing areas.

A new openness to foreign investment, tentative anti-bribery and anti-corruption reforms, and a more transparent tender system under President João Lourenço, who took office in 2017 following decades of rule by former president and strongman José Eduardo dos Santos, has finally made exploration in the resource-rich country attractive to companies like De Beers

“Angola has tremendous potential, and now they have the right tools,” says Gonçalo Falcão, who heads the Angola practice of US law firm Mayer Brown.

“They have a clear, transparent framework, international tenders, and reliable and stable legislation, which means that they created the right conditions for the industry to grow even further.”

A key part of creating the right conditions has been dismantling the close ties that the former president and his family, particularly his daughter Isabel dos Santos, had established with the diamond sector in Angola.

The country has divested interests in the Swiss jeweller De Grisogono, around which many of the corruption allegations against Isabel dos Santos have swirled. It has also overhauled leadership in state-owned companies in the supply chain, including replacing the influential heads of diamond production and trading at Endiama and Sodiam, the national diamond and diamond trading companies of Angola.

Uncertainty and infrastructure among challenges

“Angola remains one of the most prospective countries globally for large-scale diamond deposits,” says De Beers.

“In terms of De Beers’ new mineral investment contracts, exploration activities will commence this year and any further resource assessment beyond exploration will depend on the outcome of that work, with mine development timelines being fast-tracked through deployment of innovative technology solutions (eg Diamond FutureSmart Mining).”

In addition to the speculative nature of diamond exploration, an immediate challenge faced by companies like De Beers is a lack of infrastructure. “Most of these diamond fields are in remote regions of the country where you don’t have access – you don’t have roads, you don’t have railways,” says Falcão.

“You have not only to invest in your exploration activities. You also have to build all the infrastructure necessary to process and ship the diamonds. It takes months, if not years, to start actually producing.”

De Beers, which already has diamond mines in Botswana, Namibia, South Africa and Canada, is adept at building the right infrastructure for mining and taking on these challenges. 

However, it will be no small feat, ranging from building foundational infrastructure, like roads, to the more complex, like establishing adherence to the Kimberly Process and De Beers’ proprietary blockchain-backed diamond source platform Tracr.

Russia still a wild card

Countries around the world are looking for alternatives to Russian diamonds and other important resources like oil and gas.

“When the Russia-Ukraine war started, I was one of the first people to say, with no fear of making a mistake, this will be a great opportunity for the African countries,” says Falcão.

The EU has been courting Africa to help replace Russian gas imports and Italy recently signed gas deals with Angola and Congo to cut ties with Russia, according to Bloomberg.

On the flipside, the close ties between Angola and Russia are already proving a challenge, delaying the delivery of machinery parts from Russia that could cause a hit to diamond production, the country said at the recent Mining Indaba conference in Cape Town, according to Reuters.

It is still to be seen what other ripples from the conflict will reach Angola. The country’s Catoca mine, the fourth largest diamond mine in the world, is owned by a consortium of international mining interests and Russia’s Alrosa is a top stakeholder. While Western sanctions against Russian diamonds have not reached the mine yet, the possibility is still in the cards.  

A successful increase to diamond production will be timely boost for President Lourenço, who is preparing for general elections in August 2022.

Still, the return of De Beers after its departure 10 years ago is one more signal that investors and miners believe in the promise of the country.  “I think within a decade, Angola could be the third largest diamond producer in the world behind Russia and Botswana,” says Zimnisky.

A successful increase to diamond exploration and mining would be a timely boost for President Lourenço, who is preparing for general elections in August 2022.