Afghan mining law will throw open a bonanza of opportunities for India

Gems from Kabul

The Afghan mining law will throw open a bonanza of opportunities for India.
Lynne O'Donnell        Print Edition: May 12, 2013

It could be the Gold Rush of the 21st century - and India is leading the pack of investors lining up for a chunk of the treasure in the mountains of Afghanistan.

For months now, Afghanistan's Minister of Mines, Wahidullah Shahrani, has been travelling the world to attract investors to tap an estimated $1 trillion worth of minerals in the war-ravaged country.

His efforts may soon pay off. With the Afghan parliament expected to pass a new mining law soon, mining companies from Britain to China are making plans to unearth the country's massive mineral deposits - including gold, copper and iron ore - after international combat troops pull out by the end of 2014.

Shahrani says the new law, which has been approved by the cabinet, will bring the tender process in line with international norms. "It has really clear, strong provisions on transparency, on publication of contracts, involvement of the communities, and provides a lot of security and protection to investors by having the exploration and exploitation license awarded in a single contract to the same company," he said. "We did not have such a provision in the old mining law."

For India, the new law will open up untold opportunities. It will pave the way for a consortium led by Steel Authority of India Ltd (SAIL) to sign an $8-10 billion deal to develop four iron ore blocks and build a steel plant in Hajigak, 130 km west of Kabul in the central highlands of Bamiyan province. The Hajigak project has an estimated 1.8 billion tonnes of high grade ore. "The negotiations have been concluded and we are waiting for the new mining law, and with the approval of the new mining law, that contract is going to be awarded," Shahrani said. "It will be the largest ever economic project in the history of the country, which will involve the construction of the first ever steel plant in the country, and a railroad from the iron ore mine to the steel plant."

Afghanistan minerals
Afghanistan is sitting on an estimated USD 1 trillion worth of minerals including copper, iron, barite, sulphur, rubies, emeralds, lapis lazuli, mercury, gold, silver, lead, zinc, bauxite and lithium
Afghanistan is one of the world's poorest and most corrupt countries. As international combat troops get ready to pull out, the Afghan government has identified mining as the source of revenue that will fund post-war development, and has been auctioning contracts for about 10 years. The South Asian country is sitting on a treasure trove of mineral resources, much of which was mapped by the former Soviet Union in the 1970s. The US Geological Survey said in 2007 Afghanistan has abundant mineral resources, including known deposits of copper, iron, barite, sulphur, rubies, emeralds, lapis lazuli, mercury, gold, silver, lead, zinc, bauxite and lithium. The Wall Street Journal reported in December that Afghanistan earns around $100 million a year in mining revenue, "much of it from licenses from new contracts as opposed to royalty payments from actual extraction".

Already, regional powerhouses are jockeying for influence in the country's post-war future. Along with multi-billion-dollar commitments from Indian and Chinese firms, some smaller companies are exploring for gold. China's $3-billion deal to develop copper at Mes Aynak, 40 km southeast of Kabul, was the first major deal in the sector when it was signed in 2008. Exploration work has not yet begun, but work has been complicated by the discovery of a 2,000-year-old complex of Buddhist monasteries.

The scale of the projects being bankrolled by New Delhi and Beijing hints at the long-term strategic objectives of the rival powers, tussling for influence in the country at the region's crossroads as it emerges from decades of war, poverty, aid dependence and, since 2001, Taliban insurgency and Western military presence. "India looks at Afghanistan as a strategic partner for its regional perspective, and building railways and other infrastructure through Afghanistan is probably something they want to do anyway," says Richard Williams, CEO of Afghan Gold and Minerals.

Industry experts say it will be many years before Afghanistan reaps sizeable returns from its mineral resources because of its lack of security, infrastructure, expertise, water and legal framework. Rather, the country will attract politically-motivated investment by foreign stateowned corporations snapping up huge contracts as their governments seek influence over Afghanistan's future once the Western military engagement ends. But the government is already chalking up plans for handing out contracts. Shahrani says he will be putting a lithium contract up for tender this year, but gives no details.

