Digging For Hope In Afghanistan

Courtesy of The New York Times, an interesting look at Afghanistan’s mining development and mineral potential.  As the article notes:

“…Afghanistan’s mining ministry, emboldened by its first copper tender and undeterred by escalating violence, is inviting more bids in hopes the industry can eventually drive economic growth and help bring security.

…Yet it also has one of the largest untapped copper deposits in the world and substantial oil and gas deposits. “In five or six years we hope Afghanistan can stand on its own two feet through mineral reserves,” said Minister of Mines and Industries Muhammad Ibrahim Adel, a Russian-educated engineer who was appointed by Mr. Karzai.

Mr. Adel’s ministry has awarded one mining license so far — in a Taliban stronghold.

The Aynak copper deposit, in Logar Province, south of Kabul, was discovered in the 1970s by the Soviet Union. The area is a former Taliban training ground and once hid Osama bin Laden, Mr. Adel said. Work to remove land mines continues and roadside attacks regularly disrupt work.

The 30-year lease was awarded in 2008 to a Chinese consortium with state-controlled China Metallurgical Group, or MCC, and Jiangxi Copper Co., beating U.S. miner Freeport-McMoRan Copper & Gold Inc. and London-based Kazakhmys PLC. The award won the government a $808 million signing bonus.

A commencement ceremony last month marked the official start of the project, and it will be at least five years before mining can begin, largely because of security issues, Mr. Adel said. He said the government will provide a ring of security around the mine site and the investors will be responsible for security in the mine area.

Eventually 90% of the project’s work force in Afghanistan must be local, and the government hopes higher employment could help make the area more stable. “Employment will bring more peace,” said Rahman Ashraf, a German-trained geologist and senior adviser on mines and energy to Mr. Karzai.

The ministry is now holding tenders for the Hajigak iron-ore deposit west of Kabul and three hydrocarbon blocks. Its plan was to have bidders visit the sites in August and September and then submit bids, but instability surrounding the election could delay the process.

[afghan map]

France’s Total SA, Swiss-based Addax Petroleum Corp. and Canada-based Nations Petroleum Co. are on a list of seven finalists the ministry selected as bidders for the oil and gas blocks. Oil companies are more used to working in areas where there is instability.

Most of the bidders for the iron-ore deposit are smaller companies from India and China, including MCC. Among them is India’s JSW Steel Ltd. “It’s good potential and good quality, so why not?” said Tuhin Mukherjee, the company’s executive director for mining.

Companies are increasingly forced to operate in more treacherous regions to secure supplies. “Peru and Chile are still favorable areas for copper exploration but there is competition there,” said CRU Group analyst David Duckworth. “Companies will have to go to high-risk areas to develop new projects, such as Afghanistan.”

So far, many of the Western mining majors have stayed away. Rio Tinto PLC said security risks are too high. “We aren’t averse to going into more difficult countries, but one of the key factors is safety of staff and I would suspect safety is an issue in Afghanistan,” said a Rio Tinto spokesman.

The Taliban’s leadership has asked its fighters to avoid killing civilians, according to a newly issued rule book from the movement. But insurgents have been responsible for a growing share of civilian casualties — nearly 60% in the first half of this year, when more than 1,000 civilians were killed by insurgents and foreign troops, according to the United Nations. Military officials attributed the shift to the Taliban’s increased use of roadside bombs.

The Afghan ministry is aware of investors’ concerns. “A lot of companies don’t have interest in buying right now,” said Mr. Ashraf, the adviser to Mr. Karzai. “We hope for better security next year.”

This entry was posted on Friday, August 7th, 2009 at 3:10 am and is filed under Afghanistan, China.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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