INVESTING IN ANGOLA MINING SECTOR 2012 - 2016 The Angolan mining industry Is focused almost exclusively on diamond extraction,

In addition, iron ore extraction, once a major export industry, is now recovering after a hiatus, during the civil war. Angola is currently the worlds fourth largest diamond producer by value and accounts for 7 to 9% of global production. The Angolan government is actively encouraging foreign investment in the Countrys mining industry, with the aim of exploiting and diversifying the countrys extensive mineral resources. Diamonds
Angola is the third largest producer of diamonds on the African continent. Exports were worth US$763mn in 2004 and (according to IMF figures) more than doubled in value to US$1.6bn in 2007.The main reserves have to date been Located in the provinces of Lunda Norte and Lunda Sul, but it is estimated that only 4050% of potential diamond-rich soil has been explored. The onset of peace in 2002 opened up vast new areas of the Country, formerly outside government control, for exploration and development. The principal means of extraction has been alluvial and kimberlite pipe mining (alluvial diamonds are found in the River basins, while kimberlite diamonds derive from volcanic rock). Successful kimberlite mining requires the use of heavy equipment and screening plants, demanding extensive capital outlay and the necessity of foreign investment. Angola has over 700 known kimberlite Pipes, aligned across the country in a south west to north east axis, extending up to the border with the Democratic Republic of Congo. Diamond reserves, including both kimberlite and alluvial fields, have been estimated at between 180 million and 200 million carats.

Diamond mines
There are several large diamond mines in Angola. The Catoca Mine, a joint venture involving Endiama with a consortium of international mining giants including Russias Alrosa, Brazils Odebrecht Mining Services and Israeli Lev Levievs Daumonty Financing, is one of the worlds largest kimberlite mines and represents more than 50% of the countrys total production. In 2009, despite difficult global economic conditions, the mine sold approximately 7 million carats of gems with a gross production value of over US$120mn.The Leviev Group is a major investor in Angolan mining. latter holding the largest share, equivalent to 36.4%), together with BP, Total and Italian energy company ENI. It is designed to develop and commercialise natural gas production in Angola. In 2007, Angola LNG Ltd entered into contracts with the Angola government and Sonangol to begin construction of a modern LNG processing facility at Soyo, approximately 300 Kilometres north of Luanda. Overseen by ConocoPhillips and Bechtel, the plant was due for completion at the end of 2011, with production expected to commence in the first quarter of 2012. The figures are impressive: Angola LNG can potentially supply one billion cubic feet of gas per day, derived from offshore oil fields and, in particular, by the projected 10 billion cubic feet of gas reserves to be found in offshore blocks 0, 1, 2, 14, 15, 17 and 18, equivalent to 20 years supply. While overseas customers in the US,

South America and Europe will necessarily provide the initial market focus, it is anticipated that 2.1 million cm (cubic metres) per day will be supplied for domestic industrial use, underlining the projects importance to the Angolan economy. The Soyo complex will have an LNG capacity of 5.2 million tonnes/year (6.8 million cm a year); 360,000cm of LNG, LPG and condensate storage; and a loading jetty designed to accommodate ships up to 205,000cm.Chevron has separately invested US $1.9bn into the Sanha condensate project in Block 0, primarily designed to re-inject gas. However, once the Soyo plant comes online, it is anticipated that significant volumes of LNG will be extracted. The FPSO on site is thought to be the worlds largest. Angola LNG will be the largest single investment ever made in Angola. The Angolan government is pleased to lend its support to this project, which will create significant new employment and economic benefits for the country stated Desiderio da Costa, Angolan Minister of Petroleum The project will provide [for] the utilisation of natural gas which otherwise would be flared in our offshore oil producing areas. This creates the environment for sustainable oil development, and will be the starting point for establishing a natural gas-based industry in Angola stated Manual Vicente, Chairman of Sonangol. in the alluvial projects at Yetwene, Luremo (in the northern Cuango area) and Milando (in Malange province). The Fucauma diamond mine is another large mining operation, still under construction in the Lunda Norte province of Angola. The mine is also owned by an International consortium. The largest alluvial mining operation is the Luzamba project, in the Cuango valley, a joint venture between Endiama and Odebrecht Mining of Brazil. Diamonds have also been prospected in the Bi, Cunene, Huambo Huila, Kwanza- Sul, Malange and Zaire regions. Iron ore Iron ore was mined at Kassala-Kitungo and Cassinga from the mid-1950s until the mid-1970s and iron ore constituted One of Angolas principal exports at that time. However, mining had all but ceased by the 1980s as result of a combination of technical issues at the Cassinga mine and transportation difficulties brought about by the destruction of the main railway to the iron ore port at Namibe during the civil war. Ferrangol, the National Iron Ore Company of Angola, was formed by the government in 1975 to deal with the exploration, mining, production and marketing of iron ore and manganese. Ferrangols initial focus was the refurbishment of facilities at Cassinga, which had moved back into production by the early 1990s. However, exports did not recommence until the end of the civil war facilitated the full reinstatement of the railway to the coast. Angola now plans to resume iron ore output in its south western Huila province within the next two years. Gold and other precious ores The existence of the following additional mineral deposits in exploitable quantities have been identified: copper, gold, lead, manganese, tin, uranium, wolfram, zinc, phosphates, granite, marble, asphalt, gypsum, talc, mica, feldspar, fluorite, sulphur, quartz and kaolin. Of the worlds 45 most important traded minerals, 35 have been found in Angolan soil. Endiama Endiama (Empresa de Diamantes de Angola) is the state-owned national diamond mining company, established after independence to replace its Portuguese predecessor, DIAMANG. It controls all Angolan diamond mining and associated activities, is the largest single shareholder in all mining ventures and diamond trading, and enters into joint ventures with private companies to further exploitation and development of the sector.

