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Cassanguidi Project

Angola gained independence from Portugal in 1975. After independence, the Popular Movement for the Liberation of Angola (“MPLA”) introduced a one-party system of government. An initially low-key civil war between the MPLA and the Total Liberation of Angola (“UNITA”), led at the time by Jonas Savimbi, then ensued. Peace seemed imminent in 1992 when national elections were held. However, the loss of the elections by UNITA caused them to renew fighting against the MPLA. The death of UNITA’s leader in a battle with government forces in February 2002 renewed hopes for peace. In April 2002, the Angolan army and the UNITA rebels signed a formal cease fire, to finally end the 27-year conflict. President Dos Santos has pledged to hold legislative elections in 2006 or 2007.

The country is rebuilding its infrastructure and economy. In 2005 the government started using a US$2bn line of credit from China to rebuild public infrastructure. The Angolan economy is supported by its oil sector and supporting activities which, according to the CIA World Fact Book on Angola, contribute an estimated 45% to the GDP and account for over 50% of earning from exports. The industry has benefited in 2005 with the high global oil prices. The official estimated GDP for 2005 is US$24.13bn with an associated real growth rate estimated at 14% per annum for the same year. Exports are estimated at US$26.8bn for 2005. The central bank implemented an exchange rate stabilisation programme during 2003. This has resulted in consumer inflation declining from 325% in 2000 to 18%, estimated for 2005.

The Angolan minerals industry is dominated by its oil production. Many large scale international petroleum producers have production sharing agreements or joint ventures with the State owned Sociedade Nacional de Combustiveis de Angola (“Sonangol”) pertaining to offshore concessions. These are producing oil after highly successful deep water exploration programmes which commenced in the late 1990’s. Angola’s oil production was estimated at 1.6 million barrels per day for 2005.

The second largest sector of the minerals industry is diamonds. Diamond production is concentrated in the northeast of the country in the Lunda provinces. Production increased since the end of the civil war to a total of 4.8m carats in 2003. This included production from six major projects and a number of smaller ones. Many international diamond mining and exploration companies are currently investing in exploration and mine development programmes in Angola. Angola is a member of the Kimberley Process.

The legal status of all minerals in Angola is that they belong to the State. The Geological and Mining Activities Act (Law No. 1 of 1992 and Law 16 of 1994) governs the industry which includes prospecting, mining, processing and marketing. According to the Act, rights can be granted to State owned and/or private companies for a Prospecting Title or a Mining Title. The rights take the form of a contract negotiated between the companies concerned and the State, and are not transferable without State consent. The State requires a report indicating the technical and economic viability (“E.V.T-E.”) of the project prior to awarding the various titles.

With respect to the diamond mining sector, the Diamonds Act (Law No. 16 of 1994) grants the exclusive right to diamonds to Empresa Nacional de Diamantes de Angola (“Endiama”). This parastatal organisation was established in 1981 from the previous State owned company, Companhia de Diamantes de Angola (“Diamang”). Diamang and subsequently Endiama historically explored for and sampled diamond deposits across the country. The government charges a 5% royalty on the gross value of a parcel parcel in order to compensate for the historical exploration costs.

In order for a private company to obtain a mineral right to diamonds in Angola, all ventures require that Endiama be a partner in the operation.

The share in the partnership is negotiated on a case by case basis from an initial maximum 50% interest for Endiama. In 1999 Endiama created a subsidiary, the Diamond Commercialisation Society of Angola (“Sodiam”), which controls the marketing of diamonds in Angola. Sodiam charges a valuation tax of 2.5% and an industrial tax of 1.0% on the gross value of all diamonds sold.

The Environmental Protection Act (Law No. 5 of 1998) describes the legal requirements with respect to the protection of the environment from the normally destructive nature of mining. The environmental law does not require that an Environmental Impact Assessment (“EIA”) be completed. However, it does require that the intentions of the company with respect to environmental issues be specified in the E.V.T-E. document and in the Mining Agreement.

The Angolan company tax rate is currently 35% of net profit.