Diamond Industry republic of Annual Review angola2004

Major Challenges Ahead ....1 Artisanal Mining ...... 7 Geology of ...... 1 Expulsion of Congolese Miners...... 8 Major Challenges Ahead History ...... 2 Mining Companies and Editorial Comment The UN: Peacekeeping Social Responsibility...... 9 and Sanctions...... 2 The War in Angola started in 1961 with the armed struggle for independence from the colonial power, Environmental Issues...... 9 The Players...... 3 Portugal. Angola obtained independence in November 1975 and concurrently, União Nacional para a Smuggling...... 10 Independencia Total de Angola (UNITA) – one of three factions that had been fighting for independence – Structure of the Industry ....3 Transparency and began a civil war that lasted 27 years. UNITA developed its resource war-strategy during the 1980s, Mining Projects and Corruption in the International Companies ...4 when Angola fell victim to Cold War politics and apartheid South ’s wars against its neighbours. Sector...... 10 Brief periods of peace proved illusory; Angola’s civil war eventually ended in 2002, following the death Angolan Mining The Kimberley Process: of UNITA leader, Jonas Savimbi. Companies...... 5 Compliance in Angola ....11 This first Annual Review of the diamond industry in Angola examines the state of the industry since Projects in the Pipeline...... 6 UN sanctions against UNITA were ended in December 2002. It examines the potential for to The Kimberley Process ...11 ...... 6 serve as an engine of development rather than war. And it spells out some of the challenges that now Endnotes and face a government that has been widely criticized for secrecy, corruption and mismanagement. Leviathan ...... 7 Acknowledgements...... 12 In 2003, Angola ranked 164th on the UN Human Development Index, which conflates per capita income, literacy, infant mortality and life expectancy. A country slightly bigger than France, Angola is lightly populated. Although no recent census has been undertaken, the population is estimated between 12 and 16 million. The wars, however, have driven much of the rural population into the towns, with a quarter to a third of the population living in Luanda alone – now a city of four million people.

Geology of Angola Diamonds occur in kimberlites and in a variety of placer deposits. Around 700 kimberlites of varying sizes (65-190 hectares) and shapes are known in Angola, the grade increasing with depth. The kimberlites are aligned along a SW to NE trend across the country and into the Democratic Republic of the Congo. Catoca Mine, Lunda Sul. Alluvial diamonds are produced from the erosion of volcanic kimberlites 80-120 million Angola’s problems, after so many years of war, are manifold, and cannot all be addressed years old. The richest diamond fields are quickly. The return of up to a million refugees and the resettlement of over three million inter- located in the north-eastern corner of Angola nally displaced people add to the formidable problems of reconstruction. The estimated cost of in Lunda Norte. Past and present production is restoring roads and bridges alone – essential to the movement of food, goods and people – is principally from recent alluvial river deposits, US$4 billion. Even though the war ended in 2002, 1.7 million people still require relief food from but some deposits occur in older alluvial ter- the World Food Programme. There are up to five million landmines, mainly in agricultural areas. races or Cretaceous conglomerates. Outside the principal coastal cities, there has been little space for safe investment or develop- Diamond reserves were estimated in 2000 at ment, and state control over the country as a whole is only now becoming a reality. Capacity- 40 million carats in the alluvial and terrace building in social institutions is just beginning. deposits, and 50 million carats in kimberlite The diamond sector has been severely affected by war, but it is seen by many as a potential pipes, although the first figure is now consid- driver of development and re-investment in the provinces, although the starting point is very ered by some geologists to be improbable, fol- low. Some changes are clearly being put in place; the country’s diamond regulations are being lowing the depredation of the alluvial resources. changed and the government is currently in the process of expelling 350,000 illicit Congolese Interestingly, one effect of UNITA’s mining was to diamond miners. Against this background, redeveloping the diamond sector and making invest- demonstrate that Angola has more diamond ments in the mining regions – in ways that benefit ordinary Angolans – will be vitally important deposits than were previously known. in the months and years ahead. The Annual Review 2004 examines the state of the Angolan diamond industry today, and will hopefully serve as a benchmark against which future developments can be measured.

Partnership Africa Canada Editor: Christine Gordon Ottawa, Canada Managing Editor: Charaf Ahmimed and July 2004 Dorothée Gizenga Ngolo Series Editor: Ian Smillie

of information on diamond Republic Brazzaville National Capital History of the Congo deposits, although a Russian Provincial Boundaries Kinshasa geological survey of Angola was International Boundaries Angola is one of Africa’s greatest diamond Cabinda Democratic Republic Primary Deposits resources, with both large-scale alluvial and completed in the 1980s. Cabinda of the Congo Secondary Deposits terrace deposits along its rivers, particularly in At independence, the colo- Zaire Uige the north-east of the country, and untapped nial vehicle Diamang ceased mining because of lack of diamond resources in its many identified kim- Bengo Lucapa Democratic technical capacity – Angolans Luanda Cuanza Lunda Norte berlite pipes. It is the world’s fourth largest Norte Malanje Republic of Cuango had not at that point been Saurimo the Congo producer of diamonds by value, although mar- Malanje trained to a level that would ket sources believe that with smuggled produc- Lunda Sul Cuanza Sul tion, Angola is actually the third largest enable them to run the mining South Atlantic Andulo producer. Diamonds are Angola’s second most operations in the backward Ocean Cazombo important export after oil, averaging US$700 world of Portuguese colonial- Huambo Bié Moxico million per year since 2000, and development ism, even as late as the 1960s. Benguela Huambo of the sector is a national priority. In 1977, the government signed an operating agree- ANGOLA Diamonds were discovered in Angola in Huila Zambia 1912, at Mussulala in Lunda Norte in a tribu- ment with Mining and Technical Namibe Mavinga tary of the Chicapa River, by the prospectors Services Ltd. (MATS), a vehicle Cunene Cuando Cubango Johnston and McVey, who were tracing the set up by De Beers to mine in N source of diamonds found in the then Belgian Angola. De Beers also trained Angolan diamond sorters in W E Congo. A prospecting company, Companhia de S Pesquisa Mineira de Angola (PEMA), was estab- London. All the production was lished in 1912 to prove the resources. The colonial sold to De Beers’ Central mining vehicle Diamang (Diamond Company of Selling Organization (CSO) in London. MATS mining operators, diamond production rose to Angola), a joint venture between De Beers, the raised Angola’s diamond production to 184.5 87,139 carats, worth US$107 million. The dia- Portuguese state and international mining thousand carats valued at US$233.9 million by monds were sold by tender at first, and later a finance interests, was established in 1917. The 1980. However by 1986, relations with De Beers sales system was set up in , using five Lundas had been brought under Portuguese had collapsed, and UNITA attacks on mines Belgian companies and Angolan diamond control by what are termed the wars of “pacifi- had reduced output to US $16.6 million. sorters. UNITA attacks on mines, in the Cuango cation” of the Chokwe people. Although they Between 1986 and 1991, Endiama continued in particular, continued until the end of this are the major local ethnic group, extending to use mining operators. Joint venture con- phase of the war, following the signing of the into the Congo (and well known for their art tracts were not introduced until 1994. With New York and Bicesse Accords between the and culture), the Chokwe tended to resist work- Roan Selection Trust and ITM Mining acting as government and UNITA. ing in the mines, and workers were drawn from other areas of Angola. Portuguese colonialism legalized the use of cheap and not always voluntary “contract” labour imported from other The UN areas of Angola. One example was of the provi- Peacekeeping and Sanctions sion of 5,500 of Diamang’s 17,500 African workers The United Nations’ first peacekeeping mission in Angola, UNAVEM I, was set up in 1988. UNAVEM II in 1947.1 monitored elections in 1992, and UNAVEM III monitored the disastrous non-implementation of From the company’s inception, Angola was a the 1994 Lusaka Peace Protocols and the return to war. country of major interest to the most important In September 1993, the United Nations Security Council imposed the first sanctions on UNITA’s players in the world of diamonds and mining arms trading. These were widely ignored. In 1997, only six months after UNITA had joined the capital. De Beers managed all of the company’s Government of National Unity and Reconciliation, it became clear that large scale war was likely to mining operations. Diamang was famously a restart. A second set of sanctions was imposed, this time on flights into UNITA territory and on the “state within a state” with its own laws, mining movements of UNITA members. police, food production and border controls. A third set of sanctions, in July 1998, was imposed on UNITA’s finances and diamond trading. Diamonds were produced during this period These were the first to produce real effects, and they set the stage for investigations by UN panels from alluvial mines in the hydrographic basins of inquiring into the relationship between natural resources and wars – ultimately in four African countries the Cuango, Luachimo and Chicapa rivers, which – and for the establishment of the Kimberley Process (see pg. 11). The British NGO Global Witness have continued to be the backbone of mining in published A Rough Trade in December 1998. This widely publicized report on Angola and UNITA’s use Angola. Country-wide prospecting was last car- of diamonds for war sparked global interest. ried out in the 1970s by CONDIAMA, a De Beers company. This remains the principal source

