Afghanistan on the cusp of mining, commodity boom?

Nobody knows how rich Afghanistan is!

A war-torn nation, grappling with huge problems--which are so intricately intertwined, that disentangling them looks to be a herculean task--solutions for the same seem to be ever evading.

A country where violence is the norm, where aid agencies have lost count of human casualties, where corruption is rampant (famine hit Somalia is the only country that beats Afghanistan in Transparency International ranking of worst corrupt countries), where the infrastructure is damn poor, where kids respond better to gun shots than black boards, one would think Afghanistan is the wrong place to do business.

Wrong!

Afghanistan is evolving as a business hotspot where a mining boom is very much in the offing and India, China, Russia, Germany, UK and US are all warming up to the great Afghan challenge! Going by the estimates of various agencies, Afghan mineral wealth can hover around $1 trillion in value.

Since antiquity, Afghanistan has been shelling out gems and semi-precious stones, metals, and marble. When the Soviet forces entered Afghanistan and continued with their notoriously disastrous occupation, somewhere on the course, they also identified huge mineral wealth.

They even set up some industrial mining units in 1970s but had to abandon the efforts in 1992 when Mujahideen terror gained prominence with US support.

In 2002, the US Geological Survey estimates proclaimed presence of more treasures in Afghanistan: there were over 1000 deposits, mines and occurrences in Afghanistan with presence of gold, copper, iron, mercury, lead, cesium, lithium, niobium, and tantalum in chunks.

Run up to the rush
In March 2011, a conference on mines of Afghanistan took place in London where a number of investors gathered.

During the same month after necessary discussions, ADB (Asian Development Bank) officially announced that they have agreed to allocate funds worth $25mn dollars for construction of Hydrogen Sulfide Separation machinery for Jarqduq gas basins, $165 mn dollars for Sheberghan gas pipeline and development of gas network, and, $35 mn for rehabilitation of gas wells of Sheberghan in Afghnistan.

ADB also promised to support gas project after the completion of MoM (Ministry of Mines) plan for TAPI (Turkmenistan-Afghanistan-Pakistan-India), extension of cables for convection of thermo Electricity from Sheberghan to Mazar and joining it with main network as well as building of second phase of 227 Km railway from Mazar to Andkhoi, which will be useful for mining sector.

Subsequently, Australia, the commodity country, expressed their willingness to share their expertise in mining sector with Afghanistan.

Australian Foreign Minister Kevin Rudd met with the Afghan Minister of Mines, Wahidullah Shahrani and said,

“The surge in the Afghan mining sector has enormous potential to improve the country’s economic sustainability. Australia’s expertise in mining exploration, extraction, processing, transport, environmental protection and legislation has Australia well placed to offer specialized education in this area.”

Afterwards, to attract Italian investment to infrastructure, construction, energy, agriculture and mining sectors, a summit took place at Herat in Afghanistan followed on by similar initiatives getting kick started with Turkey and Germany.

A Memorandum of Understanding (MOU) for cooperation in development of Afghanistan natural resources was signed by Afghanistan and Germany at the end of June visit by Wahidullah Shahrani to Germany.

According to the MOU, both sides will strive to encourage both the private and public sectors of Germany to invest in Afghanistan’s mining sector and related activities.

Germany will strengthen its cooperation in technical and financial assistance, provide training programs for Afghan geologists, establish training centers in the fields of hydrocarbons and minerals, provide technical support for preparing strategies, strengthen the extractive sector by improving transparency in revenue transactions, introduce accepted financial systems and encouraging sustainable use of natural resources.

Further, India has agreed to contribute extensively to establish the first National Institute of Mine in Kabul.

Special regiment with personnel of 7,000 policemen for security of mines was also created as an internal arrangement between interior ministry and mining ministry of Afghanistan.

Recently, a comprehensive plan for building railways in Afghanistan based on economic criteria was welcomed at a special conference in Paris.

Add to this, The Geological Data Center of Afghanistan, equipped by modern technology and with very high capacity for storage of data; the picture becomes clear.

In accordance with the programs undertaken by the Ministry of Mines, Afghanistan’s coffers are expected to receive about $1.5 billion. Wahidullah Shahrani, the Minister of Mines, said recently to Parliament: “although exploration of mines in Afghanistan needs the time and technology, the assignment of mining contracts to international companies will increase the income of Afghanistan."

The rush as we see it
“The Hajigak Iron Ore deposit is situated in the mountainous Bamyan province, 130 km west of the Afghanistan capital, Kabul. It is one of several iron deposits within this area but is the largest located to date. A study in the 1960s demonstrated the mineral potential of the region, and estimated the Hajigak resource as 1.8 billion tons of iron ore with a concentration of approximately 62 % Fe . This assessment ranks the Hajigak deposit as world class.” said a British Geological Survey report.

The presence of coking Coal at Shabashak which is nearby makes the Hajigak deposit an exceptionally favourable target for economic development, the report adds.

No surprise, the Afghan ministry of mines has recently announced six companies have submitted bids for the Hajigak Iron Ore Project. A Bid Evaluation Team (BET) is reportedly sitting on the bids that were received from ACATCO LLC; Behin Sanate Diba; Corporate Ispat Alloys Ltd.;Gol-e-Gohar Iron Ore Co.;Kilo Goldmines Ltd.; and a consortium led by Steel Authority of India Ltd (SAIL).

Back in 2010, Russia promised to revamp 140 Soviet-era installations comprising of hydroelectric stations, bridges, wells and irrigation systems in Afghanistan which may add to $1 billion. And of course, that was just the beginning.

The SAIL consortium is on the forefront of the rush and reportedly exhibits a better chance of winning the race, according to The Business Standard. The consortium expecting a smooth sail may invest up to Rs 28,700 crore ($6 billion) in the mine, railroads and a steel plant.

But what stands out in the bleary desert is the moves made by Ian Hannam, Chairman of J.P. Morgan Capital Markets.

He has identified the potential of Afghanistan like no one else and is an early bird. He brought J.P Morgan from its cosy office to the war torn nation in 2010, when violence was at its worst since the American-led occupation began in 2001.

Hannam had the great idea of bringing in Gold and lithium miners initially, since both commodities could be lifted using helicopters and demanded just a moderate infrastructure. Once that gets on track Hannam can prove a point to the giants in mining like BHP and Rio Tinto, which would in turn nudge the leviathans into investing in road and rails and tap Afghan resources.

Hannam found his match in Sadet Naderi--a British educated Afghan—who also had astronomical ambitions and a vital piece of paper: a gold license. They started off with some initial hiccups but soon were on track.

Add to this, the initiatives by Chinese, we can safely believe that Afghanistan is on the cusp of a mining boom. BUT: violence in Afghanistan is a cause of lethal concern. No week seemingly passes by without the sound of gunshots, mine blasts or attacks.

In an 1841 article in a journal of Asiatic studies, Capt. Henry Drummond, wrote about the Afghans:

"Give them, however, but constant employment, with good wages and regular payment; encourage a spirit of industry, both by precept and example; let strict justice be dealt out to them without respect of persons; and we shall shortly see their swords changed into plowshares, industry take place of licentiousness, and these people be converted into peaceable and useful subjects,"

Amen!

As published in: http://www.commodityonline.com/news/Afghanistan-on-the-cusp-of-mining-commodity-boom-42334-2-1.html