Wahidullah Shahrani, Minister of Mines, Afghanistan
It will be the largest ever economic project in the history of the country, which will involve the construction of the fi rst ever steel plant: Wahidullah Shahrani
Afghan Gold and Minerals has many joint ventures and two 100 per cent Afghan companies providing mining services. The firm's first licence was to develop a gold mine on property owned by the family of Afghan partner Sadat Naderi, in Qara Zaghan. It also has concessions to explore for copper in Balkhab, in Sar-i-Pul and Balkh provinces, and Shaida in Herat; and for gold in Badakhshan in a joint venture with Turkish Afghan Mining Company, 51 per cent owned by Turkish silver mining company Eti Gumus.

Williams says the Russian surveys had shown one area of the Badakhshan project held 40,000 ounces of gold. "The area they focused on was very narrow and small, and it's our view that that particular deposit would certainly be 10 times as big as that in terms of the gold," he adds. The Balkhab copper deposit could be as high as 150 million tonnes and the company hoped to have a pilot plant operational within 12 to 18 months. "Which could mean that in election year here, presidential in 2014 or parliamentary in 2015, you could see Afghanistan exporting and selling copper concentrate," he says.

Analysts are not so optimistic that the country will be producing and exporting metal so soon, as the political, legal and security landscape will remain unstable for years to come.


India looks at Afghanistan as a strategic partner for its regional perspective"

Richard Williams

CEO of Afghan Gold and Minerals

Peter Hickson, former head of global materials and commodities research for UBS and now an independent consultant, says he "worries about how much political hype has been imposed … for US domestic political purposes and the justification of military intervention, like weapons of mass destruction in Iraq". He adds that claims about Afghanistan's mineral riches could just as easily be a face-saving justification for the withdrawal of international military efforts and the likely scaling back of aid, while enabling the US and its allies to brush aside talk of defeat or retreat.

"Such comments only highlight in my mind that resources in the ground and their supposed valuation is a long way from resource development and real value-add. Often such in-the-ground estimates just inflate unreal expectations of the returns from resource development," he says.

The taller of the two Bamiyan Buddhas in 1976
The taller of the two Bamiyan Buddhas in 1976 Photo: Andy Miller
For the Afghan government, it is primarily a copper mine that will bump up the country's coffers in the long run. For archaeologists and conservationists, it is a historical Buddhist site that should not be allowed to go the way of the Bamiyan Buddhas, the giant rock statues that were destroyed by the Taliban in 2001.

With both sides digging in their heels, China's foray into the Afghan mining sector has run into controversy before it even breaks dirt at the massive copper mine in Mes Aynak, a mountainous region about 40 km southeast of Kabul. In 2008, stateowned China Metallurgical Group (MCC) signed a $3-billion deal to mine the deposit within the next 30 years, but agreed not to start until 2014. The reason: that would give archaeologists time to excavate artefacts from the historical site which is studded with centuries-old Buddhist temples, statues and relics. Mes Aynak has an estimated 5.5 million tonnes of copper, making it the world's second biggest copper deposit. Analysts do not expect mining to start at Mes Ayank until at least 2016 because of the political uncertainty and lack of security likely after the drawdown.

Massive Buddha statues discovered at Mes Aynak
The remains of four massive Buddha statues discovered at Mes Aynak Photo: Andy Miller
As archaeologists furiously excavate the site, US film-maker Brent Huffman has launched a campaign to stop mining and preserve the 2,000-year-old Buddhist site. "I often hear talk about mineral extraction being somehow good for Afghanistan, but I promise you this is not the case," he recently wrote on CNN's website. "Afghans will see no benefit. They will suffer from irreversible environmental devastation and the permanent loss of invaluable cultural heritage." Some archaeologists believe preserving the site won't be easy.

Philippe Marquis, who heads the French Archaeological Delegation in Afghanistan, says the only way to save the relics is to move them out of the way of the erosion and looting that will inevitably destroy them.

"If there was not this mining project, this site would not have been excavated. And if this site is not excavated, it is doomed. Remove all the security which is on the site, within two months the site is going to be destroyed by looters," says Marquis, who has been excavating the site since 2009.

Mes Aynak was once an Al Qaeda training camp, where Osama bin Laden prepared for the 9/11 attack. The Asia Society lists it at number five among the "10 most endangered heritage sites in Asia". The four-sqkm site has 12 Buddhist monasteries with vast collections of religious objects, including more than 1,000 Buddha statues. Archaeologists have uncovered rare wooden objects, wall hangings, texts and stupas from the digs. "In Mes Aynak you have two treasures - an economical treasure which is a copper mine, and a cultural treasure," says Marquis. "With a bit of coordination it is possible for Afghanistan to have both treasures."

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