Rio Tinto, Angola Form Chiri Diamond Joint Venture

Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO) has finalized a joint venture with Angolan state-owned diamond company Endiama EP to develop the Chiri mine, advancing 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 asset. 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, according to a Bloomberg report.

While the ownership structure is set, 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 initial exploration work by Rio Tinto that yielded promising kimberlite results, after the company secured the concession “some time ago.”

Angola, Africa’s largest diamond producer, is in the midst of a countercyclical economic policy. While falling commodity prices typically prompt miners to curtail supply to establish a price floor, Luanda is deliberately expanding production to protect its revenue and maintain market share.

The Angolan government has set a national diamond production target of 16.2 million carats for the current year, a 7 percent year-on-year increase. State projections initially modeled 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 down into the low US$100 range in recent months.

The rapid spread of lab-grown diamonds, which are chemically identical to mined stones but trade at a steep discount, has permanently altered consumer spending habits.

Simultaneously, a sluggish economic recovery in China has suppressed luxury jewelry demand, exacerbating an existing global oversupply of stones.

The limits of Angola's volume-driven strategy were evident in its previous fiscal year. While national diamond output surged by 70 percent, total revenue increased by a mere 6.7 percent, underscoring the severity of the price collapse.

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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.