Lucapa to become a niche diamond company, says Wetherall

Lucapa Diamond believes that it will become the only company in the world with multiple diamond mining operations whose average diamond value is in excess of $1,000 per carat, once the Mothae mine is commissioned this year. Company chief executive and...

19 february 2018

Zimnisky: Diamonds lack fungibility to be a major investment product

Physical diamonds will never be a viable widespread investment product simply because they inherently lack fungibility, meaning they are all unique, according to Paul Zimnisky, an independent diamond industry analyst and consultant, who is based in New...

12 february 2018

Julien-Vincent Brunie: "Being surrounded by beauty and art is a privilege!"

This last December, shortly before Christmas, the Auction House of Christie's arranged a private display of jewelry in Moscow. The correspondent of Rough & Polished, who had an opportunity to visit this event, was able to admire a luxurious collection...

05 february 2018

Ali Pastorini: We would like meeting Mujeres Brillantes 2018 to be held in Russia

Ali Pastorini is the co-owner of DEL LIMA JEWERLY and President of Mujeres Brillantes, an association which brings together approximately 500 women working in the gold and diamond trading sector, mainly from Latin America, as well as from Turkey, Spain...

29 january 2018

Diamond Exchanges promote healthy development of the diamond industry, besides safe and basic infrastructures for diamond trade

Prior to joining the Guangzhou Diamond Exchange, Liang Weizhang served as a civil servant of Guangdong Entry-Exit Inspection & Quarantine Bureau as the director of the Kimberley Process Office. He participated in the KP Review missions to South Africa...

22 january 2018

Risks and advantages of Angola's ‘Udachnaya’ pipe

09 october 2017

The De Beers logo is still on the 12-storeyed building next to the Angolan state-owned Endiama Corporation headquarters in Luanda. The construction of the building started in 1997 as the De Beers’s operations centre in Angola, the site for sorting, evaluation and purchasing of the Angolan rough diamonds like the similar facilities in Botswana, Namibia and South Africa. The De Beers logo here may look logical for the people watching the world go by in the Angola’s capital, and there are not many of those, the expats - mainly the employees of the resource companies mining in Angola - live in the condominiums in Luanda. The largest diamond miner simply cannot ignore the country ranking fourth by the volume of diamond production. Nevertheless, the logo on the high-rise building in the centre of Luanda is one of those few things that remind about the once powerful presence of De Beers in Angola. Generally speaking, De Beers had to leave Angola in the early 2000s when the MPLA that won the civil war suspected the company in co-operation with its opponent, the UNITA. Later on, De Beers made efforts to start operations in Angola again but it could not return the rights for the northern part of the Cuango River basin where most of the Angolan diamonds were historically mined, or have an access to other significant deposits. One of those – the Luele kimberlite pipe – that was regarded by the De Beers’s geologists too complicated to be developed, which according to the local experts might be a mistake as big as the support rendered by De Beers to the UNITA.

Last May, it became known that ALROSA would buy a share in Luele that is part of Luaxe concession. The Russian company considers the Luele pipe as the largest among the deposits discovered over the last 60 years. This is a kind of a conditional forecast but, on the other side, it is not the first year that ALROSA studies this pipe and works at Catoca, Lunda Sul province, located 20 km away from the Luele pipe. For the first time, the Russian specialists came to this area in 1995, and the Russian technologies were used to build the Catoca’s beneficiation facilities, and over this period, it has become the fourth miner in the world by volume. Nowadays, Catoca accounts for 75% of the Angolan diamond production, and this year the mine will produce 6.5 mn carats worth $600 mn. The former ALROSA employees headed by Sergey Amelin, the then Deputy Director of Severalmaz on production who became Director General of Catoca in spring 2015, form the technological core and intellectual sinew of the enterprise.

At present, ALROSA controls a 32.8% share in Catoca (and plans to increase the figure up to 41% this year) and it plans to participate in the new diamond project via this share and to directly purchase 8% in the Luaxe as well. The effective share of ALROSA in Luaxe will make about 24.5% and it can reach 28.5% after the anticipated increase in the share in Catoca. ALROSA and Endiama came to this agreement in last May when the parties signed the International Investment Contract for the Luaxe Concession.

This agreement has formalized the change in the shareholders structure of the top Angolan diamond miner, which was long awaited due to the financial problems of the Brazilian Odebrecht (that owned 16,4% of Catoca until recently) and also, according to ALROSA, enabled to make the principal decision about its participation in the Angolan projects.

Now, ALROSA gets the dividends on its block of stock in Catoca without its share in sales. Endiama Sodiam sells the Catoca's rough diamonds. Since the start of mining operations in 1995, ALROSA has received over $418 mn, which is well over the investments in Angola, and it made the Russian officials to be loyal to the foreign active efforts of ALROSA even in the 2008-09 crisis period. But they were always keen to have a control over the part of sales of the Angola’s rough diamonds from the point of view of the maximization of its value and also to get rid of the unwelcome ‘market overhang.’ In Luaxe concession, ALROSA expects to gain a control over the part of sales that is proportional to the company’s share in the capital, Sergey Ivanov, president of the Russian Company, said in May.

