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New Angolan diamond marketing policy helps lift rough prices – Wetherall

17 january 2022

stephen_wetherall_xx.jpgThe Angolan administration of President João Lourenço introduced technical regulations for its new diamond marketing policy in 2018 whose objective was to improve the attractiveness and competitiveness of the national diamond industry and grow outside investment into the southern African country.

Lucapa Diamond managing director Stephen Wetherall told Rough&Polished’s Mathew Nyaungwa on the side-lines of the Angola International Diamond Conference held in Saurimo last November that the biggest change was the additional sales channels miners can now use within the new Angolan regulations.

He also said that they are now getting the right price for their product due to the producer preferred buyer channel, tender or auction channel as well as the influx of more international buyers.

Under the previous regime, miners were not able to propose their buyers rather they were allocated an Angolan approved buyer.

Wetherall also, among other things, spoke about Lucapa's kimberlite exploration project in Angola.

Below are excerpts of the interview.

You entered into a diamond polishing deal with an unnamed diamantaire sometime last year. Are you now at liberty to reveal the identity of the company?

We have had a polished partnering agreement with Safdico from the beginning of this year at our Mothae mine where we sell rough into that partnership and the mine then benefits directly in a 50% share of the uplift post rough mine gate. We are now attracting polishing margins back to the Mothae mine. However, the relationship with Safdico didn’t start at Mothae. Under the new Angolan marketing regulations, the miners can sell circa 60% of the production to their identified preferred buyers, so within that programme, SML identified Safdico as their preferred buyer for the Lulo production. SML has the very same mechanism of sharing in 50% of the polishing uplift. So, we have been cutting and polishing diamonds for almost two and half years already at SML, but the mechanism in Lesotho started at the beginning of this year.

How many carats have you supplied to Safdico since the start of the partnership?

The total number of carats sold into both the SML and Mothae polishing partnerships is more than 60,000 carats to date. Please note, that entire parcels are not polished, but select high-value diamonds, representing a significant portion of the value of each parcel and where the estimated uplift will be significant, are selected for polishing. Both mines have received significant value over and above the rough usual diamond value.

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Lulo plant                                                                                                                    Image credit: Lucapa Diamond

What has been the impact of the new marketing regulation by the Angolan government on your operations?

I think the biggest change is the additional sales channels we can use within the new Angolan regulations - there is now a producer preferred buyer channel, there is a sight system channel and there is also a tender or auction channel. Better prices are also a product of more international buyers – many more of them who are now able to enter Angola - and who we can now engage with to get the right price for our product. Under the previous regime, we were not able to propose our buyers. We were allocated an Angolan approved buyer and there was only a small handful of them. So the new regulations have helped the Angolan diamond industry tremendously where the miners can now identify and bring those buyers who they believe are best suited to their product to enter and pay fair market prices.

Has this led to improved rough prices?

There has been a remarkable uplift in the rough prices achieved in Angola as a direct result of the regulation change, but the improvement in the market recently has also helped a lot this year. Certainly, our niche product is quite different, and we like to put it into different channels as not all of our product we believe is suitable for a tender. For instance, our preferred buyer channel allows SML to share in additional polished margins beyond the mine gate, so it is nice to have various options across our production.

What has been the response of buyers at the tenders organized by SODIAM?

If you mention the name Lulo across the world, the diamantaires know exactly where those diamonds have come from and how niche and high quality they are. They will usually travel far and wide to get to them. So attendance at the Sodiam tenders has been good. This is our third tender with SODIAM and we have always had the same very favourable feedback on our product. The quality of diamonds coming from Lulo – I do not want to say they are second to none – but they are certainly at the top of both the size and quality trees.

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Drilling at L030                                                                                                        Image credit: Lucapa Diamond

How far have you gone with your Lulo kimberlite exploration?

Earlier in the programme here at the Angola International Diamond Conference, Dr Laureano, ENDIAMA Executive Director, said that both God and the devil had been at play in Angola in the diamond industry. God in the sense that there was an abundance of diamonds in Angola and the devil in the sense that the devil had covered most of it up with a cover, masking the sources.

While Lulo does not suffer from any significant cover over our anomalies, as we are much lower down and off the escarpment, God had endowed the Lulo concession with well over 500 anomalies which we are proving to be kimberlites. As a result, we needed to ensure the Lulo kimberlite exploration programmes followed a methodical approach, otherwise one could end up chasing your tail in this significantly well-endowed kimberlite environment.

So, we have done a tremendous amount of work on the ground over the years. From the 500 or so anomalies, we selected 120 of those anomalies, based on several criteria, for a considered drilling programme to identify kimberlite material. We confirmed 107 as kimberlite bodies, sent over 80 samples and drill core away for mineral chemistry analysis in Canada and South Africa and utilised all of those results and geological data, including industry peer review, to select 18 priority targets that we are now systematically bulk sampling as we speak.

