ALROSA defrosts African diamonds

Rough and Polished

ALROSA is seriously mulling over the resumption of its business in Africa, which was virtually frozen in 2009. The Kommersant Daily learned that the Russian diamond monopoly is currently in talks with the Angolan authorities on a joint venture to explore for new primary deposits in this country outside of the Catoca Project, where it already owns 32.8%. ALROSA plans to establish similar joint ventures in Botswana and Zimbabwe. The high political risks associated with this area forced the diamond miner to focus it efforts on projects in the field of exploration, which do not require large-scale investments.

Angola first…

The Kommersant was told about the plans of ALROSA to expand its presence in Angola by a source close to the diamond company. According to this source, ALROSA has already held preliminary talks with Endiama (representing the interests of the Angolan state in all diamond projects) on a joint 50/50 venture, which will be engaged in exploration beyond the Catoca Diamond Field. “It’s about searching for new primary diamond deposits in the north-west of the country on the border with the Congo, where there are a lot of promising areas,” the source said to the Kommersant, adding that ALROSA had previously discussed the possibility of acquiring prospecting licenses for the JV in the Cuanga and Luminash areas. Today, this will be a key topic at the talks in Luanda between Fyodor Andreev, President of ALROSA, and Angola’s authorities, including Endiama, the source told the Kommersant.

Yesterday ALROSA confirmed to the Kommersant that Mr. Andreev was on a visit to Angola, during which he was “going to meet with the leadership of the country and the mining industry.” The company refused to give any other comments to this effect.

Currently, ALROSA’s business in Angola is actually reduced to the Catoca Project, where it owns 32.8%. Sociedade Mineira de Catoca was established in Angola in 1992 to develop the eponymous kimberlite pipe. The partners of the Russian company were Angola’s Endiama (32.8%) and Brazil’s Odebrecht (16.4%). In the late 1990s, ALROSA sold an 18-percent stake in the project to Israeli businessman Lev Leviev, who sold his share two years ago for $ 400 million to Hong Kong based China Sonangol International Holding, the largest buyer of Angolan oil. ALROSA, being a shareholder of Catoca with preemptive rights, is still refusing to go with it. Yesterday, the Kommersant’s source in ALROSA said that the company is still interested in acquiring shares previously held by Mr. Leviev.

ALROSA offers its partners in Catoca to create a council on geology at the administrative council, the main governing body of this entity, to supervise the entire exploration activities in the Catoca area, the source added. Finally, ALROSA plans to cooperate with the Angolan side with a view to develop the national program to assess the diamondiferous potential of Angola initiated by the country’s Ministry of Geology, the source said, adding that Endiama was behind the move to attract ALROSA as a methodological manager and executor of the program. Catoca appears to be a gainful project for the Russian company, which is annually getting about $ 30 million in dividends.

And then Botswana and Zimbawe

According to the source, ALROSA’s plans in Africa are not limited to Angola. At a meeting last week, the Committee for International Affairs of the diamond mining company made public a report, in which Botswana, the second largest diamond producer after Russia, and Zimbabwe were also mentioned as priority targets for expanding business.As for Botswana, ALROSA is considering a joint venture with Botswana Diamonds Plc (Editor’s Note: a public company listed in London), which holds 13 prospecting licenses in the country, to explore for new kimberlite bodies. In case they will be found we shall apply for concession,” the company’s source said, pointing out that ALROSA’s expenses in this country are estimated at about $ 1 million for the next year.

In Zimbabwe, ALROSA is looking for a partner to create a similar venture for geological exploration of diamond bearing areas within the Marange alluvial diamond fields. “ALROSA is pursuing a more cautious approach while choosing a project in this country: this summer Zimbabwe will have presidential elections that could dramatically change the political situation,” the source noted. Robert Mugabe, being the president of Zimbabwe since 1987, is one of the oldest state leaders in the world (he is 89), whose regime is considered dictatorial in the West. The European Union and United Stated imposed sanctions against a number of Zimbabwe’s state-owned companies.

Angola is one of the few places in the world where there is a high probability to find primary diamond deposits. The only problem is political risks which are increasing from day to day in this area: the echoes of the Arab revolutions have already made it to the center of Africa,” Sergei Goryainov, an industry expert of Rough&Polished said. A week ago, the Central African Republic suffered a military coup. In this context, ALROSA, in his opinion, shows a more rational approach to the selection of African projects: “Earlier, ALROSA used to enter Angola offering large investments and favoring large-scale capital-intensive projects with non-obvious economic benefit. Suffice it to mention the extremely costly projects in diamond mining like Luo or building a hydropower plant on the Chikapa River. Now ALROSA follows a more measured approach, which in this situation is justified from all points of view.” Recall that ALROSA’s subsidiary, Escom-ALROSA Ltd owns a 45% interest in Luo-Camatchia-Camagico established in 2002, which is now exploring the Luo Diamond Field. In 2009, ALROSA froze its participation in this project, in which it had invested over $ 100 million.

Source Rough & Polished