Putting the Luele pipe into production allows maintaining Catoca’s output that is approaching the middle of its lifetime. From 1995 through 2016, 138.2 mn tonnes of ore were processed at Catoca and 93.5 mn carats rough diamonds were recovered, and for 2017-2034, it is planned to process 160 mn tonnes containing 101.1 mn carats of rough diamonds, according to the Company’s presentation. The anticipated sales are $9.1 bn (compared to $7.3 bn since the launch of the production in 1995). In addition to Luele, kimberlite Сate 42 will be added but it is a small-scale project with its diamond reserves of about 3 mn carats.

The Luele kimberlite pipe is explored down to 400 meters. The commercial production may start at the end of this decade, and at its peak, it will produce more than Catoca does. It is said that the Luele pipe diamonds are of the same quality as the diamonds from Catoca.

This year, bulk sampling started at the mine (sampling of large-size diamonds with the quality corresponding to the average level in the whole ore body), CEO of Catoca Sergey Amelin says. “From the geological point of view, this pit is well suited for bulk sampling,” he thinks. It is estimated that the diamonds of the bulk sample would be sold for $66.1 mn.

Not much is known about the development of such a big-scale project. The local media estimated the total investment about $1 bn. The investments to the exploration, engineering and the onset of the try-out and development of the pioneer pit in 2012-16 ($23 mn) were made by Catoca and it will continue to bear the substantial part of the expenses for the deposit development. The expenses for the first stage of the try-out and development of the pit are about $101 mn.

The deposit development is complicated by the difficult geology, Catoca’s head said. We’d like to add that probably it is these circumstances that frightened the De Bees geologists. There is a stream along the edge of the open-pit mine that turns into a real river in monsoon, which results in sloughing. That is why, according to S. Amelin, the so called combined uncovering will be used – the areas adjacent to the stream will be developed using hydraulic excavation (the most of technological processes will be done using the water moving flow energy).

The construction of a standalone plant is under consideration at this project, although the first batch of the Luele pipe ore can be processed in early 2018 at the Catoca’s plant. In the second case, the ALROSA’s experience will be used to supply the ore by long haul trucks (that was also used in the trial transportation of the Verkhne-Munskoye mine ore to the Udachninsky GOK (mining and processing integrated works), S. Amelin said. “Now we would like to calculate the economics: how the project will look like if we do not build a plant (at Luele),” he said.

The Technical Feasibility Study is being elaborated by the Yakutniproalmaz Research and Development Institute. According to Sergey Ivanov, president of ALROSA, the Institute “should give the figures how beneficial it is to carry out the ore dressing by decreasing production at Catoca and loading the ore from Luaxe to the plant, or by launching the pilot plant at Luaxe.” The next step is the coordination of the development scheme with Endiama and other Catoca’s shareholders, ALROSA president explained. 

According to industry expert Paul Zimnisky, the Luaxe concession mining is now the most significant development project in the diamond mining industry. The Angolan mine really stands out not only on the background of other projects getting ready to be put into operation (the diamond miners like to show the depletion of their reserves in their reports) but also on the background of main current operations in the industry. Taking into account the announced ranges in the production and the anticipated average price of rough diamonds, the new project in Angola justifies the comparison with the Yakutian Udachnaya (Lucky) pipe once made several years ago by the ALROSA production experts.

However, there are no two similar mines and it is difficult to call the business conditions in Yakutia and Angola as similar ones. With all the complicated geological and mining conditions in Africa, it is unlikely that they will be an unsurmountable obstacle for the ALROSA engineers who have an experience of working in much more extreme environment. The main risks in the work of a mining company in any African country, especially in those that started indigenization process in early 21st century, lie sooner in the political, social and cultural areas. The educational and qualification level of the local population in the remote Angola’s province not always allows its representatives to be involved in such a complicated sector as mining. And the demonstrative punishment of De Beers arranged by the Angolan government – although it was largely a reaction to the behavior of the De Beers Group – bodes no good from the point of view of respecting the contractual commitments by the authorities of this country. Endiama and De Beers had an official contract of 1991 that was canceled when the MPLA came to power, which is not an example of flawless business practice.

Recent news from De Beers also does not bode well for the prospects of work in Africa – the renewal of the agreement for operation in Namibia that demanded to increase its share in the Namdeb sales and the cancellation of the favourable taxation for the rough diamond exports by De Beers Consolidated Mines, South Africa. Russian companies historically have a good footing to work in Angola, and the political regime is fairly loyal and stable as the recent elections have shown where the MPLA got a confident victory. Angola's President João Lourenço graduated from the Moscow Lenin Military Academy and is a representative of the Angolan elite once oriented towards the USSR. Probably, all other things being equal, he will not spring an unpleasant surprise disowning the commitments agreed upon in May, 2017. But on the whole, it should be admitted that bringing the Angolan project to commercial production and the implementation of the agreement about the share in sales will be a great ALROSA’s success, which is so far not guaranteed, however.

Igor Leikin, Rough&Polished


Only registered users can add comments (Register, Login)