Afghanistan gov’t pushes for mineral development

As Western powers prepare to fully withdraw their troops from Afghanistan by the end of 2014, Wahidullah Shahrani, Afganistan’s minister of mines, is preparing for a very different kind of deployment. 

Shahrani has launched a large, global publicity campaign in an effort to reel in prospective investors and develop the country’s largely untapped mineral resources. 

Afghanistan has deposits of copper, iron, coal, precious metals and hydrocarbons, Shahrani says, and even “has the potential to become the Saudi Arabia of lithium.”

Generations of war and political instability have resulted in little prior exploration, however, compounded by inadequate infrastructure required for mine development and transportation. 

The Afghanistan government looks to change this, and is offering mining companies a “competitive and stable fiscal regime,” as well as security forces for mining projects and five- and 10-year plans for infrastructure improvements. 

Previously regarded as one of the country’s more corrupt government ministries, Afghanistan’s Ministry of Mines was overhauled by Shahrani after his appointment in January 2010. The ministry considers itself a regulator rather than a state-owned partner. 

Afghanistan is looking to develop its resource sector with private sector development only, and offers a relatively low 20% corporate tax rate for mining companies, along with a simple royalty structure that includes an additional surface-use fee. There is also an unlimited loss carry forward.

The ministry has announced plans to hire up to 7,000 security personnel that will form part of its mines protection unit, which is designed to safeguard large mining projects across the war-torn country. Initially, only those projects in relatively safer provinces will be put forward for development.

Aynak copper 

Shahrani notes there are 1,500 security personnel posted at the large Aynak copper deposit south of Kabul being developed by the state-owned Chinese Metallurgical Group (CMG). There have been no reported security incidents in four years, according to the minister. 

CMG won the tender process for Aynak in late 2007 after agreeing to shell out nearly US$3 billion to build the mine and its corresponding infrastructure, including a 400-megawatt coal-fired power plant, and what will be Afghanistan’s first freight railway. Some unconfirmed estimates suggest the deposit contains around 11 million to 13 million tonnes of copper. 

Aynak is regarded as a litmus test for possible mining investments in Afghanistan. Although the mine is in a relatively secure part of the country, the railway and electric power lines would be difficult to defend around the clock from guerrilla attacks by Taliban or any other militants.

The Chinese group reportedly beat out bids from at least four other firms that were considered finalists. They included Canada’s Hunter Dickinson Group, Russia’s Basic Element Group, the London-based Kazakhmys Consortium and U.S. copper giant Phelps Dodge (now part of Freeport-McMoRan Copper & Gold).

On Dec. 6, the government of Afghanistan opened the competitive tender process for early-stage mining projects through the Ministry of Mines, using the help of advisers Canaccord Genuity, SRK Consulting and Mayer Brown. The four exploration licences cover roughly 250 sq. km each.

The Badakhshan gold project, a gold-bearing quartz vein system, is situated in northern Afghanistan’s mountainss near the borders with Tajikistan, China and Pakistan. 

Extensive sampling and trenching were completed on parts of the property by Soviet and Afghan geologists in the sixties, outlining historical reserves of 38,700 oz. gold with an average grade of 4.8 grams gold per tonne.

The Zarkashan copper-gold project is located 225 km southwest of Kabul and 93 km north of Ghazni, the nearest city. Work completed there by the German Geological Survey in the sixties, as well as further work done by the Soviets and Afghans in the seventies, show that skarn mineralization at Zarkashan has a core of relatively high gold grades, with a halo of lower grades.

The Balkhab copper project is a volcanogenic massive sulphide-type deposit located in north-central Afghanistan. The Minstry of Mines says there is evidence of mineral extraction activities on site dating back almost 3,000 years, and recent work was initiated by the Afghanistan Geological Survey at the request of villagers in the region.

Finally, the Shaida copper-porphyry project is in western Afghanistan and has seen more advanced exploration work than the other properties. Drill data from the Soviets in the early seventies has been compiled into a geographic information system database, along with information from airborne surveys completed by the U.S. Geological Survey team in 2005. Several continuous intervals of mineralization were identified, with copper grades between 0.1% and 0.8% over intervals ranging from 1 metre to 18 metres.

The launch of the four mineral tenders follows the announcement last month that a consortium of Indian companies led by the state-owned Steel Authority of India have secured a US$10.3 billion deal to explore and mine three iron ore blocks comprising the Hajigak deposit. 

The deposit contains an estimated 2 billion tonnes of iron ore, with production expected perhaps in 2015.

A fourth block was awarded to Toronto-based Kilo Goldmines (KGL-V), though the company later said its bid was prepared by an independent group. 

In return for using its credentials, Kilo will receive a 20% interest in a new company started by a U.K.-based financier named David Buckle, subject to dilution but with no financing obligation. The new company would be responsible for financing and managing the project. 

A tough sell

Afghanistan is seen by many as too dangerous for any kind of investment, though higher metal prices and a diminishing supply of world-class projects are pushing companies toward new and riskier frontiers. 

Earlier this year, the U.S. government promoted the country
as a destination for “combat geology,” encouraging mining experts and university students to make the trip to Afghanistan to practice their science in the field where there is a possibility, however large or small, of being killed.

Also this year, geophysical surveyor Aeroquest International (AQL-T) signed a deal to provide up to US$10 million in airborne geophysical services to the United States Geological Survey in Afghanistan. The deal was cancelled shortly thereafter after a more detailed assessment of security risks.

No other publicly listed Canadian mining companies appear active in the country, although this may change following the new tender process, with anticipated completion in the new year.