Wednesday, December 14, 2011

The race for huge Afghan resources 'Copper and Gold' is on....

The race for huge Afghan resources 'Copper and Gold' is on....

By Robert M Cutler

MONTREAL - Afghanistan last week began a tender process for exploration and development of precious metal and mineral deposits, according to a press release from the country's Ministry of Mines. The tenders will close in March, with licenses for exploration and possible development to be awarded in July.

Concerned are the Badakshan project, targeting gold deposits in Badakshan province, in the northeast; the Zarkashan project, focusing on copper and gold in Ghazni province, in the central southeast; and Balkhab and Shaida projects, looking exclusively at copper, the former in the north-central Sar-I-Paul and Balkh provinces, and the latter in western Herat province.

According to Minister of Mines Wahidullah Shahrai, the licensing program is linked to a privatization program complementing the fiscal and regulatory regime already in place. He noted that the government was in meetings with Anglo American Plc in London. The announcement comes several months after the autumn deadline project in the middle of last year, after a US Department of Defense task force on business development (which had earlier worked in Iraq) assisted in drawing international accounting firms in the process, to prepare the tender.

The announcement also follows on large publicity in the US press in the middle of last year, concerning compilation by the US Geological Survey of a comprehensive database of the country's mineral potential, following discovery of old charts and data in Kabul in the middle of the last decade in the course of planning for a broader economic reconstruction of the country.

The new compilation by the US Geological Survey (USGS) integrates historical mapping by German and Soviet surveys together with geophysical data and drilling and sampling data into a geographic information system (GIS) database. Interestingly, other press reports mention the British Geological Survey as contributing to the reconstruction of the records of the Afghan Geological Survey, which suffered damage from the war.

At the time of last year's publicity, the figure of US$1 trillion was prominently mentioned in the press as an estimate of Afghanistan's mineral wealth, and unofficial estimates range up to $3 trillion. By way of contrast, the country's gross domestic product for 2010 is estimated at slightly of $27 billion.

However, also last year USGS geologist Jack Medlin remarked, as quoted by the New York Times, "With virtually no mining industry or infrastructure in place today, it will take decades for Afghanistan to exploit its mineral wealth fully." That wealth extends to promising deposits of such industrial metals, besides copper, as cobalt, iron, lithium, niobium, sulfur, zinc and also some rare earth elements, as well as precious and semi-precious stones.

The country has a national mining law that the World Bank helped to draft, but it is not clear how thorough-going its application might be, in the face of potential conflicts between the political center in Kabul on the one had and, on the other, tribal and provincial networks of influence in the regions. There is also the possibility that the finds could give Taliban forces an additional motive for fighting to retake control of the whole country.

So far, India and China have been the most prominent investors in Afghanistan's mineral resources. According to Bloomberg News, a consortium of seven Indian steel and mining companies announced earlier this month that they would build a steel mill and power plant in conjunction with development of iron-ore mines in the Hajigak region, about 215 kilometers west of Kabul in Bamiyan province.

In 2007, China won rights for the $2.9 billion development of a copper mine at Aynak, Logan province, in the south, leading to the replacement of Afghanistan's previous minister of mines following accusations of bribery. The development of the 24,200-hectare site (over 15 square miles) will destroy an area filled with ruins of fifth-century Buddhist monasteries.

Aynak, believed to contain the second-largest copper reserves in the world, will be Afghanistan's largest infrastructure project. China has a 30-year lease and is expected to spend over $3 billion developing the project, where the deposits are estimated to be worth up to $88 billion.

Aynak's development by China has already led to construction of a coal-fired electrical plant because there were no power sources available, as well as the country's first freight railway. The contract includes obligations by China to contribute significantly to the social infrastructure, building mosques, hospitals, markets and bazaars.

It will take years to develop Afghanistan's mineral wealth, but the potential is significant. Such projects as Aynak and the others for which tenders were announced this month will not bring about security on their own, but if they are successful, then they can engender powerful demonstration effects, showing that the gateway is open.

There is also concern in the Western non-governmental organization community that deleterious environmental effects could have the contrary result of actually creating more instability.

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