The Afghan Mining Industry

Since a Pentagon task force came out with a 2007 report claiming that Afghanistan possessed over a trillion dollars in untapped mineral resources, mining in Afghanistan has been a hot topic. In this report Jared Nolan examines the current state of mining operations in Afghanistan and what challenges and opportunities the future might hold.

This is part of War News Radio’s ongoing series on the state of the Afghan economy.

NOLAN: Jack Shroder has studied the mineral wealth of Afghanistan for a long time. It’s a recent story, though, that captures the current state of the country’s mining industry.

SHRODER: I was working for an american company up until last month that was trying to get involved in the lithium and the rare earths and they finally got cold feet. .. I kept telling I said this is the wild west over there man and I ‘m prepared to go into the country and do what we need to do and I hope your investors have got deep enough pockets to roll with us because i think we can pull it off particularly with the info that I have and the contacts that I have I think we can have winning bid. But they finally pulled out and they never said why but I know its because they really didn’t understand the wild west nature of working in a country like that.

NOLAN: Shroder is a geology professor at the University of Nebraska and a mining consultant. He claims the resources are there, but few are willing to take the risks to extract them. The mineral wealth of Afghanistan is no secret. For centuries Afghans have used crude techniques to extract gemstones that were once traded on the Silk Road. Modern assessments started in the 1950s and 60s when Soviet geologists began documenting the region’s resources. Since then the world has intermittently forgotten and remembered Afghanistan’s potential wealth, but Shroder, who began working in Afghanistan in the 70s, has always been preaching their value.

SHRODER: In fact I’ve been publishing that for over 30 years now that Afghanistan could be raised by its own bootstraps by these rich resources but of course you have to have the willingness of the afghan population to allow these resources to be mined or otherwise they will be shooting at foreigners trying to steal their resources.

NOLAN: There’s a laundry list of minerals present in the country. There are metals like copper, iron, nickel, gold silver, and aluminum. There are gemstones–emeralds, rubies, topaz, and the world-renowned lapis lazuli. There are also industrial minerals like graphite, brick clay, sulfur, and rare-earth elements including lithium. Plus building materials: marble, granite, limestone, and sandstone. So what is being done with all these resources?

MCMAHON: There’s the artisanal mining. the emeralds or some types of gemstones mostly in the northeast but those are people with shovels and picks and that type of thing. .. but if what you mean are there more organized mines with modern machinery, not really.

NOLAN: Gary McMahon is a senior mining specialist with the World Bank. Although there are no major mines operating, there are a couple in development. One is at Aynak, an hour’s drive south of Kabul. Aynak holds the second-largest known unexploited copper deposit in the world. In 2007 the Ministry of Mines auctioned off the deposit and the winning bidder was the China Metallurgical Group Corporation, or MCC, a huge state-backed Chinese conglomerate. The process was cast in doubt when Afghan authorities arrested ex-Minister of Mines Ibrahim Adel on accusations that he took a $30 million bribe from MCC. Even without the bribery accusation, however, MCC still had the best bid, and the contract represents the largest foreign investment in the history of Afghanistan.

MCMAHON: it was probably the best contract that I’ve ever seen that a government got.

NOLAN: The total package came to over $1 billion more than any of the competitors. The signing bonus was the largest and it offered the highest royalties to the Afghan government. Included in the bid are many infrastructure projects that MCC will build: a 400 megawatt power plant for the mine and to contribute electricity to blackout-prone Kabul; a new coal mine to feed the generator; a smelter to refine the copper ore; an extensive railroad from Uzbekistan in the North to Pakistan in the South to carry copper ore back to China; schools, roads, health clinics, and even mosques for the local communities; and compensation to land owners. American, Canadian, and Australian companies could not compete with all that, according to Shroder.

SHRODER: Western companies are not set up necessarily as development agencies whereas the Chinese government being communist and all that has got a very tidy way of doing business where their corporate side is entirely involved in the resource extraction and they’re very comfortably aligned with their government which can provide a lot of development. so that bid no question the Chinese bid was a good one and all the collateral stuff that was coming to that’s actually a super good way to do business if in fact they follow through on it in an honest way.

NOLAN: So now the question is whether MCC can deliver on all its promises. Integrity Watch Afghanistan is a national watchdog agency and its Extractive Industries Monitoring Manager, Javed Noorani, has kept close tabs on the projects.

NOORANI: The social investment the Chinese have committed themselves to they are going to implemented soon. the last thing i heard with is six projects are lined up to be implemented in the next nine months.

NOLAN: The outcome of the railroad is less certain.

NOORANI: The Chinese are trying to do a feasibility study of the railroad line and once they complete the feasibility study they will implement it. but as of now no more information with this on that. they are just conducting the feasibility study.

NOLAN: The mine is expected to open in 2014, but setbacks have stalled its progress. Workers uncovered cultural artifacts on the site and a rush to preserve them has led to the most recent delay. Experts also harbor concerns whether the Ministry of Mines has the capacity to effectively regulate and monitor such a large project. The Ministry–with little experience and untested laws–will encounter many challenges holding MCC to the contract. Shroder identifies one.

SHRODER: The ore body is so big that it will be a deep strip mine, which will probably screw up the water table. Not probably it definitely will. And so the local people will once they see trouble with their water supplies they’ll fight even more than they are now. So that has to be handled extremely well.

NOLAN: Especially since MCC does not have a stellar track record adhering to environmental standards. News reports exposed MCC mines in Pakistan and Papua New Guinea that have transgressed environmental standards. Thomas Ruttig, co-director of the Afghanistan Analyst Network, anticipates another problem.

RUTTIG: but learning from lessons from other countries, from Chad and Nigeria and part of Indonesia and so on it can clearly be seen that as long as you don’t have transparent institutions the wealth generated if mining starts in Afghanistan might end up in the same corrupt channels where now resources for development and reconstruction end up

NOLAN: Because of these concerns, Noorani thinks that the Ministry of Mines should slow down and accumulate more experience and knowledge.

NOORANI: You know why be in a hurry to give more concessions if you know your capacity is not proportionate to the kind of investment you’re inviting. it will exhaust the existing capacity within the ministry of mines. so we’re telling them please acquire more capacity so that you can monitor and regulate things otherwise you won’t be in a position to do that.

NOLAN: To help with this process, the ministry has brought in consultants from the United States, Canada, and London as advisers. The country has also applied for membership to the Extractive Industries Transparency Initiative, a global organization that holds member countries to responsible use of natural resources. With this oversight the Ministry of Mines started the bidding process for the other well-documented deposit in Afghanistan: the Hajigak iron deposit. It’s not as well explored as Aynak but it’s still classified by the British Geological Survey as world-class, containing an estimated 1.8 billion tons of iron ore.

The Ministry has received six bids for the deposit. Two of them come from firms in India, as well as two from Iran, one from the U.S. and one from Canada. One of the Indian bids–the early favorite–is a consortium led by state-run Steel Authority of India. The range of countries involved in the bidding has led some to describe the competition for resources as the New Great Game.

SHRODER: So Afghanistan’s got the potential and I’m optimistic that the place will get cleaned up and get developed. but it also has the potential because of all the players involved: India, Pakistan, China, Iran, that are messing around in the country, it has the potential to be an even worse swamp in ten years than it is now.

In all, though, Jack Shroder’s more of an optimist, so he thinks Afghanistan has the potential to come out as a reasonably developed and educated country. This will depend on the government’s ability to responsibly manage revenue from the mines and also whether it can maintain a secure environment that will attract more investors. After all, the minerals aren’t worth much when they’re stuck underground.

For War News Radio, I’m Jared Nolan.