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projects halted, declaring force majeure, and mining led to the reduction. Companies can working projects were again attacked by UNITA. apply for more than one concession, but in War and the effects of uncontrolled garimpo practice the outcome appears to be the growth mining resulting from so many years of insta- of many smaller joint venture companies. bility have together kept Angola’s diamond Taxes for surface rights are between US$1 industry operating far below its capacity. and $3 per hectare, per year in the first instance and $3 on renewal of the prospecting licence. A premium is payable on the awarding of min- Structure of ing rights, based on the size and value of the project. Royalties for mining ventures are ENDIAMA, State Mining Company in Luanda the Industry between three and ten per cent of the gross value of minerals produced. Presently, the rate UNITA rejected the subsequent election for diamond mines is five per cent, with a six per results and, in October 1992, went back to war The Ministry of Geology and Mines cent tax. Corporate income tax is 25 per cent on and seized most of the diamond fields. Only The Ministry of Geology and Mines is responsi- net profits up to US$5 million. Fifty per cent of one formal government-run mine continued to ble for negotiating contracts for all mineral capital investment can be written off in the first work throughout the next three years, although rights, both diamond and non-diamond; for year of operation and 25 per cent thereafter. others were able to operate sporadically. ensuring the application of the Mining and During this period, UNITA was the major pro- Mineral Law; and for geological survey. All min- ducer of Angola diamonds, producing and eral rights belong to the state; all contracts, both Endiama and Official smuggling as much as 90 per cent of the total for prospecting and mining, must be approved Diamond Production reported production. State production and by the Council of Ministers and gazetted in the New diamond legislation is expected before exports fell to $28 million in 1993, was close to state journal, the Diário da República. the end of 2004. At a minimum, the new law is $60 million in 1994-5 and only began to rise Prospecting rights are awarded for five years expected to clarify the separate roles of again in 1996, when these reached $147 million, in the first instance. At the end of this period, Endiama (Empresa Nacioanl de Diamantes de Angola) after UNITA surrendered mining areas and the 50 per cent of the area must be relinquished. and the Ministry of Geology and Mines. Lusaka Peace Accords began to be implemented. Mining title, also negotiated by the ministry, may Angola’s diamond industry is a mixture of state Growth in the formal sector slowly increased, subsequently be granted, and is for the duration and private interests, with the state diamond and several new mines came on stream and of the life of the deposit. Since 2000, mining company Endiama being the controlling com- survived the 1998-2002 war, including the rights have been limited to areas of 3,000km2. pany in Angola’s diamond industry, since 1986. Catoca kimberlite and the Luzamba mines (see Previous awards covered larger areas, but secu- At present, the state, through Endiama, is a page 4). However, many scheduled mining rity conditions and the inability to prevent illegal partner in all diamond ventures, with a majority

The Players In 1974, the Portuguese colonial diamond company, Diamang, was trading side, Endiama signed a contract with De Beers’ Central Selling largely nationalized and in 1986 was replaced by a new state mining Organisation (CSO) in 1991 to buy diamonds from the formal sector. company, Endiama. The 1994 diamond law gave Endiama “the sole This agreement was later suspended. In 1995, Endiama entered into rights of prospecting, research, exploration, reconnaissance, treatment joint ventures to buy diamonds from local diggers with international and marketing of diamonds within the entire national territory, or to any firms such as Omega (), Steinmetz (Belgium-Israel), Arslanian joint venture in which it participates.” In 1999, however, Endiama trans- Frères, (Antwerp) Lazare Kaplan (Maurice Tempelsman, USA) and De Beers. ferred its marketing rights to a newly created 99 per cent Endiama sub- When the marketing rights were transferred from Endiama to ASCorp, sidiary called Sociedade de Comercialização de Diamantes (SODIAM). these buyers had their licenses revoked. Now, new informal sector buy- SODIAM in turn entered into a joint venture to create ASCorp (an ing ventures are once again being set up to replace ASCorp, with some acronym for Angola Selling Organisation), in which it held 51 percent. Israel’s Lev Leviev and Belgium’s Sylvain Goldberg held the balance. of the same players reportedly negotiating for buying licences. ASCorp’s contract ended in July 2004, and SODIAM will now market all De Beers, which has a long history of mining in Angola, and which Angola’s production. had a joint venture relationship with Endiama during the 1990s, During the 1990s, Endiama entered into joint venture arrangements decided in May 2001 to go to international arbitration over its three con- with a variety of international mining companies. The Catoca mine, one tracts, following the loss of all its buying rights to ASCorp and the of the world’s largest kimberlites, is a joint venture with ’s Alrosa, reduction of its prospecting areas. Also in dispute is the repayment of a Brazil’s Odebrecht, and Leviev’s UK based Daumonty Financing. On the $50 million loan and accrued interest.