Whilst being methodical, we also cannot be rigid in our approach, as we learn each day as more geological work is completed and data becomes available. So additional targets will no doubt be elevated and others will likely drop off as results and interpretation from our bulk sampling programme are completed.

We are at a very exciting stage with our kimberlite exploration, at the narrow end of the funnel if you will, but also in a very interesting and diamondiferous kimberlite area in the Canguige catchment, a tributary to the Cacuilo River. Results in time to come will hopefully lead us to what we are searching for and prove to be the economic source(s) of the magnificent Lulo alluvial diamonds we are recovering in our mining programme.

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Camp airstrip, North cluster                                                                                    Image credit: Lucapa Diamond

Are you at liberty to divulge how much you have pumped into this project?

We have invested over $20 million already on the kimberlite exploration programme. It has been the main focus of Lucapa’s kimberlite effort in recent years. When the diamond industry dipped in 2019 we decided to put our other earlier-stage exploration programmes (Brooking and Orapa) on hold and focus on putting all available cash resources towards the more advanced Lulo kimberlite exploration programme, as we wanted that to continue in earnest.

Pleasingly, the diamond market has recovered materially post then and you would have seen from our recent announcements, we have re-engaged those earlier stage programmes. We have already identified 3 new drill targets at our Brooking exploration programme in Australia.

We too have continued to focus on expanding our production base and with the recent acquisition of a mine development project in Australia, Merlin, we are planning to bring our third diamond mine into production. That will be three diamond mines in 10 years, so you can see we like developing the ground we invest in and also keeping ourselves busy.

Someone said that if you venture into kimberlite mining in Angola, chances are high that you will recover low-quality diamonds. In the work that you are currently doing, are you seeing such indications?

I would think that they are speaking "in general" regarding Catoca and Luaxe type material, however, there is quite a wide array of production in Angola. Angola has several lesser-known kimberlites that have a much higher quality than the global average and have a significant number of alluvial resources with good quality material, the primary sources of which have not been discovered.

We are certainly not worried about such comments. Where we are, what lies above the ground is the best indication of what lies in the ground and what is above the ground on the Lulo concession are many large (heavy), quite exceptional, irregular shaped and jagged-edged diamonds showing no significant signs of transport. When one gets closer to the source, the overall quality is expected to dip only slightly, but not materially as the source will still host the large high-value diamonds as well and the grade will also increase slightly.

You said that you suspended your drilling in Orapa in 2019 following a dip in the diamond industry. Can you provide an update on this Botswana operation?

2019 was not a good year for the industry with downward trending diamond prices. This was hurting sentiment in the industry and investment into it. As such, we paused the Orapa and Brooking programmes. Where we are today, we have applied to extend the period of the Orapa lease and as soon as the lease extensions are received, we will send the drill rigs to the site to commence the drilling campaign. We are hopeful that comes through shortly.

Are you happy with the work that you are doing in Lesotho?

Yes, of course, we are. We built a solid mining operation there. When dealing with higher-value type II resource environments, they are generally much lower grade (carats per tonne) and it is therefore really mainly about increasing volumes. So, we are very happy that we have completed the capacity expansion from 1.1 million tonnes per annum to approximately 1.6 million tonnes per annum at Mothae – circa 45%.

Yes, the ramp-up post-commissioning could have been a little bit better through the year, however, we advised the ASX market that we were experiencing adverse weather conditions, crusher constraints and mass balance issues that slowed down or impacted our operations and ramp-up. So, it could have gone a little better, but that is behind us now and everything is set for a strong start to next year. It has been a really solid first full year back from the pandemic shutdown, which includes an expansion. We always hope and would have loved it to be a great year, but it has been a good year. The great year is coming in 2022!

How optimistic are you of making good progress in Australia?

We are extremely optimistic; Australia is a well-known large mining jurisdiction and is also where we hold our primary stock exchange listing on the ASX. As such, it is home for a large portion of our share register, so having a mining development project on our home turf so to speak is certainly very exciting for our investors. We see significant potential for Merlin, the approach we are going to take in developing it by using an innovative open pit and then vertical pit development. We see very good value and returns from that investment. What we are about to complete is our initial technical and economic assessment, or scoping study, and we will release this to the market soon. We will then complete a feasibility level study in 2022, put the funding solution or structure in place and then start to build. We see a solid mining operation there, and we are very excited about the prospects. When we build the mine, it will be the largest diamond mine in Australia following the closure of Rio Tinto’s Argyle diamond mine in 2020. We are extremely optimistic indeed.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished