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Cablegate: Luanda's Diamond Factory

VZCZCXRO5364
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLU #1014 2761255
ZNR UUUUU ZZH
R 031255Z OCT 07
FM AMEMBASSY LUANDA
TO RUEHC/SECSTATE WASHDC 4351
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS LUANDA 001014

SIPDIS

SIPDIS

EB FOR SUE SAARNIO

E.O. 12958: N/A
TAGS: EMIN ECON AO
SUBJECT: LUANDA'S DIAMOND FACTORY

1. (SBU) Summary: The Lev Leviev Diamond Corporation's
(LLD) diamond cutting and polishing factory in Luanda is only
operating at 20 percent of its designed capacity thanks to
less than promised supplies of rough diamonds. Low
throughput contributes to a high (USD 100 per carat)
production cost, and leaves the factory barely covering
opeating costs. This is an interesting case study for those
depending on the GRA to provide raw materials for any
potential investment. End Summary.

2. (SBU) Angola Polishing Diamonds (APD) opened in 2005 as
a USD 10 million joint venture, with 48 percent owned by
SODIAM, the diamond marketing arm of Angola's state diamond
monopoly, Endiama; 47 percent by the Lev Leviev Diamond
Corporation (LLD); and 5 percent by Progem, an Angolan
consortium whose owners remain anonymous.

A Fraction of Capacity
--------------------

3. (SBU) The Talatona factory's 320 employees and 1,000
machines could produce 1,000 carats of gemstones per day
according to Thomas Teichmann, Director General for the
Leviev Group of Companies in Angola. However, the factory is
only receiving 20 percent of the number of stones it needs to
operate at full capacity. Teichmann said that Leviev
received promises of adequate supplies when he committed to
build the factory, adding that it is also in SODIAM's
interest to give the factory an adequate supply. However, he
observed that contracts in Angola are not clear, if they are
honored at all. Current production covers operating costs,
he said, but has not touched the initial investment.
Teichmann expects supplies to increase as APD gets a larger
share of mine production and as Angola's overall production
increases in coming years.

From Fathers to Sons to New Hands
---------------------------------

4. (SBU) Diamond cutting and polishing skills traditionally
pass from father to son. To overcome Angola's lack of a
diamond cutting tradition, APD first trained 45 Angolan
employees in Namibia and South Africa and then brought 30 of
its skilled Israeli and Armenian employees to provide expert
advice when the factory opened. According to factory
officials, production costs in Luanda run USD 100 per carat,
versus USD 10-13 in India, below USD 30 in Antwerp and Tel
Aviv. New hires earn USD 400 per month; the highest-paid
Angolan employee, the factory supervisor, earns USD 1,000 per
month. (Note: the minimum wage in Angola is now USD 80 per
month. End note.) The factory maintains extremely tight
security over stock.

Comment: Supply and Demand
--------------------------

5. (SBU) The high cost per carat of cutting stones in Luanda
is mainly a function of the company's low utilization of
high-priced fixed assets. The per carat cost would come down
if more stones were processed at the polishing factory. When
the joint venture was created, Endiama promised a strong
supply of diamonds for local production. In spite of
promises made at high levels of the GRA (and the fact that
SODIAM is the majority partner), that supply has yet to
materialize. This is an interesting case study for those
whose investments depend on supply of raw materials from
GRA-owned companies.
FERNANDEZ

© Scoop Media

 
 
 
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