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Angola Official Diamond Production 1994-2003 The mining companies provide training for their workers, including literacy training. 800 However much work is semi-skilled to skilled, and low- to non-existent education levels in 700 the Lundas mean that considerable investment in training is needed to increase employment among local people, whose alternatives are

) 600 s agriculture or artisanal “garimpo” mining. r a l l o

d 500

f o

Mining Projects s

n 400 o

i and International l l i

m Companies

( 300 Major mining companies have long been 200 attracted to Angola as a source of diamonds. But continued instability and attacks on min- ing projects by UNITA led to long delays in 100 development. The war not only led to force majeure but massively increased costs. All goods and materials for mining had to be moved by 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 air; roads were unsafe or impassable; security was expensive. Industrial Mines Artisan production sold Total production to licensed buying offices Although nearly 40 mining and prospecting ventures were gazetted between 1995 and 1999, shareholding of 51 per cent in all kimberlite Endiama inherited the colonial structure of only eight projects are mining at present. Many ventures and the largest shareholding in all Diamang, with a major, and very expensive previous projects did not develop at all. alluvial mines. responsibility for maintaining facilities in the Several had to stop because of UNITA activity, Endiama is a partner in the eight mines that diamond regions. During the mid 1990s, many while others were never viable in the first place. are operational at present (see below), includ- of Endiama’s facilities in the Lundas were At present, the principal international players ing Catoca, and in all new mining ventures. moved to Luanda, including the company’s are the Russian diamond group Alrosa, the Gross revenue from the sector is expected to hospital and its remaining archives. The min- Brazilian Odebrecht Mining Services Inc., exceed $1 billion in 2005, up from an estimated ing towns of Lucapa, Nzaji, Dundo and South Africa’s Trans Hex, Petra Diamonds, and $900 million in 2004, $800 million in 2003 and Saurimo have decayed over a long period. As in the Bermuda-Registered ITM Mining Ltd., approximately $700 million in 2002. Endiama all towns in Angola, the facilities built for the which operates solely in Angola. will have a 51 per cent stake in all new kimber- colonizers have not been extended to meet the lite mining projects and is the single largest needs of local people. The towns have merely shareholder in all alluvial projects. extended into slums as people have been The Catoca Pipe Although production from Endiama’s joint Alrosa – Almazy-Rossii-Sakha – the Russian state drawn to them. ventures has been increasing steadily, and is diamond mining company that operates the Endiama and its partner companies are the expected to continue to do so, the next phase Siberian mines, is one of four shareholders in largest direct employers in the mining regions. will be the development of Angola’s kimberlite the Catoca kimberlite, the world’s fourth pipes and the regularisation of artisanal min- and they are a major provider of infrastructure biggest pipe in surface area. Catoca is close to ing. Artisanal miners will, in principle, be regu- in the Lunda provinces, since much of it is Saurimo, in Lunda Sul. The project was first lated by the joint venture companies on whose directly for the support of diamond mining. mooted in the late 1980s, and the pipe was fringes they will be licensed to operate. Low wages and poor conditions for many work- investigated by Alrosa. UNITA occupation of However, at present there is no provision for ers, however, have led to strikes in the Lundas. the area made further developments unfeasible training the small miners or for equipping Endiama itself directly employs approximately until 1996. them. This is a role which Endiama could use- 10,000 people in Luanda and the provinces. Alrosa and Endiama each have a sharehold- fully play. In so doing, it could improve the Joint venture companies employ several thou- ing of $9.6 million (32 per cent); Odebrecht conditions of artisanal miners and break the sand more, although expatriate workers are Mining Services has an investment of $4.8 million hold of the middlemen, who currently supply concentrated at the higher levels of management (16.4 per cent). In April 1997, Lev Leviev (see pg. 7) them and buy the diamonds they produce at and technical expertise. Endiama, as a principal became a partner, providing the additional artificially low prices. shareholder, has staff in all the mining ventures. $25 million needed to complete the mine.

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Catoca produced 1.2 million carats in 1998, Cuango – SDM its first full year of operation. The mine is the Sociedade de Desenvolvimento Mineiro (SDM) is single biggest producer of diamonds in Angola, based in Luzamba in the Cuango Valley and is a although at US$75 a carat, its diamonds are at joint venture between Endiama and Odebrecht the lower end of the market, and are vulnerable Mining Services Inc. (OMSI), the mining sub- to the vagaries of the mass market. In 2003 the sidiary of the giant Brazilian conglomerate mine produced about 2.5 million carats worth Construtora Norberto Odebrecht S.A., which is also US$189 million. Catoca is beginning a second a shareholder in Catoca. Re-developing the phase that will double its capacity to 7.5 million Luzamba mines cost $130 million. Odebrecht tonnes of ore by mid 2005. Catoca, which cur- announced in January 2003 that it would with- rently provides about 20 per cent of Angola’s draw from its Angola mining operations, but diamond output, is expected to have a life of has since decided to stay, to increase its share- 40 years, and in the second phase will produce Catoca Plant, Lunda Sul up to five million carats annually, worth an holding in Catoca and to look for new projects for SDM. estimated $375 million a year, comparable to BHP and Petra Diamonds Orapa in Botswana. Odebrecht began mining the then Luzamba Project in mid 1991, as an operator for BHP Billiton, the giant natural resources group which mines the Ekati pipes in Canada, is a Endiama. The $50 million investment for buy- newly emerging player in Angola. Although Luo and Chimbongo ing plant and equipment and developing the Alrosa is also a partner in two other mines: the BHP has had a Luanda office for several years, mine came from a loan made by De Beers to Luo Project and the Chimbongo Project with they have moved cautiously, working initially Endiama (see pg 6). De Beers was to buy all ESCOM Mining and others. Chimbongo is a on a technical capacity-building project to the diamonds produced in the Cuango, from medium-scale alluvial project near Nzaji, in computerise data at the Ministry of Geology Luzamba and from the Cafunfo mines 50 km Lunda Norte. It has been in operation for about and Mines. BHP has recently signed a prelimi- north of Luzamba. At that time, Cuango dia- 18 months and produces 7,000 carats a month. nary six month contact with Petra Diamonds monds represented 80 per cent of Angola’s pro- A new treatment plant is being installed to Ltd. and Angolan partners Endiama and increase production to 15,000 carats by the end of duction – worth approximately $185 million a Moyoweno Lda., to negotiate terms for 2004. More significant is the development of two year. The project operated for only 15 months prospecting at Alto Cuilo. kimberlite pipes, Camagico and Camatchia, for until UNITA seized the region and began its Petra is a South African mining company which Alrosa is the technical partner. These were own large scale diamond mining operations. which was part of the consortium running the previously contracted to DiamondWorks, which Currently, Luzamba is the only formal allu- State-owned Alexcor mines in South Africa. did not develop them and is not currently operat- vial mining operation producing diamonds in The joint venture between Petra, Endiama and ing in Angola (see pg. 6). The plant is under con- the Cuango region. All other diamond produc- Moyoweno was originally agreed in 1998, but struction and operations are expected to start in tion is from artisanal mining, although new the project was suspended until 2003 as a December. The mine will treat one million tonnes industrial-scale projects are expected to come result of insecurity. It was original planned to of ore per year, producing as much as 800,000 into operation. SDM produced $177 million of carry out short to medium term alluvial mining, carats annually. By 2007, it is expected to treat diamonds in 2003, but its present concession to fund the kimberlite development but this four million tonnes of material per year. is expected to be exhausted in 2004. may no longer be viable.

Angolan Mining Companies There is a strong policy of Angolanizing the diamond industry, so that no With assistance from ESCOM, Endiama plans to develop its own mining single foreign company dominates the landscape. The role of the foreign capacity, having established a further subsidiary, Endiama Prospecting joint-venture partner companies is to bring in investment and mining and Production, to achieve this. ESCOM was set up to provide mining expertise. Besides Endiama, about 17 Angolan companies currently hold investment in Angola by the Portuguese banking group, Grupo Espirito Santo. mining concessions, and it is expected that all new projects will have The depredation of alluvial reserves means that medium and large- some private Angolan ownership. Endiama stated in January 2004 that it scale alluvial projects will play a reduced part in the future of mining in had approved 14 new prospecting bids, all involving foreign investment – Angola. Grades are now thought to be too low to support this scale of out of an astounding 17,000 bids. Not all of these ventures had been pub- mining in the longer term and the long-delayed development of kimber- licly announced at the time of writing, and not all will result in mining lite projects is now the priority. projects. Many will be joint ventures that were suspended in 1998 and now have, or are negotiating, new contracts.

