Afghanistan: Mining Capital of the World?
There could be enough untapped mineral resources in Afghanistan to make it the mining capital of the world. But is investment viable in this war torn country? Paul French investigates.
Afghanistan has been crushed under the heel of war for the best part of two decades. Before the Russians, Taliban and US-led coalition brought their tanks and guns, the Afghans were above Sri Lanka, Jamaica and Iceland, sitting at 72nd place in the world GDP list. Now they're sandwiched in between Congo and Nepal in 121st place.
Although the war shows no signs of abating – there are now more US troops in Afghanistan than there are in Iraq – the Americans have at last delivered the Afghans some kind of hope. In June, a report by the Pentagon revealed that Afghanistan may be sitting on over $1tn of untapped mineral wealth, with enough deposits of copper, gold, iron, cobalt and lithium to make Afghanistan the mining capital of the world.
"The figure of $1tn is highly speculative and does not constitute a sound economic assessment of the value of the mineral resources of Afghanistan," says Stan Coats, who works in Afghanistan for German aid organisation GTZ and previously worked in the country as part of the British Geological Survey.
"However, mining could be a very important part of the Afghan economy and the Aynak copper mine, currently being developed by the Chinese, could be a major contributor to the government of Afghanistan's budget through taxes and royalties. There will also be spin-off benefits to the wider economy and other mineral resources may be developed in the future", according to Coats.
However, no one in Kabul is celebrating just yet. There are many hurdles to overcome before Afganistan gets anywhere near becoming a mining capital, not least the fact that that the country is still very much ravaged by war.
"I am not qualified to comment on the security situation but I think the Aynak mine site could be made secure now," says Stan.
"The security situation is obviously important to any mining company planning to explore or develop a mine in Afghanistan and the cost of security would have to be added to the cost of mining.
There are peaceful areas in Afghanistan though and small-scale mining by the local population is continuing. The security situation is therefore not uniform over the whole country."
Trouble at the Aynak mine
The promise of Afghan treasure is also tainted by the acrid smell of corruption. In 2008 the contract for the Aynak mine was awarded to China Metallurgical Group (CMG), although many international companies pulled out of the bidding after the US accused the mines minister Mohammed Ibrahim Adel of taking a $30m bribe from CMG. Adel denied the accusation but was sacked months later.
"Problems with the former minister of mines have been widely reported and a new Minister, who is western-trained, appointed," says Stan. "Corruption and unstable governments are factors that a mining company has to take into account before investing but a revised mining law and regulations are being implemented."
It's all very well having $1tn worth of minerals sitting under your land but if you can't get to them, they're not much use. After years of war Afghanistan's road system is woefully inadequate in terms of supporting international mining trade. It doesn't have the digging capacity or even the legal framework to deal with multinational companies.
"Transport infrastructure is obviously important for some commodities such as copper, iron ore and coal but not so for gold and gemstones," says Stan. "The road network has improved considerably over recent years but rail access to a deepwater port in Pakistan or via the north to China would improve the situation to a large extent."
Unsurprisingly, news that the streets of Afghanistan may be paved with gold has sparked a scramble amongst the mining community. The Indian mining minister met with his Afghan counterpart the day after the US study was published, the Chinese already have a strong presence in Afghanistan's existing mines and some major names from the west attended a roadshow in London in June.
"Indian and global companies like Rio Tinto and BHP Billiton are keen to develop mines in Afghanistan," says Afghanistan Mines Minister Wahidullah Shahrani. "We will invite bids for development of mineral deposits in the country in the next few months."
So is it the beginning of a new Gold Rush that will see Afghanistan become the next mining capital of the world? Or will the risks outlined above put investors off?
"You could propose two scenarios," says Stan. "An optimistic one that a unified government is created, peace is declared and mining starts as soon as the mines can be developed. This could take five to ten years, which is a very short time to develop a mine.
More pessimistically, you can envisage a situation where the security problems are not resolved, there is little or no investment and only local small-scale mining takes place. Either way, I'm pretty sure Afghanistan will never be the 'mining capital of the world', whatever that means."