Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO) has finalized a joint venture with Angolan state-owned diamond company Andiama EP to develop the Chiri mine, leading to a project expected to become the country’s third-largest gem producer.
The new entity, Sociedade Mineira do Chiri, formalizes Rio Tinto’s operational control over the assets. According to one, the London-based miner will hold a 75 percent operating stake in the venture, with the Angolan state retaining the remaining 25 percent through Endiama. Bloomberg report.
While the ownership structure is determined, it was noted that no capital expenditure has been allocated for the project yet.
The partnership was formally established last week in Angola’s diamond-rich eastern region.
Mineral Resources Minister Diamantino Azevedo told reporters in Luanda on Monday that the venture follows Rio Tinto’s initial exploration work, which yielded promising kimberlite results after the company won the concession “some time ago.”
Angola, Africa’s largest diamond producer, is in the midst of a counter-cyclical economic policy. While falling commodity prices typically prompt miners to cut supply to establish price levels, Luanda is deliberately expanding production to protect its revenues and maintain market share.
The Angolan government has set a national diamond production target of 16.2 million carats for the current year, an increase of 7 percent year-on-year. State estimates initially pegged an average price of US$150 per carat to generate approximately US$2.43 billion in annual revenue.
However, market dynamics have forced the average price per carat into the low US$100 range in recent months.
The rapid proliferation of lab-grown diamonds, which are chemically identical to mined stones but trade at steep discounts, has permanently changed consumer spending habits.
At the same time, the sluggish economic recovery in China has suppressed demand for luxury jewellery, increasing the existing global supply of stones.
The limits of Angola’s volume-driven strategy were evident in its last fiscal year. While national diamond production increased by 70 percent, total revenues increased by just 6.7 percent, underscoring the severity of the price decline.
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Securities Disclosure: I, Gian Liguid, do not have any direct investment interest in any of the companies mentioned in this article.