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Trans Hex – Luarica and Fucauma Lisbon. Portuguese nationals continued to Comica (Angola). At the time of writing, per- Trans Hex, a South African mining company, is the smuggle diamonds out of Angola, but the buy- mission was still awaited to set up the Angolan second biggest producer of diamonds in South ing venture, together with a cutting joint venture company that would operate the mine. Africa after De Beers, mining about eight per cent DIALAP, was shut down in 1999. The cutting fac- The Lapi Project: near Catoca, Lapi will be of the country’s gems. Trans Hex, which declared tory is now a wholly-owned De Beers venture. mined by Australia’s New Millennium Resources force majeure on its project in 1998, returned to with three partners: Angola Resources Pty. Angola in 2002, signing new agreements with Chitotolo Ltd./New Millennium Resources, an Angolan company, Mombo Lda. and Endiama, which has Endiama for two alluvial projects, Luarica and The mines at Nzaji have been operated since a 51 per cent shareholding. Fucauma. The Luarica Project has a six year life 1998 by Associação Chitotolo Sociedade Mineira de Adastra: Adastra, previously America Mineral expectancy and required investment of approxi- Lumanhe (15 per cent), ITM Mining (50 per cent) mately US$15 million. The reserves are said to be Fields, was awarded two alluvial concessions in and Endiama (35 per cent) are the sharehold- 790,000 carats, worth US$170 million. Production the northern Cuango in 2000, through its wholly ers. The project required an initial investment started in April 2003 and TransHex sold its first owned Angolan subsidiary, IDAS Mining Resources of $15 million, to re-treat old tailings dumps diamonds from the project in July 2003 – 20,000 Inc., in partnership with Endiama. Contracts have and to prospect alluvial reserves. It is the third carats, at an average of more than US$300 dollars yet to be finalized. IDAS was originally a Belgian largest producer of diamonds in Angola at present. per carat. security company (International Defence and Prior to the formation of Chitotolo, Endiama’s The Fucauma project has a four year life Security Resources). Penz Project mined in Nzaji, albeit intermit- expectancy. The initial investment was esti- DiamondWorks: DiamondWorks’ known tently, since the region was a UNITA corridor mated at US$11 million, and the expected rev- remaining interest is in the Yetwene mine. from 1992 and the mines changed hands sev- enue is US$70 million. Trans Hex has a 32 per Yetwene was closed in November 1998 following eral times. The area was mined by Congolese cent shareholding, Endiama holds 38 per cent, a UNITA attack which ended in the abduction and on behalf of UNITA, and its reserves were heav- and the remaining 30 per cent is held by other almost certain death of miners and technicians. ily depleted as a consequence. Angolan companies. Development of the In 2000, DiamondWorks stopped payments to Fucuama Project has not yet started, however, the widows and children pending proof of death. and production stopped at Luarica because ITM Mining No resolution has been announced. The two Trans Hex had not put in the necessary equip- ITM (Bermuda) Ltd was a subsidiary of the kimberlite pipes, Camatchia and Camagico have ment, according to Endiama. The problems British company, ITM Mining Ltd., until 1994. been re-assigned to the Luo project, and Luarica were said to have been resolved in mid 2004, It is now an Angola-based mining contractor, has been transferred to TransHex. In May 2004, with mining set to restart at Luarica and to formed from staff who worked previously with DiamondWorks changed its name to Energem begin at Fucuama later in the year. MATS and Roan Selection Trust, and who had Resources Inc. long experience of diamond mining in Angola. SML – Sociedade Mineiria de Lucapa ITM stopped working with directly with SML at SML is a joint venture between Endiama Lucapa in 1999, due in part to inadequate secu- De Beers (51 per cent) and the Portuguese rump of rity conditions. ITM is now a major partner for Diamang, Sociedade Portuguesa de Empreendimetos the mining companies owned by past or present De Beers has a long history in Angola as a (SPE), formed in 1991 and based in the mining FAA generals, including Lumanhe Ltd., the major shareholder in, and operator of Diamang, town of Lucapa. This was the sole mining project smallest shareholder in Calonda and Chitotolo. and as a mining operator and buyer of Angola’s that remained open throughout the period after diamonds until 1985, when relations with gov- 1992, mainly because Lucapa was a major for ernment broke down. In 1991, after the first Forças Armadas Angolanas (FAA) base. Nevertheless, Projects in the Pipeline peace accords were signed, De Beers and Endiama mining personnel were killed in UNITA attacks, signed a new contract. Relations broke down and production was low. SML has shareholdings Camutue: a medium-sized alluvial and kimber- again in 2000, however, leading ultimately to in four alluvial mining projects, Lucapa, Mafuto lite project, expected to produce 5,000 carats a De Beers seeking international arbitration of Norte, Calonda and Yetwene, mining gravels and month at approximately $200 per carat. An its contracts. building river diversions. Angolan company, Terraminas, has the mining The contracts provided for: SPE was the only formal Portuguese dia- rights and is looking for partners. • Purchase by De Beers’ Central Selling mond interest in Angola until ESCOM Mining The Camafuca Camazomba Pipe: at 160 Organisation (CSO) of all diamonds produced (see page 5) was set up to provide mining hectares, is the world’s largest kimberlite pipe from the Cuango Valley (then 80 per cent of finance. Portugal had hoped for a considerable in surface area, with reserves of 23 million Angola’s diamond production). De Beers role in diamond mining in Angola and set up a carats. The Canadian firm, Southern Era made a $50 million loan to Endiama, which joint venture buying operation in Portugal with Resources, carried out a feasibility study in was used to develop the mines at Luzamba. De Beers, DIAGAL. DIAGAL bought smuggled 2000 and expected to begin mining in 2003 in This was to be repaid from the proceeds of Angolan diamonds on the open market in partnership with Endiama, Minex (Israel) and diamonds sold to CSO;

