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Hot diamonds.

Unita's illegal diamond mining activities have stirred up an international hornet's nest. Attempts to broker an agreement with the rebels has so far proved futile. Unless a settlement is reached, warns Chris Gordon, Angola's diamond industry could collapse.

Since 1992, most of Angola's diamonds have been illegally produced and smuggled to Zaire and Antwerp. It is no secret that Unita is responsible for the majority of this activity. Last year alone, its total production amounted to about $430m. For this, Angola's state diamond sector incurs huge losses and is forced to tackle problems of mining property. Unita, in the mean time, is stocking up on sales, either on the open market or to friendly buyers in Antwerp.

In 1995, Angola produced $690m worth of diamonds but sources in Antwerp valued State production at less than a quarter of that, at $147m.

In an attempt to minimise damage caused by Unita, De Beers - in partnership with Steinmetz, Lazare Kaplan and Arslanian Freres - share joint ventures with state-owned Endiama. Their aim is to buy up the illegally produced gems before they actually leave the country. Last year, however, they only bought $80m worth.

Financial damage is not the only problem. Unita's illegal digging is also destroying Angola's alluvial resources. Small scale artisanal miner's are bombarded by the military and various illegal companies. As soon as they have been pushed out of the picture, Unita installs more efficient extracting equipment of its own.

Unita's predominance over the country's diamond industry is transparent. It operates in the rich area of Luzamba in the Cuango Valley, with the assistance of South African and Israeli companies. Endiama's main mining regions have also fallen prey to Unita namely, the eastern areas of Lunda Norte near Dundo and Njazi.

Moreover, Luzamba is supposed to be in the hands of Odebrecht Mining Services (OMS) not Unita. This Brazilian construction multinational signed a contract with Endiama in August 1995. But the Director of OMS, Mr Eduardo Melo Pinto, has little choice but to strike some sort of deal with Unita. Such a move was confirmed by the Deputy Minister of Geology and Mines, Dr Chingongo, who declared that it would occur in April this year.

However, so far no such deal has happened. Far from it. In fact Unita has stepped up its mining operations in the area. Divers and equipment from South Africa have been arriving by the truck load, to mine the river-bed more effectively. This continues in spite of an offer made to Unita late last year to establish some private diamond companies.

It seems that Unita will listen to nobody and compromise nothing. Endiama also conducted talks but to no avail. As soon as it brought up the subject of capital investment from Unita, the discussions came to an abrupt halt.

Provoke conflict

However, if a deal did go through and if Unita did withdraw, the ensuing scenario would not necessarily run significantly more smoothly. Odebrecht's new contract would come into operation which would provoke conflict with De Beers who are still expecting to buy these diamonds under a contract drawn up five years ago.

Talks between Odebrecht and De Beers on investment and sales have already ceased. And Odebrecht are set to sell their Catoca production to Almazi Rossi Sahka, one of the partners in that project.

Nonetheless, Odebrecht has no idea whether its investment of $90m to rehabilitate Luzamba, will pay off. It is banking on the view that the reserves will be virtually untouched due to the difficult mining conditions in the area.

Despite several new mining contracts, Angola's alluvial mining operations remain in a parlous state. Again, the blame stands squarely at Unita's feet. In January, Endiama's mining operations in Dundo and Njazi closed down when Unita killed two senior mining operatives. Given Unita's occupation of the Dundo region, it can also exploit the area to bring in arms supplies from Zaire.

One mining operation that has managed to avoid Unita's traps is Sociedade Minerai de Lucapa (SML). Despite having lost much of their concession area, SML is negotiating for rights to mine two low-grade kimberlite pipes near Lucapa. SML's concession was assigned to 'The Generals', a military consortium which contracted ITM to mine on their behalf. The advantage of this unusual concession is that the area is protect from Unita incursions.

However, all the provinces are highly militarised. Diamond companies have learned from bitter experience and thus, provide their own security forces. SML's mines have been attacked and operations sabotaged. Hence, SML's official diamond production is very low. Last year, it produced 75,000 carats, worth about $20m.

Endiama's attempts to straighten out the country's diamond mining problems are not getting very far. Last year a policy allowing small companies and artisanal miners to operate on the fringes of mining concessions in Lunda Norte was implemented. It has been a success to the extent that 80 small companies have registered and, in effect, are now mining legally.


The growth in illegal companies outpaces those which register: 10% of Angola's diamonds are smuggled out by groups other than Unita.

Thus, in regions such as Lunda Norte the military have been brought in to bring the situation under some control. The Angolan Government has duly authorised a shoot-to-kill policy. Allegedly, the EU did apply some pressure to regulate the situation.

De Beers have predicted that diamond smuggling will increase at the start of the dry season. Last year De Beers bought two thirds - about $460m worth - of Angola's total diamonds on the open market. Previously, it also bought the Cuango valley, which once comprised 80% of Angola's total production, until 1992, when Unita seized the diamond areas.

Despite the seemingly gloomy picture, Angola's diamond industry still has a future. The growing success of kimberlite mines overrides the Government's inability to recover control of alluvial mining.

At last, the Council of Ministers have given De Beers the go-ahead for its prospecting agreement and the source of the Cuango Valley diamonds is being pursued. Eyes are also fixed on the Quela area in Malange Province, deemed to be a prime site for a world class kimberlite mine.

Despite Unita's stubborn strength, Angola's diamond resources provoke determination from all parties. As the situation stands, it is less a battle of wills than an exercise in damage limitation. But whether Unita can continue to out-manoeuvre the diamond giants in the longer term remains to be seen.
COPYRIGHT 1996 IC Publications Ltd.
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Article Details
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Title Annotation:African Oil and Minerals; Angola
Author:Gordon, Chris
Publication:African Business
Article Type:Cover Story
Date:Jun 1, 1996
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