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A new era in the Angolan mining landscape: the consequences of the recent split of the Angolan mining national concessionaire

Thursday 29 September 2022

Manuel Santos Vitor

Abreu Advogados, Lisbon

manuel.s.vitor@abreuadvogados.com

João Bravo da Costa

Abreu Advogados, Lisbon

joao.bravodacosta@abreuadvogados.com

After 2013, with the increase in shale oil production and the consequences of the commodities crisis, Angola entered into a significant crisis, its economy depending, at the time, on oil and gas production and 95 per cent of public revenues coming from the industry.

Since then, the country has chosen a new path, as is clear from (and supported by) the change of president from José Eduardo dos Santos after more than three decades, with a view to increase its competitiveness and build a more robust and diversified economy.

There was a clear and urgent need to transition from oil and gas dependence by fostering the growth of other sectors of the economy with a refocus, among other sectors, in the country’s mining sector, and also a need to coordinate this reform with other challenges regarding the mining sector, such as handling commodity prices volatility, insufficient links between the mining and other economic sectors, inadequate management of the environmental impacts of the mining activity and the handling of the social and geopolitical risks of mining.

Particularly in the mining sector, mostly focused on exploring diamond resources, there was a clear need for additional transparency and reform with a view to attract the new investors that the country was desperately in need of.                

Supporting and adjusting the Angolan mining sector was crucial to accomplishing such goals as the worldwide demand for minerals continued to grow on the back of developing countries, which have growing urban populations and needs, but also Western countries, due to the increase of their low-carbon but metal-intensive energy production technologies.

According to the African Diamond Council, the official governing body of the diamond sector across the African continent, the diamond industry in Angola represented in 2021 nearly €1.2bn in annual production and therefore one of the country’s main sources of revenues.

How is the country developing its mining sector and balancing the needs of creating the necessary economic growth to attract and benefit investors, overcome the hurdle of the difficult history of mining in the country and convince investors that Angola has truly turned the page?

After June 2020, the Angolan executive reformed the governance landscape of the mining sector by creating a mining national concessionaire entity, the Angolan National Agency of Mineral Resources (Agência Nacional de Recursos Minerais or ANRM), and reducing the role of Endiama EP, the national diamond company. Before the creation of ANRM, Endiama EP combined the functions of sole national concessionaire and issuer of mining licences and, in its capacity as the state-owned diamond company, participated as an operator, on behalf of the Angolan state, in the diamond concessions.

The aforementioned split of the Angolan mining national concessionaire is, according to the national development plan of 2018–2022 approved by the government, the first step of a bigger plan so that Angola becomes, by 2030, the second biggest world producer of rough diamonds.

After this first step in the reorganisation of the mining sector, other steps will follow, such as the consolidation of the Saurimo Diamond Development Hub, an area where ANRM recently launched the possibility of the award of five diamond mining concessions. This hub will bring along companies from the diamond cutting business, placed higher in the diamond value chain. The opening of the Angola Diamond Stock Exchange is also expected to take place later in 2022, as announced by the government. All these steps are clear examples of the strategy to define Angola as a country willing and eager to increase its competitiveness by increasing production but also keeping additional value within the country.

Angola was the only country in the world where production grew due to new discoveries of diamond deposits in recent years. The mines of Luaxe and Catoca became, respectively, the third and fourth biggest diamond explorations in the world. Last year, according to the Angolan executive, the country sold about 8.9 million carats of diamonds, against 7.7 million sold in 2020, an increase of 15.6 per cent. As for prices, on average a carat of diamonds was sold for US$182.80 in 2021, up from US$132.00 in 2020, thus again a significant growth in value. Based on official data from the Angolan tax authorities, in 2021 the tax revenue collected from diamond companies operating in Angola grew by 40 per cent.

Until recently – 2013 marked a turning point – diamonds were the sole significant mineral resource explored in Angola and, together with oil and gas production and associated revenues, carried a strong impact in the country’s GDP. Since then other minerals and their exploration have also become significant assets and areas of activity within the mining sector.

Copper, platinum, gold and iron ore are considered the 21st century minerals. Copper is a vital mineral to modern life and is used in everything from electrical wiring in households to cars; platinum serves a critical role in the circuit boards of medical apparatus, electrical and household gadgets, including fiber optic cables for telecommunication devices; iron ore is fundamental in the manufacture of, among others, railway tracks; and gold, among other functions, constitutes a value reserve. All the foregoing are minerals with extensive and substantial known reserves in Angola and are also part of the aforementioned Angolan national development plan.

By way of example, since 2020 Angola licensed 28 gold mining projects, 20 of which are already in the exploration phase. One such gold mining projects is the Buco-Zau mine in the northern province of Cabinda, which after six months had generated 15kg of gold from a secondary deposit.

The recent sixth summit between the European Union and the African Union in Brussels on 17 and 18 February 2022 has clearly evidenced a growing interest from European economies in the African economy, with a view to match Chinese investment on the African continent and prevent it becoming too dependent on this source of capital.

The recent and unfortunate events in Russia and Ukraine are likely to trigger developments in the Angolan mining sector. Russia remains the biggest diamond producer in the world and is quite active in the Angolan mining sector, namely through Alrosa. Nonetheless, the disarray caused by the conflict in Ukraine and the approval of sanctions targeting Russian companies will most probably trigger the need for alternative mining players, particularly in the diamonds sector, even though very large players such as De Beers and Rio Tinto plc are either there or have shown a public interest to play an active role in the Angolan diamond sector. 

We already see encouraging signs in Angola of the growth of private investment, facilitated by strengthened government and financial institutions and by the government’s actions to boost transparency so that Angola will be able to realise the full potential of its mining sector.

Questions remain, however, on the next steps to be decided and implemented with a view to bring additional transparency and confidence. One such question, after the split of the Angolan mining national concessionaire and Endiama, is if Angola is ready for at least a partial privatisation of its state-owned diamond company? Will this be the next and very ambitious step? If so, it will have a dramatic impact on the diamond sector.

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