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• Investment of $50 million in prospecting for without a ruling or adjudication being made on new kimberlites, and in developing any whether De Beers prospecting rights should be resulting mines as a joint venture between restored to their original size. Endiama has the two companies; stated that De Beers was ordered to pay 60 per cent of the costs, and considered the case a • Investment of $30 million in building a sort- victory. De Beers has denied that they lost the ing centre in Luanda; case, and says it considers its underlying prospecting rights to be unaffected.4 Two fur- • Additionally, in 1995 De Beers set up an ther adjudications – on repayment of the Diving Platform open market buying operation in Angola $50 million loan and accrued interest of over out by the hand digging and sieving of gravels. with Steinmetz and Endiama (CODIAM). $32 million, and on De Beers’ contract to buy In practice, much of this production today is not diamonds from Angola – have yet to be heard. actually artisanal; it is semi-industrial, carried De Beers’ prospecting contract covered three The results of the arbitrations will determine the out using small boats and diving equipment. areas: Lunda Norte, Quela in Malanje Province future relationship between De Beers and Angola. and Mavinga in Cuando-Cubango Province. At present, this sector produces just over one The latter two were occupied by UNITA until third of Angola’s official diamond output. ASCorp September 2001, when they were declared free bought diamonds worth $252 million from this of force majeure. Prospecting for kimberlites in Artisanal Mining sector in 2003. Garimpo mining has also been the Lunda Norte began in 1996, however, and was vector for diamond smuggling. There are no successful, with De Beers discovering 45 new Artisan or ‘garimpo’ mining was not the chief current estimates of this, but diamond market kimberlite pipes by early 1999. But large-scale source of Angolan diamond production until the sources believe that Angola has been producing sampling of the pipes, which would have beginning of the 1990s. Artisanal mining is carried in the region of US $1 billion per year worth of involved bringing in a new drill rig, did not take place due to the suspension of De Beers’ buy- ing contract and the reduction of its mining and Leviathan where it has a substantial share of the polish- prospecting areas to 3,000 km2 in January 2000.2 ing market, as well as in Ukraine, Armenia, China, The CSO’s contract to buy the Cuango produc- Lev Leviev, currently the principal buyer of South Africa, Namibia and Israel. tion initially ran until October 1992, when UNITA Angolan diamond production, runs the world’s Leviev became involved in controversy in seized the mines and the contract was suspended second largest diamond business after De Beers. 2000 when billionaire Russian industrialist by force majeure. The contract remained suspended He is not yet 50. The Leviev group’s diamond Arkady Gaydamak bought a 15 per cent share until 1998, after UNITA’s withdrawal from the company, LLD, is thought to be one of the in Leviev’s Africa Israel Investments. Gaydamak mines and SDM started official production. largest diamond polishers in the world, polish- reportedly bought out Angola’s $5 – $6 billion De Beers also bought informal production from ing between US$570 million and a billion dollars debt to Russia in 1998 and has reportedly bro- FAA-occupied areas of the Cuango in 1995 a year. Leviev also markets rough diamonds, kered it down to $1.5 billion, to be repaid in through its CODIAM joint venture. De Beers said to be worth as much as $1 billion a year. 31 installments over 10 years. Gaydamak was withdrew its buying staff from Angola in October The company’s total turnover is estimated at also said to have brokered arms supplies to 1999, and ended all open-market buying in Africa something between $2 and $2.5 billion. the government of Angola through French in response to the increasing profile of conflict Leviev’s first business venture in Angola intermediaries when the 1992-4 war was at its diamonds. The company, however, kept its shares was a partnership in the Catoca kimberlite height and UNITA had re-armed. This procure- and management role in CODIAM. CODIAM was pipe, starting in April 1997. He was Alrosa’s ment was investigated for illegality under partner of choice because the Russian firm – in ended and the contract with the CSO suspended French law. In addition, Swiss investigations at the beginning of 2000, when, under UN pres- financial straits – needed a buyer for the are said to have found evidence of massive sure to implement better controls, Angola set up mine’s production, which Alrosa was con- diversions of debt repayments owed to Russia its ASCorp single-channel buying system. tracted to purchase. Between 1997 and 2003 into private accounts held by Russians and In 2001, De Beers initiated international the mine produced diamonds worth almost Angolans. Gaydamak was said to have returned arbitration proceedings on three of its contracts $910 million. The Angola Selling Corporation to in February 2004, to take part in with the UN Commission for International (ASCorp) was set up in November 1999, but it Trade Law (UNCITRAL) and the London Court was not gazetted until January 2000. In the new negotiations related to Angola’s unpaid 5 of International Arbitration. A moratorium on intervening period, Angola came under politi- debt to the government. the arbitration reportedly ended in April 2003, cal pressure from Russia to begin channeling There are no allegations that Leviev was when talks between the two sides failed.3 diamonds directly through Alrosa. Leviev has involved in the arms deals or the debt resched- The first arbitration case, concerning restitu- invested in the giant Camafuca-Camazomba uling, but his business association with tion of De Beers’ prospecting rights, was heard pipe and elsewhere. The Leviev group also has Gaydamak received much negative publicity. In in Brazil in September 2003. The arbitration diamond mining interests in Namibia and in 2001 Leviev reportedly bought out Gaydamak’s reportedly concluded for technical reasons, Russia. It has diamond factories in Russia, interest in Africa-Israel for $75 million.

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diamonds since the mid 1990s. This figure is of licensed artisanal miners, and that others will It is clear that artisanal mining as it oper- likely declining because of the exhaustion of be employed by mining companies. ates in Angola brings little economic benefit to alluvial reserves due to years of uncontrolled Whatever their origins and affiliations, for the local communities. It actually helps increase digging. Smuggling will fall further if the govern- miners diamonds are an escape from poverty and poverty through deflated diamond prices and ment is able to control this sector. unemployment or a life of subsistence farming. “company store” prices for food and equipment. Uncontrolled garimpo mining expanded for All search for the big stone that will make their In addition, most of the artisanal mining and three reasons: the destruction and closure of much of the trading takes place in systems that the formal sector due to war; a loss of the min- fortune. But this form of mining is, in reality, a ing areas to UNITA – which brought in many of form of semi-slavery, whether the miners dig pits largely exclude local people, whose main the illegal miners to work in their own mines; or dive off rickety platforms and rubber dinghies means of living is subsistence agriculture. and the government’s inability to enforce admin- into the rivers. If their patrons are well capital- Although 10 per cent of diamond taxes are istrative controls in the unstable diamond ized, they will have proper diving equipment. remitted to the Lundas for development purposes regions. Although garimpo activities existed in the Otherwise an air hose is all they have as they dive – close to US$ 7 million per year since 2000 – this 1980s, illicit mining was on a very much smaller to find potholes that might contain diamonds – has not trickled down to ground level in any sub- scale, probably worth less than $100 million a ‘jewel-boxes’ – in the rocky river beds. stantive manner, and little state investment has year, including UNITA’s smuggling. The miners are in thrall to the ‘patrocinador’ sys- yet been seen in the region’s social infrastructure. In 1991 artisanal mining and the possession of Local officials have complained about a lack of diamonds by Angolan nationals were legalised tem – a ‘supporter’ or middleman arrangement. access to mining data and what they consider and peace accords were signed. As a result, there The patrocinadores, who are mainly West Africans, was an influx of at least 50,000 illegal miners fund the mining and buying operations, pro- insufficient royalty income from the mining into the Lunda diamond provinces, with about vide mining equipment, and sometimes food, ventures. Illiteracy in the rural areas is very high $500 million worth of smuggled Angolan dia- medical supplies and other necessities. In and a generation of adolescents has grown up monds flooding the open markets and con- return they buy the diamonds, or exchange with no education or training, except in the casino tributing to a major financial crisis for De Beers. goods for diamonds. Through this system min- economy of illicit mining. 6 In October 1994, a new Diamond Act was ers obtain perhaps five or ten per cent of the In the Lunda provinces, the UN Office for passed, revoking the 1991 law, which had led to value of the diamonds they dig. They may Humanitarian Affairs (OCHA) found almost chaos in the diamond mining areas. A decision receive $50 for a stone – a price well below 100,000 IDPs and estimated that a further was reached to allow artisanal mining to con- 300,000 people in the region had been dis- tinue, but to integrate the illegal mining and market value – and then $40 will be deducted placed by fighting in 2001. selling into the system, over time. Under this as payment for overpriced equipment and sup- law, there is a framework for artisanal mining plies. It is the local equivalent of the company under license in special protected zones, allow- store, ensnaring workers in a permanent debt Expulsion of ing access to deposits that are not commer- trap. It is also illegal; under Angolan law, the cially viable for industrial-scale companies. patrocinador should pay the miner 50 per cent of Congolese Miners Licenses were awarded by the state diamond the value of the diamonds. The expulsion of tens of thousands of Congolese company, Endiama. Mining companies were Given reports of as many as 400,000 garimpeiros legally responsible for ‘policing’ the artisans miners from Angola in 2003 and 2004 has cre- in Angola and the $252 million of artisanally- who worked on the edge of their concessions, ated a refugee crisis and has brought issues and for moving illegal miners out of their con- produced diamonds bought by ASCorp in 2003, around wildcat mining to the fore, as the govern- cession areas. If captured, they were handed each miner would on average have earned an ment began to apply a military solution to the over to the National Police, who reportedly income of US$351 if the patrocinador paid the problems of illegal mining. It is estimated that often released them on payment of US$50. amounts legally due. Angola’s gross national there have been between 270,000 and 400,000 Only local residents who have lived in the dia- income per capita is estimated by the World illicit miners in Angola during the last 12 years, mond areas for five years or more have the right Bank to be $650 per capita, a number inflated at least 80 per cent of them Congolese by to become artisanal miners. A license gives them by the country’s oil and diamond resources. nationality. The numbers increased, following the right to work in groups of up to five people, An estimated 35 per cent of the population, the end of the war in 2002. In December 2003, although only a tiny proportion of the garimpeiros however, lives on less than a dollar a day, in Angola are actually licensed. This arrange- the FAA (Forças Armadas Angolanas), working with ment will remain the basis of artisanal mining roughly what the average miner might earn if he the national Police and Migration Services, was under the new law, with miners working on the was treated fairly. In other words, fair prices – ordered to expel illegal aliens on the basis of edge of company concessions. However, it is almost never enjoyed by the miners – result in a threats to national security and territorial envisaged that there will be only small numbers life of absolute poverty for most diggers. integrity.

