State marketing system ‘has cost Angolan mine millions’

ANGOLA’S Catoca, the world’s fifth-largest diamond mine, estimates it lost $464 million (R6.1 billion) over the past six years because of a government-imposed marketing system that obliged it to sell production below international prices, a company presentation seen by Reuters showed.

The figure was presented during a private meeting in March between the diamond industry and the Minister for Natural Resources and Oil, Diamantino Azevedo.

President João Lourenço has vowed to reform Angola’s secretive diamond industry in order to increase production and improve returns as Africa’s second-largest oil producer looks to diversify its economy.

Despite being the world’s fifth-largest producer of diamonds, major international miners have largely shunned Angola because of unattractive investment terms.

All production in Angola must be sold through stateowned diamond-trading company Sodiam, which makes the stones available to buyers of its choosing. Two industry sources with knowledge of the matter have told Reuters that under the previous government of Jose Eduardo dos Santos these “preferential buyers” were often politically connected and able to negotiate prices below fair value. Producers are not able to sell their diamonds independently.

‘Value destroyer’

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

Angola’s state diamond company, Endiama, of which Sodiam is a subsidiary, did not respond to telephone and email requests for comment.

According to the presentation, diamonds from Catoca were on average sold for 24 percent below market prices over the past six years.

A spokesperson for the Ministry of Natural Resources and Oil confirmed that the presentation had been made to the minister.

“The minister declared the necessity to find a more balanced model in which everyone wins and the producers are not the most impaired,” he said in an emailed response.

Russia’s Alrosa and Endiama each owns 41 percent of Catoca, which produces three-quarters of Angola’s diamonds. LL International Holding owns 18 percent.

“It does not stimulate producers to increase their production or invest in exploration,” the presentation said of the marketing system.

Last week, on a visit to the diamond-trading city of Antwerp in Belgium, Lourenço said Angola would unveil a new framework for the sector that would help to attract investment and overhaul the marketing arrangement.