Preliminary data for the first quarter of 2010 released by ALROSA shows that Angola’s Catoca diamond mine posted a net profit of over 70 million USD in 2009, down from 104 million USD recorded the previous year.
This revelation was interesting given the havoc that was caused by the global economic crisis in the diamond industry, which saw several producers and polishers shutting down their operations, while others were forced to put their operations on care and maintenance.
De Beers was one of the mining companies that were forced to downscale, as it shut down its mines in Botswana for the first few months of 2009 to support a recovery in demand and prices. It did the same in Namibia and South Africa.
De Beers has since reported an operating loss in 2009 after effectively halving its production though it now expects to return to profitability this year.
According to the International Diamond Exchange, the polished diamond price bubble peaked in August 2008, and then burst quickly along with the sharp decline in global financial markets.
Diamond prices tumbled at the end of the first quarter of 2009, and “languished” for the rest of that year until December when the market shifted upwards.
Despite reports that Catoca mine, the fourth-biggest diamond mine in the world, had planned to reduce its production in 2009 and had also stopped its exploration activities on December 11 2008, the mine went on to exceed its rough diamond production and sales targets for the year.
The mine, which is 32.8 percent owned by ALROSA, had a healthy balance sheet at a time Angola’s overall diamond production fell to about 7 million carats compared with a record 8.9 million carats realized in 2008.
The 70 million USD net profit realized, exceeded the 12.8 million USD profit, the company had initially projected.
Reports say the construction of the Chicapa hydropower plant (HPP) had ensured sustainable energy supply of Catoca thereby reducing costs related to diesel fuel deliveries from the capital, Luanda.
The mine’s cost cutting measures saw it maintaining its workforce despite the weak diamond market that wreaked other diamond firms.
Catoca‘s Ganga Júnior said the global economic downturn created an opportunity for the company to strengthen its work mechanisms and improve its activities. Júnior said just like other diamond producers, Catoca had adopted cautious measures to minimize the devastating effects of the crisis and these included cost reduction, as well as maintain levels of production and manpower.
Catoca, which sold 6.3 million carats, in 2008 up from 6.1 million carats in 2007, had projected its operating costs to reach 252 million USD in 2009.
Despite reports made by Endiama's marketing and communications director Sebastiao Panzo that Angola's diamond industry was in the doldrums with 10 of the 14 diamond operations in the country's Lunda Sul region closing down, Catoca was among the four that remained operational.
It is surely, not a fluke that the company recorded a net profit of over 70 million in 2009.
Clearly, the company’s drive to reduce expenditure and maintain production levels paid dividends.
Even though others scaled down operations, Catoca indicated that it would begin operation of the second module of ore processing in 2009 and this was expected to double its diamond production to six million carats.
"With the entry into operation of the second module, during the first quarter of this year, we have moved from a production capacity of three million carats per year to six million," revealed Junior was quoted as saying by Angop.
The second module was also expected to double the capacity of ore processing, moving from four million tonnes per year to about eight million tonnes.
The reserves of Catoca diamond are estimated at about 190 million carats, which may generate revenue of 11 billion USD.
The operation is the largest producer of diamonds in Angola, accounting for more than 60 percent of the national diamond production and about 40 percent of revenue in the sector.
The mine's production is said to be 35 percent gem quality, compared to a global average of 20 percent and the diamonds produced at Catoca are said to have an average value of 75 USD to 100 USD per carat.
With the rough market slightly bullish because of the shortage of supply and continuing strong sales in the Far East, India, and America, which traditionally was the biggest diamond market in the world, one hopes Catoca will double its earnings to beat or at least reach the 104 million USD it accrued in 2008.
Mathew Nyaungwa, Rough&Polished, from Namibia