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The conditions of the expulsion resulted in a had caused hostility towards Angolans who water intensive, since water is used to wash the refugee crisis in the DRC, and strained relations depended on neighbouring Congolese markets final gravels and separate the diamonds. between that country and Angola. The first major to purchase food and other necessary items. Unlike other forms of mining, diamond mining waves of some 25,000 illegal Congolese miners An estimated 17,000 Angolans were affected produces little toxic waste. The only toxicity is were expelled in 2003, followed by another 10,000 according to WFP.9 through the use of dense media separation in February 2004.7 In April, the UN Office for the (DMS) chemicals, used in some treatment Coordination of Humanitarian Affairs (OCHA), plants. Kimberlites present a different set of reported the arrival of 68,000 exhausted Congolese Mining Companies and environmental problems. The Catoca kimberlite in the DRC border provinces of Bandundu, mine was built to leave as small an environ- Kasai Occidental, Kasai Orientale and Katanga. Social Responsibility mental footprint as possible. At present, it uses Estimates suggest that approximately 100,000 All mining companies are obliged by their con- mechanical crushers rather than dense media illicit miners had been expelled from Angola by tracts with Endiama to carry out social projects, separation (DMS).The next stage of the project mid 2004, less than a third of the estimated total. and in the absence of direct state investment and will use a DMS gravel treatment plant, however. UN agencies, Human Rights Watch and development in the diamond areas, they tend to Environmental plans for future kimberlite Médicins sans Frontières have publicized their con- be the main providers of any infrastructure. All of mines in Angola, and any possible problems cerns about abuses reported by returning miners, the towns in the Lunda provinces, such as Lucapa with the ores, are not yet known. including rape, body cavity searches of both and Dundo, were originally built as diamond min- Mining environmental issues are regulated sexes for hidden diamonds, and general brutality. ing centres. Today, however, much of the old infra- by Article 21 of Angola’s Mining and Geological A human rights group, Voix des Sans Voix, or Voice structure – roads and bridges in particular – has law of 1992.10 Responsibility for protecting the of the Voiceless (VOV), raised the alarm over been destroyed, several times over. Hospitals are environment, including water supply and vege- in an extremely poor state. The loss of income to tation, the wildlife and – not least – the health Endiama through the closure of mining projects and safety of people who may be affected by due to war has been substantial. The question mining operations, lies with the mining and now is how much income from increased mining prospecting companies. The law is not, however, will be invested back into the Lundas, rather than specific in stating what practices are required in the capital, Luanda. from mining companies to achieve these ends; Social projects typically involve agricultural for example, environmental restitution at the production that also supplies foodstuffs to the end of the life of a project. These questions are mines, literacy, skills, training for employment covered – or not – in each company’s contract. and health posts. At the Catoca mine, the man- Mining and prospecting companies may pay agement has acknowledged that initially there indemnities if they are found to have failed in their responsibilities, and are subject to inspec- Environmental Devastation was bad feeling in the area because local peo- ple had been dispossessed. The mine manage- tion by the Ministry of Geology and Mines. alleged abuses soon after the first major expul- ment improved relations with sobas (local Angola has a history of diamond mining sions took place. VOV reported that Angolan chiefs), began developing a school and a med- stretching back almost 90 years, so the effects troops and civilians had subjected many of the ical centre, worked with the local church to of long-term mining are a known quantity. Congolese to beatings and death threats. develop agricultural projects and is running a As elsewhere, colonial mining companies did Protests from the government of the DRC training centre for local workers so they can be not institute environmental clean-up operations led to an agreement between the two countries employed in the mine, which had initially cre- at the end of the life of a mine. It is possible, to that expulsions would be handled in a more ated 1,100 jobs. Although such projects improve see the remains of old mining operations across co-ordinated and less repressive manner. conditions for the immediate communities, most of the Lundas. Although the government of Angola has made they are not sufficient by themselves to com- The most obvious environmental effect is it plain that the expulsions will continue, pensate for the overall lack of social develop- that of diverting rivers to expose and mine dia- Angola has acknowledged the military brutality. ment in the region. monds in the rivers’ bedrock, a method of min- “These excesses provoked harmful repercussions, ing pioneered in Angola during the colonial era. which we regret, and for which we offer a public This requires the creation of a canal and the apology,” said Angola’s Interior Minister Environmental Issues damming of a short section of the river. At the Osvaldo Serra Van-Dunem.8 One of the reper- end of the mining operation, the dam is, or cussions was a desperate food shortage among Mining, by its very nature, significantly alters should be, broken and the river returned to its returning Angolan refugees in Malanje Province, the landscape. Diamond mining is a large-scale bed. The remnants of many river diversions can unable to access markets just across the border earth moving operation – at least a tonne of be seen from the air, across the Cuango, in the DRC. In June 2004, the World Food material is typically moved for less than a carat Luachimo and Chicapa river systems. Programme (WFP) said the Angolan govern- recovered. The material removed is stored in Evidence of long-term detrimental impact on ment’s forced repatriation of Congolese nationals waste dumps. Diamond mining is also extremely the riverine environment in the form of scientific

