The slump in global commodities prices is likely to have a severe impact on Angola’s mining sector, with producers already beginning to scale back operations in the country. The diamond sector is likely to be the hardest hit, as demand falls and prices drop. In January 2009, Russian diamond company ALROSA announced that it was unlikely to resume exploration at its Catoca venture in Angola in 2009, due to the impact of the global downturn. However, the company has said that it has no plans to leave Angola.

Angola was historically a major producer of diamonds, iron ore, gold and copper before its independence. However, the ensuing civil war disrupted its infrastructure, significantly slowing the pace of exploitation of its considerable metals and minerals base. Following the end of the 27-year-long conflict in 2002, the Angolan mining industry, along with the economy, has grown rapidly. Angola is globally the fifth-largest producer of diamonds by value, supplying 7-9% of the world diamond output. The country hosts intensive diamond reserves, principally in the provinces of Lunda Norte and Lunda Sul. The majority of Angola’s diamonds comes from alluvial deposits. However, state-owned mining company Endiama is confident that there could be large-scale deposits in shafts of volcanic rock throughout the country. However, mining in kimberlite is both expensive and technically difficult, meaning that Endiama has had to partner with global companies, such as South Africa’s De Beers and BHP Billiton, who have the necessary expertise. De Beers has invested in a kimberlite concession in northern Angola, while Russia’s ALROSA also has a partnership with Endiama. Companies that wish to explore for diamonds in Angola have to do so in partnership with state-owned mining firm Endiama, as is stated in Angolan law. Moreover, their ownership in any diamond mine is limited to 40%.

According to the latest reports, the company has around 100 mines throughout the country that are ready for exploration. Indeed, some market watchers claim that less than 50% of Angola’s diamond potential is currently being realised. For example, of the 61 concessions currently operating in the country, only around 14 are thought to be producing diamonds. Global overview On page 9 of this report, BMI examines the phenomenon of increased Chinese activity in the global mining sector and what this means for the industry moving forward. Industry Forecast Falling consumer spending power is forcing people to cut back on expensive purchases in the retail market, which is having a negative impact on global diamond sales. Meanwhile, those that are still buying are trading-down to poorer quality and less expensive diamonds. As a result, the majority of diamond producers have started to cut production, with global production forecast to fall from 160mn carats to 120mn in 2009. De Beers, for example, is reported to be decreasing production by as much as 30% over 2009. Meanwhile, banks are cutting back on loans used by diamond traders to purchase the stones in countries such as Angola. As a result, the diamond mining sector in Angola is likely to face a tough year in 2009. In the longer term, experts still believe there is strong prospective potential for base metals and gold in the country. Indeed, Angola is set to resume mining in the Chipindo region in the next two years. Meanwhile, there are reports of gold reserves being discovered in southern Huíla province. BMI has considered all these factors and the amount of unexplored deposits in the country, and expects the mining sector to reach a value of US$94.78bn by 2013.