Natural resources

Angola: From rough diamond to mining giant?

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5 min read

9 February 2023

International investment in Angola’s mining sector has historically been limited relative to oil and gas, with capital deterred by accusations of grand corruption under former president José Eduardo dos Santos.

However, the election of reformist president João Lourenço in 2017 ushered in major improvements to the business environment, including a reduction in the role of the state in the economy, a sustained anti-corruption drive and the introduction of greater transparency. Lourenço’s re-election for a second term in August 2022 provides additional grounds for mining investors to reconsider Angola’s potential in 2023.

Industry shake-up

Under President Lourenço’s leadership, the ruling Movimento Popular de Libertação de Angola (MPLA) party has deviated from its leftist past and become more open to private enterprise and international investment. Reforms passed in Lourenço’s first year in power deprived state-owned diamond miner Empresa Nacional de Diamantes de Angola (Endiama) of control over the industry.

Under its pared back role, Endiama is now a concessionaire, while the mineral resources agency, Agência Nacional de Recursos Minerais (ANRM), oversees licensing and regulation.

The government has sought investment in state-owned enterprises, raising US$1.25 billion through the disposal of 92 assets. It now plans to part-privatise Endiama and national oil company Sociedade Nacional de Combustíveis de Angola (Sonangol), both of which have been restructured in anticipation of mooted stock market listings.

While this might be possible for Sonangol on account of its growing track record of audited accounts, we expect Endiama to sell shares to a private investor. The entrance of a new strategic partner would boost the company’s operating capital and strengthen its commercial acumen at a time of rising diamond output and buoyant global demand.

Russian partnership

Historically, Endiama has partnered with Russian mining giant Alrosa, which is the largest foreign investor in Angola’s diamond sector. Although Alrosa was subjected to US sanctions in the wake of Russia’s invasion of Ukraine, the company holds minority stakes in Angolan diamond mines, enabling it to escape the measures.

Western efforts to boycott the company’s stones have also been complicated by the transformation of diamonds during the cutting and polishing process – typically in India – which enables diamantaires to alter the country of origin. This has enabled Alrosa to maintain its production guidance, with the firm projecting 34-35 million carats in 2022 — up from 32.4 million carats in 2021.

Alrosa operates Catoca – the fifth largest open pit diamond mine in the world – under a joint venture with Endiama. This successful partnership is now focused on ramping up production at the Luaxe kimberlite project, which promises to be even larger than Catoca.

Output from Luaxe is projected to reach an estimated 5.7 million carats in 2023. This would enable Angola to overtake South Africa and become the fifth largest diamond producer by volume. Angola exported 8.7 million carats in 2021, generating $1.6 billion, according to Kimberley Process data. Endiama projected 10.5 million carats this year, and the sector has already generated $1 billion in H1, 2022.

Return of the majors

Endiama is reducing its reliance on Alrosa by way of new partnerships with global players, which are taking majority stakes in ventures following reforms to mining equity laws. Rio Tinto returned to Angola in October 2021, acquiring a 75% stake in the Chiri exploration licence formerly held by Isabel dos Santos – the daughter of the former Angolan president – which had been acquired by the state following an anti-corruption crackdown in 2018.

De Beers re-entered Angola after a ten-year absence in April 2022, with CEO Bruce Cleaver praising the government’s ability to create a “stable and attractive investment environment.” De Beers signed two Mineral Investment Contracts; one for a licence straddling Chitato, Lucapa and Cambulo municipalities in Lunda Norte province, and a second which extends across the Saurimo, Dala and Muconda municipalities in Lunda Sul province.

Blue-chip miners were doubtless grateful of Angola’s application to the Extractive Industries Transparency Initiative (EITI), which was approved in June 2022. This promises to strengthen efforts to root out graft in energy and mining by forcing disclosure of beneficial owners and contracts and raising greater awareness of sector practices.

The sector has also benefited from a new Private Investment Law in 2018, which clarifies the tax advantages and incentives which can be negotiated and included in a Mineral Investment Contract. Profit repatriation has also improved, with the major reforms to the central bank and its ability to determine monetary policy. The Banco Nacional de Angola (BNA) has moved to a floating exchange rate for the Kwanza and its mandate has been reformed, resulting in a focus on containing inflation, rather than merely defending the value of the currency.

The government has also promoted greater competition and transparency in diamond marketing, ending the legal monopolies afforded to Endiama trading subsidiary Sociedade de Comercialização de Diamantes de Angola (Sodiam) in 2018. Diamond miners are now entitled to sell 60% of their output to companies of their choice, as well as to their trading divisions.

Sodiam is limited to marketing 20% of production, and the company now holds “sights” for pre-approved buyers, as well as auctions, strengthening transparency in a previously opaque industry. The remaining 20% is reserved for local processors, which benefit from tax incentives at a dedicated cutting and polishing zone – the Pólo de Desenvolvimento Diamantífero de Saurimo (PDDS) in Lunda Sul province.

Potential beyond diamonds

Angola has more to offer than diamonds, however. The country is endowed with an abundance of natural resources, including deposits of base metals and iron ore. The Copperbelt which straddles the Democratic Republic of Congo (DRC) and Zambia is known to extend into Angola, although deposits have largely gone untapped since the colonial era. Meanwhile, the Kunene Complex has been identified as containing significant nickel deposits.

In November 2019, Anglo American signed five Mineral Investment Contracts covering three copper, cobalt and nickel projects in Cunene province, and two copper, cobalt and silver projects in Moxico province. The following year, China’s Shining Star Group acquired the Mavoio-Tetelo copper project in Uíge province.

The government is also seeking investment in iron ore deposits located in the south-eastern provinces of Cuando Cubango and Moxico, which were previously under the control of the state-owned Emprêsa Nacional de Ferro de Angola (Ferrangol). Of interest too are ornamental rocks, commercially known as Granito Negro Angola, with deposits concentrated in Bengo province, near Luanda, simplifying export.

Equally promising is Pensana’s Longonjo rare earths project in Huambo province. Longonjo is believed to be one of the world’s largest undeveloped rare earth deposits with an initial 20-year life of mine. Pensana plans to export high purity mixed rare earth sulphate (MRES) from the Port of Lobito using the recently upgraded Benguela railway line. The state has also bolstered the case for investment with the provision of hydropower to the site, and with the Angolan Sovereign Wealth Fund taking a 24% stake in Pensana. The project has acquired backing from export credit providers ECIC, UKEF, IFC and DFC.

Planning for the future

With President Lourenço’s term now under way, the government is drafting a new National Development Plan (PND) for the period 2023-2027. This is set to have a major focus on infrastructure expansion, spurring investment in roads and railways, as well as economic diversification, with greater commitment to industrialisation.

The new PND will form the backbone of a new Mining Sector Development Plan for 2023 2027, which will be overseen by the Minister of Mineral Resources, Oil and Gas, Diamantino Azevedo. A German-trained mining engineer, Azevedo has a strong appreciation of Angola’s potential, having lectured in mineral economics at the Universidade Agostinho Neto (UAN) in Luanda and served as CEO of Ferrangol prior to entering government in 2017. Azevedo’s technical expertise and Lourenço’s political will promises to take Angola’s mining industry to new heights.