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studies is lacking. However Angola’s climate reliable statistics from diamond importers deposits straddle the border with the DRC, as and rich soils tend to revegetate mined areas elsewhere, an accurate assessment of today’s do the smugglers. And better diamonds from naturally over time. At present the mining law smuggling levels is not possible, but with over the south of Angola can be hard to distinguish does not require an environmental impact 300,000 illegal miners at work, there is no rea- from Namibian gems. assessment prior to the commencement of son to believe that smuggling has not contin- mining operations. This would provide a base- ued at relatively high levels. line against which a measurement of effects on Smuggling may, however, have declined in the environment could be made. Nor is there the last two years, with the end of the war and Transparency and any recent scientific study in Angola of the the exhaustion of the more accessible deposits. Corruption in the longer-term effects of alluvial mining on the Greater illegal semi-industrial mining has been Diamond Sector environment, or on the vast river systems. recorded, both in the Cuango and in Bié. While Industrial mining companies, which are in a the mass deportation of diggers and buyers is Corruption in Angola – placed in sharp relief by position to adhere to current norms of good aimed at reducing illegal digging and smug- the country’s oil and diamond wealth and by practice in mining, have not been the most sig- gling, the government’s capacity to stop diggers the contrasting terrible poverty of its people – nificant players in altering the environment in returning is limited. Several mining operations, has become a major focus of attention for the last few years. The single most detrimental on whose fringes diggers may operate legally, many NGOs, journalists and governmental aid known effect of alluvial mining, in whatever have yet to move into their concessions. Cleared organizations. Detailed reports on corruption form, is the exposure and spreading of Kalahari garimpeiro areas are presently guarded by the have been published in recent years by Global sand, which is a sterile, billion year-old deep FAA and National Police. Witness, Human Rights Watch, Catholic Relief overlay on many diamond deposits, lying There is thought to be considerable smug- Services and others (although mainly with ref- under the top-soil. This sand is exposed by gling from areas where there are no buying erence to oil).Transparency International has mining. In properly run industrial operations, offices. ASCorp had an office in Bié only briefly consistently placed Angola among the ten sand and gravels are formed into waste tips and has concentrated its buying in the Lundas most corrupt countries in the world. The gov- and can be revegetated at the end of mining. and Malange. Diamond from Bié and the south ernment of Angola has reacted angrily to these Uncontrolled alluvial mining, however, has had reportedly move through Namibia into South charges, saying that governance was negatively the largest impact on the environment in the Africa. Apart from the absence of buying affected by the conflict and that it is just com- last decade. The thousands of pits and the offices, there are two other motives for smug- ing out of a 40-year war. A January article in sand dumped from them have turned vast gling diamonds from Angola: avoidance of The Economist, however, stated that “No one accepts areas into moonscapes. In addition, the wash- Angolan taxes, sometimes in favour of a country these excuses any more”11 ing of diamonds in rivers, small paddocks and with lower taxes, such as the DRC; and avoid- As in Angola’s oil sector, transparency in mining at the rivers’ edges all displace mud ance of identification by the authorities. the diamond sector is also an issue for the into the water and increase turbidity. This may ASCorp has not only paid the lowest prices it International Monetary Fund. The IMF sees kill fish stocks that feed local populations, and could negotiate, those selling to ASCorp were generic problems in the country’s overriding pollute the local water supply. The rivers tend required to register with the authorities. With lack of internal controls and its incomplete or to be fast-flowing and they do clear themselves, dealers outside Angola offering better prices, inadequate accounting of central bank foreign however a study of fish stocks in the rivers has especially for larger stones, it is not surprising assets and liabilities.12 The latter inevitably not been undertaken. that smuggling continued. A new open market affects the diamond sector as the second for- The environmental impact of diamond mining buying system will not make a significant differ- eign currency earner after oil. A weak statistical in Angola needs to be properly studied before ence without additional controls. The current system was also identified as problematic. clear conclusions of effects beyond the cosmetic worldwide shortage of rough diamonds will push Membership in the Kimberley Process means can be drawn. Certainly the development of prices up, and will likely encourage smuggling as that diamond export figures should be avail- other forms of mining that have a more toxic dealers compete for supplies. able quarterly, although as of mid 2004, Angola impact should lead to revisions of the minerals law. It is unlikely that Kimberley Process has had had provided no statistics to the Kimberley much effect on smuggling so far, because of the Process for any of the previous five quarters. lack of internal controls in other countries. In accordance with an IMF agreement, a first Smuggling The UN Expert Panel identified Tanzania, Guinea, phase diagnostic and feasibility study of and the DRC as important routes for diamonds Endiama was carried out by Price Waterhouse Diamonds smuggled from Angola have pro- from Angola. Other destinations undoubtedly Coopers. Completed early in 2003, it provided vided a substantial proportion of world supply include the Central African Republic and Angola’s Ministry of Finance with a technical since 1991. Industry figures placed diamond Congo-Brazzaville. Smuggling directly into a and commercial overview of the diamond production in Angola, including legitimate pro- cutting centre is another option, as is smuggling industry. Among the measures it was expected duction, at close to $1 billion in 1996, although into a country which is not a participant in the to address were monitoring and review of dia- at that time, official exports were less than Kimberley Process. A further complication mond production and revenues, procedures 15 per cent of this amount. In the absence of relates to identification. Angola’s diamond and structures in Endiama and the capacity of

