Professional Jeweler Archive: Lev Leviev's Angolan Connection

February 2002

Diamonds/News


Lev Leviev's Angolan Connection

Part 2 of an in-depth profile reveals the details of the diamond tycoon's most controversial investment


Angola’s diamonds remain at the center of a debate regarding human rights violations and abject poverty. Drawn into the debate is Israeli-Russian businessman Lev Leviev, who markets Angola’s legal diamond production and holds a majority ownership of its only working diamond-bearing kimberlite mine.

Leviev’s goal, identified back when he was a fledgling Israeli diamantaire, was to tap directly into a diamond source and gain independence from the De Beers distribution system. “Nothing is stable unless you own your own mine,” he is fond of saying. While not everyone can own a diamond mine, Leviev set out to prove the concept of vertical integration could work. Since then he has shown that controlling diamond production from the mine to the polishing factory and beyond is both possible and wildly profitable. (For more on Leviev, his background and his businesses, see “The Discreet Tycoon,” Professional Jeweler, January 2002, p. 20).

Leviev’s moment to prove the concept arrived in 2000, as De Beers’ monopoly of world diamond supplies came under increasing pressure from maverick producers in parts of Africa, Australia and Canada. Even the future of Russia’s long-term relationship with De Beers was unknown as the country pondered how and where to distribute and market its diamonds (Leviev already cuts some Russian rough).

The Angolan government also began rethinking its relationship with De Beers and other diamond buyers. This occurred after De Beers stopped buying open-market diamonds in Angola in October 1999, concerned that illicit diamond trading that funded civil war could be tainting legal production. In early 2000, Angola created a single channel of distribution to control production. A new company, Angola Selling Corp. (or Ascorp), was formed to market rough diamonds bought from small- to large-scale mining operations and independent miners. Ascorp is a joint venture of Angola – which owns half – and Leviev and Omega Diamonds of Antwerp, Belgium, who each control about a quarter. Leviev, who reportedly sold the concept of Ascorp to Angola, came away with the job of marketing Angolan diamonds.

Connections

How Leviev arranged the Angolan connection is a matter of speculation. He says he presented Angola with a plan to reduce smuggling and increase revenue by funneling diamonds through only one source – and the government accepted the plan.

Others say Leviev’s friendship with Isabel dos Santos, the president’s daughter, and his connections with obscure Russian businessmen operating in Angola helped clinch the deal. Leviev dismisses these claims, preferring to focus on the benefits his relationship brings Angola. “The government of Angola has obviously profited from this venture,” Leviev says. According to his figures, in pre-Leviev 1998, Angola’s tax revenue from diamonds was under $10 million. But the Leviev era is different. Tax revenue from diamonds totaled $60 million in 2000 and was already at $49 million after the first nine months of 2001. Leviev says he expects that once Angola’s mining sector becomes more formalized and new ventures start producing diamonds, revenue benefiting Angola could exceed $100 million.

Angola is the world’s fifth largest diamond producer with nearly $700 million worth of high-quality stones annually, most of which are from widely spread alluvial sources and, therefore, harder to control. They are mined in hundreds of tropical riverbeds in Angola’s embattled northeastern Lunda Province near the Congolese border. Angola’s production from legal sources – not smuggled illegally or funding UNITA, with whom the government has fought a protracted civil war – is expected to pass $1 billion annually as the country curtails rebel control of diamond areas and the government formalizes its mining sector. (That figure may have to be revised given the global recession.)

Today, all legal buying inside Angola goes exclusively through a company called Sodiam, in which Leviev also owns a stake. Then the diamonds are channeled though Ascorp to reach the wider market.

The Ascorp deal effectively cut out all other diamond buyers in Angola. All contracts to market diamonds signed with Endiama, Angola’s previous state-owned diamond company, were declared void. The contracts included one with De Beers, which in 2000 finished a state-of-the-art diamond-sorting building in Luanda, Angola’s capital. In 1989, De Beers also loaned the Angolan government $50 million in exchange for an exclusive chance to buy diamonds from the diamond-rich Cuango Valley.

De Beers says it tried without success to seek legal redress and to sign new contracts at the highest levels of Angola’s government. Even though De Beers stopped buying open-market diamonds in Angola in October 1999, it kept an exploration team in Lunda Norte Province looking for kimberlite pipes that could be mined in the future. But De Beers says ongoing exploration with no real guarantees of tenure left little choice but to pull its team out of Angola, which it did in early 2001.

De Beers’ exit from Angola seems only to have consolidated Leviev’s grip on the country’s diamonds. He has since joined in a partnership with SouthernEra Resources Ltd. of Canada to develop a new mine called Camafuca, also in Angola’s northeast.