All diamonds produced in Angola are sold through Sodiam, one of Endiamas subsidiaries. Sodiam has a network of international offices and, as Angolas official export authority; it is responsible for the preparation of Kimberley Process Certificates for all diamonds. The Kimberley Process Certification Scheme (KPCS) was introduced by the United Nations in 2003. KCPS is the process designed to certify the origin of rough diamonds in order to prevent blood diamonds from entering the global marketplace. It was established to assure the rough diamond market that traded diamonds were not financing conflict or human rights abuses. In 2004 the Angolan government also established the Diamond Security Corporation (CSD) to counteract illicit diamond trading within Angola. Investment environment Many companies now working in Angola enjoy incentives in the form of tax or duty waivers. Diamond exploration and production rights are granted for limited time periods and only as partnerships between private companies and the state-owned national resource body. In the case of diamond mining rights which normally last three to five years, with the prospect of extension Endiama is the exclusive concessionary. Investment in diamond mining must be accompanied by the injection of resources designed to benefit local communities, for example in building schools or providing hospital equipment. In addition, an Environmental Impact Study must be approved by the Ministry of Environment prior to licensing. All exploration and production contracts, as they require concessions, must be approved by the Council of Ministers and the Ministry of Geology and Mines. The Ministry is currently seeking to streamline approval procedures, and reduce the bureaucracy associated with the mining sector, to facilitate inward investment. Diversification The government has under taken measures to reduce the extraction sectors dependence on diamonds, seeking to diversify the existing mining base into metals and phosphates, and to rejuvenate iron ore and manganese production. Angolas Geology, Mining and Industry Minister Joaquim David recently forecast that the mining sector could, with the assistance of overseas partners, attain the level of development of its oil sector in 15 to 20 years. Speaking after a positive meeting with Anglo-Australian group Rio Tinto, one of global minings major players, the Minister declared; The meeting was positive and soon we could have this group operating in Angola. Discussions encompassed Angolas diamond potential, investment opportunities and diversification of mining resources including gold, copper and bronze. In other developments, the Mavoio copper mine in Uige province is to be reopened, and gold has been found in Chipindo in Huila province, where iron ore mining is also due to resume. Diamond polishing Angola now processes some of its diamonds domestically to add value to its exports. The Fbrica de Lapidao de Diamantes (Angola Polishing Diamonds) reportedly polishes raw materials worth approximately US$20mn every month, supplied by (Endiama subsidiary) Sodiam. The Future of the Industry The potential for development of the mining sector is vast, underlined by the increasing interest of China (now the current projects In the last decade, South Africas Trans Hex Mining expanded into Africa by acquir ing a stake in three diamond projects in the Lunda Norte province of Angola, approximately 1,000 km northeast of Luanda. Trans Hex launched pilot production of a new mine in Luana in 2010, expected to reach production of 31,000 carats within a year. Since 2005, De Beers, in conjunction with Endiama, has invested US$150mn in exploration and prospecting in Lunda Norte province alone

12 probes are in place, supported by a laboratory to analyse kimberlites. A second laboratory is sited in Luanda province. De Beers also has concessions in Malange and Cuando Cubango. In July 2010, the Luxinge project in Cambulo in Lunda Norte was launched, expecting to produce 4,000 carats per month for a period of six years. The Lulo Diamond Concession is a highly-regarded 3,000km diamond concession which Australian-based diamond exploration and development company Lonrho Mining (formerly NARE Diamonds Ltd) is developing in association with Endiama, following the commencement of a joint venture announced in 2007. Lulo is a surrounded by concessions (including Alto Cuilo and Luange) which are operated by the largest diamond companies in the world, including De Beers and Alrosa (Russias largest diamond company, which is also expected to expand operations in Angola in the next few years).The work programme encompasses a proposed aero-magnetic survey, followed by bulk sampling and drilling. Lulo contains 29 known kimberlite pipes as well as artisanal alluvial mining prospects within the concession. Recent discoveries have included diamonds of remarkable size including a 22.25 carat rough diamond in 2010. In October 2011, Lonrho announced its most impressive results to date, reporting an average ore grade of 31.86 carats per 100 cubic metres. Scandinavian mineral resource developer IGE Resources is expanding its Cassanguidi Mine project, with the aim of almost doubling current diamond production to 5,200 carats per month. Biggest buyer of Angolan diamonds, having overtaken the U.S. in 2010) and South Africa in the countrys diamond reserves. The global financial crisis had caused diamond prices to drop significantly, resulting in the closure or mothballing of several smaller mines as world prices dropped. As a consequence, Angolas diamond revenue fell from c.US$1.2bn in 2008 (valued at US$136 per carat) to c.US$800mn in 2009 (at US$87 per carat). However, as the international diamond market recovered in 2010, a number of mines reopened and new exploratory ventures commenced; an upturn in production increased annual revenue to US$950mn. The improving economic environment also attracted increased investment in transport infrastructure in the principal diamond-producing areas. Angolas diamond production was expected to reach 10 million carats in 2011, a recovery which would produce revenues equivalent to 2008s record levels, and 11 million carats in 2012. In 2012, production is projected to rise to 12.8 million carats, which, at an estimated US$140 a carat, will equate to revenues of US$1.792bn. Between 2011 and 2015, average production growth in the mining sector as a whole is expected by Business Monitor International to be approximately 6.8% per annum; at the end of that period, it is estimated that the worth of the entire mining sector will be in the region of US$7.5bn