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Endiama’s partner companies. A separate audit Under the new system, diamonds from the of Endiama was also carried out. Endiama The Kimberley Process: eight currently operating official mines are sent reviewed the initial report in July 2003, however Compliance in Angola directly from the mines to SODIAM. Sales nego- progress in dealing with recommendations has tiations take place there between the companies’ been slower than expected. Angola was the first country to implement a valuators, SODIAM and Diamond Counsellor Perhaps the most important issue relating to certificate of origin system for diamond exports, International, the official government valuator. transparency and corruption recently has to do following United Nations sanctions on UNITA’s SODIAM then exports the diamonds. Diamonds with reports that the President’s daughter, diamond trading in 1998 and the launching of from the artisanal sector will now also be sold investigations in 1999. The first UN report on Isabel dos Santos, is a hidden shareholder in through SODIAM. sanctions violations concluded that lack of TAIS, one of the partner companies in ASCorp, At present, however, there is no system for meaningful controls within Angola facilitated and was said to be a shareholder in RDR, one of determining the origin of diamonds from this UNITA’s trading of illicit diamonds, and recom- the main buying companies closed in 2000. mended changes to the existing certificate of informal sector, beyond the records kept by Since TAIS is a Swiss company, its beneficial origin system. These were implemented at the buying offices – an incomplete paper-based owners can remain hidden. Although Angola beginning of 2000. The object was to make the system. The generic culture in this type of dia- plans to open a stock market, there are well exclusion of conflict diamonds verifiable, mond buying is one of “no questions asked”, as established methods everywhere for concealing replacing the previous “wide-open system”. the objective is to buy better diamonds at the the identity of shareholders in publicly quoted The country thus became a test case for dia- lowest possible prices. However, if the govern- companies. The same problem of identifying mond controls in government-controlled areas. ment is successful in reducing the numbers of ownership applies to mining concessions ASCorp was established in 2000 to enhance miners to its proposed level of 10,000, the sec- allegedly awarded to Futungoists – elite supporters compliance with UN sanctions, by providing a tor will not be able to support many internal of the government. Awards to companies with system that would tighten up Angola’s certifi- buyers, and regulation may be less difficult. private military links and to Angolan companies cate of origin system, and ensure the exclusion Proposed control mechanisms for artisanal run by former or serving FAA generals have also of UNITA diamonds. The procedures were never miners have yet to be put in place, however. been severely criticised, though this appears to fully implemented, however. They were moni- One of these will restrict small miners to the be a diminishing problem. tored for their effectiveness by the UN, which fringes of industrial mines. The mines will be ultimately concluded, in late 2002, that “exist- Both the UK-led Extractive Industries responsible for controlling the miners. But it is ing controls fall far short of those envisaged for Transparency Initiative (EITI) and the NGO not clear how deposits will be protected diamond purchases”. “Publish What You Pay” Campaign have focussed against re-occupation in areas where mining With the ending of ASCorp’s contract in on publication of payments to government and has not yet begun or in areas where no conces- 2004, control of exports has now passed to 13 state-owned entities, and on signing fees. In the SODIAM, which will be the principal player in sions have been awarded as yet. diamond sector, signing fees to partner compa- this aspect of Kimberley Process (KP) controls. Although it is intended that miners will be nies may be payable but are not always pub- The Minister of Mines has stated that the registered, it is not clear what controls and lished. Where these are known, they have ranged change is part of a move to stop clandestine licenses are planned for the buying structures between US$50,000 and US$200,000. Additional prospecting, in line with Kimberley Process in order to establish a chain of warranties from financing may come in the form of loans or requirements. The government has repeatedly the mine to the buying office. Prior to the consultancy fees from foreign joint venture part- stated its intention to become a KP pioneer in ASCorp monopoly, many buying companies ners to concession holders or mining projects. the effort to halt conflict diamonds, but the used middlemen who often worked on a sub- Publicly listed companies normally publish methodologies for achieving this have yet to be contracted basis, and who were not required to some details of project financing. fully developed. be licensed.

The Kimberley Process The Kimberley Process Certification Scheme (KPCS) for rough diamonds Given the large volume of diamonds being traded across borders, it has came into effect on January 1, 2003. Over 40 countries, plus all those rep- also been deemed necessary to produce trade and production statistics resented by the European Community are members. Under the terms of which can be compared from time to time in order to ensure that the vol- this agreement, each participating country agrees to issue a certificate to umes leaving one country match those entering another. As of mid 2004, accompany any rough diamonds being exported from its territory, certify- Angolan statistics remained incomplete. A further general verification ing that the diamonds are conflict-free. Each country must therefore be problem exists: monitoring, which must be universal in order to be effec- able to track the diamonds being offered for export back to the place tive, remains a voluntary arrangement in the KPCS. Although many coun- where they were mined, or to the point of import. All importing countries tries have now volunteered for review visits, Angola is not one of them. agree not to allow any rough diamonds into their territory without an approved KPCS certificate of origin.

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As part of the chain of control, ASCorp did necessary chain of warranties, and whether dia- The policy during the war years was to legal- license ‘collaboradores’ (sub-buyers) who were monds will be bought direct from diggers, ize small miners, to license buyers, and to security checked and approved to ensure they shortening the chain and permitting clear iden- bring order into the diamond regions slowly, had no UNITA linkages. Controls were never tification of the source of the diamonds. using non-military methods. This was only par- fully implemented during the life of ASCorp, A new body, gazetted in December 2003, is tially completed and may never have been fully however, and the license for the computer- now responsible for implementing controls. possible, given the large numbers of illegal based system for registering dealers expired in The Corpo Especial de Fiscalização e Segurança de miners and buyers. The more draconian meth- May 2003. The end of the registration system Diamantes (CSD) has a role which encompasses ods now being used, if successful, may help coincided with the end of the war and the lift- diamond security at every level of the system. The Angola to meet Kimberley Process standards. ing of sanctions, but it was also abandoned in CSD reports to SINFO, Angola’s co-coordinating These come at a human cost, however, and it favour of a more draconian solution to the intelligence organ, rather than to the diamond remains an open question as to how the new problem: expelling illegal miners in advance of authorities. Its wide-ranging mandate goes far systems will work to control illegal mining and establishing any new controls. So questions beyond questions of smuggling and Kimberley create a more secure, just and credible mining remain as to how the new buying structures Process compliance, and gives the CSD a crucial and trading environment in the process. will be managed in order to establish the role in the diamond sector.

Notes 1 Justin Pearce, Situation Report, “War, Peace and 5 Business Day (Johannesburg) 10 February 2004 10 Lei no 1/92 Lei das Activiades Geologicas e Minerais. Diamonds in Angola; Popular Perceptions of 17 January 1992 6 the Diamond Industry in the Lundas”, Institute Lei 16/94 dos Diamantes, Lei Sobre o Regime 11 for Security Studies, Pretoria, May 2004. Especial Das Zonas de Reserva Diamantifera, both The Economist, “The shameless rich and voice- published 7 October 1994 less poor”, 22 January 2004 2 Council of Ministers Resolution 20/99, 26/10/199 7 12 and Decree 7A/00 31/1/2000 UN Integrated Regional Information Networks International Monetary Fund, Public Information April 21, 2004 Notice 03/114, 10 September 2003, Washington 3 Brendan Ryan, “Tangled in Angola”, Financial 8 13 Mail, 1 August 2003 Statement: “Angola pledges probe into alleged See, for example, Time for Transparency: Coming violence”, AP 17 February 2004 Clean on Oil, Mining and Gas Revenues, Global 4 “Endiama apresenta provas contra a De Beers” Witness, London, March 2004 9 Angop, 30 September 2003 and Polished “Angola-DRC: Forced expulsion of Congolese Prices.com, 6 November 2003 results in backlash”, IRIN, 7 June 2004

Partnership Africa Canada thanks the many people Peace, the International Development Research Global Witness and institutions who assisted with time and Centre, Foreign Affairs Canada, Development http://www.globalwitness.org information in the preparation. We particularly Cooperation Ireland, the Canadian Autoworkers Institute for Security Studies thank Endiama and its partner companies and all Social Justice Fund, World Vision Canada and http://www.iss.co.za/Pubs/BOOKS/Angola those in Angola who contributed to this work. We others. The editorial content of the Annual also express our appreciation to the Angolan Review does not necessarily reflect the views of PAC can be reached at [email protected]. NGOs for their efforts on contributing to the col- the contributors or the sponsors of the project. lection of information. Further information can be found at the fol- Photo Credits & Copyrights: The Diamonds and Human Security Project lowing websites: Photos 2,4,5,6 - Christine Gordon; is supported by the Program on Global Security Photos 1,3 - Catoca Lda Partnership Africa Canada and Sustainability of the John D. and Catherine T. www.pacweb.org Disponible aussi en français. MacArthur Foundation, the Canadian International Disponível em português. Development Agency, the British Department for Mbendi – Angola Mining: Diamond Mining International Development, the Canadian http://www.mbendi.co.za/indy/ming/dmnd/af/a Catholic Organization for Development and n/p0005.htm

Copyright: Partnership Africa Canada, July 2004 ISBN: 1-894888-45-6 Design: SUM Incorporated Diamond Industry Annual Review : Republic of Angola