But even before the formation of Ascorp, Leviev says he proved his commitment to Angola by becoming a majority owner in the Catoca mine, Angola’s only working mine (alluvial sources are not considered mines). Today, it produces almost 25% of Angola’s legal diamond production by value ($153.2 million in 2000) and almost half the legal diamond production in terms of carats.

Perennial Issues: Conflict Diamonds and Poverty

Conflict diamonds, those bought and sold by Angola’s UNITA rebels to fund their civil war, remain a problem despite United Nations sanctions against UNITA and Angola’s attempts to abide by U.N. demands to control the diamond mining areas and establishment of a certificate-of-origin program.

Leviev acknowledges the problem. “This has been a very long story and a problematic project, mainly for Angolans and the Angolan government, which has lost millions of dollars to illegal activity for decades. We are doing everything we can to stop the flow of conflict diamonds, and we are 100% confident none go through the legal Angolan channels,” he says. “But we also know there may be loopholes where conflict diamonds are smuggled through Angola’s borders in areas that are difficult to control. We believe the problem is getting smaller, though, because UNITA has been removed from the main areas that produce diamonds. I also think the international certification scheme [being formulated by an international diamond industry team gathered for what is known as the Kimberley Process] will lead to better control.”

Leviev says Angola granted mining licenses to more than 1,000 hand-picked independent miners with no known connections to UNITA. Still, a troubling report by BBC “Focus on Africa” reporter Lara Pawson last year said some Ascorp employees freely admitted buying diamonds from independent miners who work for UNITA (Professional Jeweler, February 2001, p. 29). Leviev denies the charge, saying he is confident no Ascorp diamonds are tainted.

The U.N. appears to agree the problem has gotten better and that rebels have been ousted from diamond territories they once controlled. In a recent report on sanctions against UNITA, the U.N. says arms deliveries to UNITA have been reduced drastically. But the U.N. estimates UNITA still trades $90 million worth of conflict diamonds annually. While UNITA’s overall effectiveness appears to be reduced, it still remains capable of mounting serious surprise attacks in major Angolan cities, including the capital, Luanda.

Home Fires

Leviev’s work to help Russian Jews has been lauded (Professional Jeweler, January 2002, p. 20). But critics want to know what he’s done for the people of Angola – whether the average citizen reaps any benefit from the country’s great diamond wealth.

U.N. statistics on Angola are heart-rending: One in three children dies before age 5. Half the children are underweight. Fewer than half have ever been in school, and the majority of the adult population are illiterate. The vast majority of Angolans face a critical shortage of healthcare.

Leviev bristles at the suggestion his company may not be investing in the future of Angolans. From his perspective, Angolans are indeed benefiting, at least in projects where Leviev holds sway. “Mr. Leviev committed to Angolan President Eduardo Dos Santos that he would help develop Angola’s mining sector,” says Zakish Zimmerman, one of Leviev’s top associates in Angola. “The Leviev Group has invested heavily in Angola in a way that will change the informal way of doing business into a more formalized, educated system that helps individual families,” he says.

Adds Leviev, “We want to help people who work with their hands. We want Angolans to develop many different new skills.”

Kramash Moty, director of the Catoca project for the Leviev Group, says the company has invested more than $2 million in a two-year project to repair and restore the main hospital at Saurimo, not far from the Catoca Mine. Catoca itself employs some 2,000 Angolans, and Moty says the Leviev Group/Catoca also supports the community with a soup kitchen that provides meals, water, milk and vegetables.

He adds the Leviev Group is active also in battling AIDS, distributes cleaning utensils and soap, and has made efforts to help people affected by civil war.

The agreement between Leviev and Angola seems to be working, despite grumbling by sellers required to market their diamonds through Ascorp. Long-term effectiveness of this mini-monopoly remains a question.

If Leviev has taught observers one thing, it’s not to depend too heavily on one source. His recent acquisitions in Namibia and Botswana show he seeks greater diamond diversification, and his Russian cutting factories have been turning over millions of carats annually with capacity to market more, he says.

And what about Canada? “It is a major new source of diamonds that cannot even remotely be linked to conflict,” according to one observer. Adds Leviev, “Canada will be a very big diamond player in about five years. We are looking at various projects there.” But that’s another story.

– by Robert Weldon, G.G.

Ascorp, the only legal diamond rough marketer in the country, holds Angola’s production in the palm of its hand.

Photo illustration by Orasa Weldon. Photo by Robert Weldon.

Lev Leviev is the sole marketer of Angola’s diamonds and a majority owner in a diamond mine there.

Photo by Robert Weldon.

Angola’s vast diamond reserves do little to relieve the hard lives of ordinary citizens. Leviev says legal diamond revenue eventually will help Angolans.

Photo by Robert Weldon.


Copyright © 2002 by Bond Communications