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Global mining activity is struggling to recover from its downturn at the start of 2015 and last year’s depressed metals prices, combined with falling demand in China and the rest of the key world economies, has led to fears in some quarters that the bottom of the cycle may not be reached in 2016
A recent Ernst & Young report says that this year the mining sector experienced its fifth consecutive year of decline. Overall, capital raised across the global mining sector has been down by about 10 per cent year-on-year since 2015. The decrease was primarily due to a sharp drop-off in loan finance to the sector. This fell to US$44bn in 2015 from US$122bn in 2014. In response to the downturn, Anglo American, Nyrstar, Freeport-McMoRan and Glencore have all announced their intention to divest assets.
This bear sentiment has had a negative effect on the Middle East and North Africa’s (MENA’s) mining sector and indeed, its wider economy. The region hosts more than 30 per cent of global mineral reserves. Yet, it lacks exploration and resource development investment.
Political unrest, lack of proper governance, limited infrastructure and technological advancements have all played their part in stunting growth in MENA‘s non-metallic minerals market. A case in point are the Khunayfis and Al-Sharqiya phosphate mines in Syria that were operated by Syrian mining company Compagnie Generale des Phosphates et des Mines, where production is now at a standstill. Further west in North Africa, Morocco, the Western Sahara and Egypt remain globally important regions for phosphate production. The US Geological Survey (USGS) estimates a combined output of 30mn tonnes of phosphate rock per year from Morocco and the Western Sahara.
But as of November 2016 there was still no sign of a political settlement between the two desert nations, 25 years after a border ceasefire was put in place. And tensions are once again building. Neighbouring Tunisia produces 2.8mn tonnes, less than half the eight million tonnes produced five years ago, although there are plans to increase this significantly. In October this year, secretary of state for mines, Hachemi Hmidi, said he was optimistic about the improvement of Tunisia’s phosphate production. This follows a recovery in activity at four production sites that had been blocked by protest movements. The goal is to increase phosphate production three to four million tonnes per year. Egypt produces three million tonnes of phosphate rock per year and there are plans for a US$1bn expansion. In August, a delegation of major Chinese mining firms visited the country’s Abu-Tartour phosphate plateau to lay the foundation for a project to manufacture phosphoric acid as a primary phase towards producing phosphate cement.
Meanwhile, Saudi Arabia and Jordan each produce three million tonnes of phosphate per year. This summer, Saudi Arabia’s Ministry of Energy, Industry and Mineral Resources announced that it was willing to launch more investment licences in the mining sector. Licences are being granted to zinc and other minerals, as well as phosphate. The goal is for the mining sector to contribute up to US$25bn to the kingdom’s economy by 2020. Mining’s current contribution to the country’s GDP is a mere 2.5 per cent.
Saudi Arabia’s largest mining company, Ma’aden, is boosting its output in gold and base metals mining, phosphates, aluminium and industrial minerals including magnesite, kaolin and low-grade bauxite. Saudi Arabia’s ambitions include the construction of the largest and most efficient integrated aluminium complex in the world. The US$10.8bn integrated aluminium facility plant will be built as a joint venture between Ma’aden and Alcoa that will be known as Ma’aden Aluminium. Copper production is also being boosted. Saudi Arabia’s copper mining operations at Jabal Sayid are being undertaken by Ma’aden Barrick Copper Co (a joint venture between Ma’aden and Barrick Gold) and are expected to produce about 45,000 tonnes of copper annually. The site has an estimated 635,000 tonnes of reserves that are expected to take up to 16 years to mine. Other mining and metals projects in the kingdom include Khnaiguiyah Mining Company, a joint venture company between Alara Resources Limited and United Arabian Mining Company LLC. The joint venture company operates a zinc-copper mine in Khnaiguiyah that is estimated to be able to produce 1.4mn tonnes of zinc concentrate and 210,000 tonnes of copper concentrate. In Jordan, the phosphate sector has been hit hard by a downturn in prices. This price decline caused the Jordan Phosphate Mines Company (JPMC) to slash fertiliser output last year by half from 646,000 tonnes to 318,000 tonnes.
But while the prospects for phosphate and the other non-metallic minerals are depressed the outlook for MENA’s metallic mining sector is much more positive. And it is buoyed by an upbeat forecast from the World Bank, which has now raised its 2017 price estimate for mined metals. The bank now believes that metals prices will rise more sharply in 2017 than it had forecast in July, as a result of faster-than-expected mine closures.
“In 2017 metals prices are projected to increase by four per cent as most markets continue to rebalance. The largest gain is for zinc, which is projected to rise more than 20 per cent, on continued supply tightening from large mine closures,” it says.
A beneficiary of this forecast upturn in metals prices is Iran’s mining sector, which is already witnessing a surge in activity. At the start of this year, the decades old economic sanctions against the country that had been imposed by the west were partially lifted. And in a new report, BMI Research says that it is now positive about the medium-term growth outlook for Iran’s mining industry. The country contains vast underdeveloped reserves of metallic ores, although the sector as a whole is in need both of modernisation and new technology. However, investment is now starting to flow. Last year, the state copper producer Nicoco signed an investment agreement with a consortium of Middle East companies for the construction of the 100,000 Chah Firouzeh copper concentrate plant in Kerman Province. It is expected to start operations in 2019.
Copper output is expected to outperform the rest of Iran’s mining sector in the coming years, with annual growth averaging 13 per cent through 2020. By the end of the decade, Iranian copper production is expected to top 500,000 tonnes per year from its three major copper mines – Sarcheshmeh, Sungun and Miduk. These have estimated combined reserves of 3.4bn tonnes of ore.
The Sarcheshmeh copper mine located in Kerman Province is the second largest mine in the world. It holds over 826mn tonnes of proven copper and 1.2bn tonnes of estimated copper reserves with 0.7 per cent average grade. It also includes substantial amounts of other minerals including molybdenum, gold, silver and rare metals. The Sungun mine is Iran’s second largest copper operation with over 470mn tonnes of proven and one billion tonnes of potential reserves grading 0.6 per cent. Miduk holds 170mn tonnes of proven copper reserves with an average grade of 0.25 per cent. In 2015, Nicoco added about 300,000 tonnes per year to Miduk’s total copper concentrate production capacity.
Investment is also forecast to rise in Oman where a new mining law, which is soon to be announced, is expected to speed up the processing of mining licences. Oman holds sizeable mineral reserves of gold, silver, chromite, lead, nickel, manganese and zinc. It also has reserves of gypsum, limestone and marble. However, these assets have remained untouched as the growth of the country’s oil sector has taken precedence. Dean Cunningham, CEO of Kunooz Oman Holding, told the Times of Oman that so far small areas have been given to potential investors or smaller players for exploring and possible mining for minerals. In anticipation of the new mineral law, the company has now applied for mining and exploration licences in three locations from the Public Authority for Mining (PAM). BMI Research expects a boom in Oman’s mining and metals sectors in the coming years as investment is set to gather momentum, particularly in the copper and aluminium sectors.
But despite this relative mood of optimism as to the future of MENA’s metal mining sector, BMI Research says countries right across MENA will continue to experience ‘lacklustre growth’. It notes that while the growing attractiveness of frontier mining might encourage an increasing number of companies to cast their sights on the MENA, “For the most part, the lack of a reliable regulatory framework, elevated political instability and infrastructure deficits will remain overriding concerns for investors.”
The one exception is Saudi Arabia whose ‘mining risk and reward’ rating is favourable, owing to its generally more stable business environment.
— By Nnamdi Anyadike
The article appears in Technical Review Middle East Issue 5 2016. To read, click here.