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Afghan copper lode a key to renewal?
Where miners blaze a trail, other businesses may follow
by Andy Hoffman

The Globe and Mail

03.10.2007


TORONTO — Were it anywhere else in the world, its mineral riches would surely have been tapped long ago, yet millions of tonnes of copper in the Aynak deposit sit untouched.

The wealth underground has been shielded from exploitation by activity on the surface: foreign invasion, civil war, terrorism, occupation.

Aynak is in Afghanistan, a place known more for land mines than copper mines.

But the Afghan government is now trying to change all that, launching an ambitious campaign to woo foreign mining companies, despite the violence that persists in much of the country.

 Kabul's first major initiative is to sell off the Aynak copper deposit and the auction is garnering plenty of interest — particularly for a site that used to be an al-Qaeda training camp.

Even though Canadian and allied forces face attacks from insurgents, some of the biggest mining companies in the world are queuing up for the chance to spend the estimated $1.8-billion (U.S.) it will cost to buy, develop and operate the Aynak project, which is in a relatively calm region 30 kilometres south of the Afghan capital of Kabul.

With metal prices soaring on demand from China, and new deposits scarce, miners these days are even willing to take on the risks that come with operating close to a combat zone.

While corporations are looking for new sources of profit, the Afghan government hopes that mining will serve as a key pillar in the war-ravaged country's reconstruction and revival.

“To develop this industry will create jobs for thousands of Afghans. Not only will it benefit Afghan workers, but also the national security of Afghanistan. It will bring a tremendous amount of income to the government of Afghanistan for years to come,” Ibrahim Adel, Afghanistan's Minister of Mines, said in an interview in Toronto.

Nine foreign mining companies have been granted permission to participate in the bidding process. They include India's Hindalco Industries Ltd., Arizona copper giant Phelps Dodge Corp. and Hunter Dickinson Inc. of Vancouver. At the end of March they are all expected to send representatives to Afghanistan to inspect the deposit.

“It's a very challenging environment, but it would be economic from our perspective. You don't get involved in these types of activities unless you've got a potential win on your hands. It's a world-class copper deposit,” said Bob Schafer, vice-president of business development at Hunter Dickinson, a privately held company that operates a stable of publicly traded mining firms.

When the bids are submitted in mid-May, Hunter Dickinson's proposal is expected to include significant capital investment in training and social spending. “We perceive this to be more than just a copper mining opportunity,” Mr. Schafer said. “We think it is very much in line with the concepts of corporate social responsibility and sustainability. This is as an integrated plan that will transition the Afghan economy from a wartime economy into a normalized economy.”

Mr. Adel was in Toronto this week for the Prospectors and Developers Association of Canada conference, one of the biggest mining forums in the world. His task was to sell the merits of Afghanistan as a mining destination and he spent most of his time in meetings with international mining executives.

“The overall picture has been very positive. Obviously, companies are interested in going to Afghanistan to make money. They see that as an opportunity. Surely, there are concerns about security, but it is just an opportunity cost — the question of making so much money in Afghanistan and then weighing that against the security issues,” the minister said.

Several parts of Afghanistan are believed to be rich in metals and minerals, but Mr. Adel said only about 5 per cent of the potential deposits have even been explored.

There is no large-scale commercial mining in Afghanistan, but the minister is hoping Aynak will spur a wave of foreign investment. Soviet geologists conducted drilling in the area during the occupation of the 1970s and 1980s and it is believed to contain about 240 million tonnes of ore at a copper grade of more than 2 per cent. Copper prices traded as high as $6,330 (U.S.) a tonne yesterday on the London Metal Exchange. At around $2.80 a pound, the metal has managed to stay well above its historical average price of about $1 a pound for several years. Prices peaked above $4 a pound last May.

“We are aware the prices are going up. That helps us because we definitely need more income for Afghanistan to sustain itself,” Mr. Adel said.

However, no one is really sure how much copper Aynak may contain. Much of the Soviet survey has been lost or proven unreliable. When the mine site was used as an al-Qaeda camp in the 1990s, wooden boxes that held core rock samples were reportedly broken up for firewood. Now it is unclear which samples are from which drill holes.

All nine companies, including firms from China, Russia, Kazakhstan and Australia, will be visiting the site this month to inspect it. The Mines Ministry hopes to award an operating licence by August. If the mine becomes operational, the Afghan government will receive a royalty of at least 5 per cent from copper sales, as well as corporate income tax of 20 per cent.

The minister is betting the trailblazing mining sector will pave the way for other business development in Afghanistan. “It's an excellent door opener. We definitely believe that. After mining, other investors in other sectors and industries soon will follow,” he said.

After all, he said, there is a long history of mining in Afghanistan. “About 2,000 years ago, the residents of ancient Afghanistan were using copper to make weapons and instruments of war.”

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