Investing in Extractive Industries
The mineral and petroleum resources of Afghanistan have not been comprehensively explored and mapped. The resources that have been identified are globally significant with known deposits of a wide variety of minerals from copper, iron, sulfur to bauxite, lithium and rare-earth elements. According to surveys conducted by the Task Force for Business and Stability Operations (TFBSO) and the Afghanistan Geological Survey (AGS), 11 prospective mineral resources were identified including well-known Aynak (copper) and Hajigak (iron). Other than these, 14 additional rare minerals were identified in the country. Afghanistan is also home to 60 known deposits of dimensional stone and it is estimated that there are as many as 400 varieties of marble. A resource reserve of the country also has at least two hydrocarbon basins: the modest Amu Darya Basin and the potentially much larger Afghan-Tajik Basin.
Unlocking the potential for investment, however, requires a favorable legislation. To this end, the government of Afghanistan has developed laws such as Mining Laws & Regulations and the Hydrocarbon Law. The government has recognized the resource corridor approach in its National and Regional Resource Corridor Program (NRRCP), which can be a powerful instrument to generate inclusive growth from a sector that otherwise might be an enclave of isolated activities.
By 2020, this sector is estimated to generate 10-20 thousand direct jobs and USD 700 million- USD 1.5 billion in revenue for the government of Afghanistan.2 In order to maximize the impact of investment on job creation and revenue generation the government of Afghanistan will have to sequence “soft” and “hard” interventions. Synergies between public and private interventions will need to be found and leveraged.
Following are main reasons for investing in the mining sector
- World-Class Deposits and Excellent Discovery Potential
- Significant Amounts of Technical Data Available
- Attractive Investment Opportunities
- Favorable Legal and Regulatory Regime
- Pro-Business Fiscal Regime
- Investor-Friendly Ministry of Mines and Petroleum
- Commitment of the government to the development of the sector
- Aggressive Infrastructure Development Programs Underway
- Strategic Location in an Area of Rapidly Growing Markets
- Strong Commitment to Transparency in all Business Dealings
Extractive Industry Resources
Back in 2006, Afghanistan’s Ministry of Mines and Petroleum and the U.S Geological Survey conducted a geologcal survey of Afghanistan that covered 30% area of the country. The survey identified additional significant minerals in substantional qualities such as asbestos-talc-magnesite, celestite chromite clay, glass sand, graphite, coal, igneous-related lead and zinc, lapis lazuli, pegmatite, stone sulfur, niobium, phosphorous, uranium, lithium, and thorium.
Copper possess properties like high ductility, malleability, thermal and electrical conductivity, and a resistance to corrosion. Due its significant industrial use it is ranked third after iron and aluminum in terms of quantities consumed. Afghanistan is gifted with large reserves of copper deposits. The Aynak copper mine been estimated to produce 240 million metric tons at grade 2.3%.It was granted to China Metallurgical Group in 2006 on lease for 30 years with an estimated investment of USD 3 billion. It is believed to have the second largest copper reserve in the world worth up to USD 88 billion.
Coal plays a vital role in meeting global energy needs and is critical to infrastructrue development. Over 40% of the world’s electricity and 70% of world’s steel is produced using coal according to the World Coal Association. Coal has been used for powering small industries such as cement, textile, food processing, and household fuel in Afghanistan. The deposits are largely undeveloped and are spread from northern Takhar and Badkhshan provinces to the center of the country and towards the west in Heart.
Precious and semi-precious stones have been prized for centuries for their aesthetic qualities and use in jewelleries. The history of Afghanistan in gemstone mining can be traced back to 6000 years. Afghanistan has a great variety of precious and semi-precious stones with 73 records of mines, deposits, occurrences and showings. Aquamarine, emerald, lapis lazuli, topaz, tourmaline, and varieties of quartz are some types and they are mainly situated in Badakhshan, Jegdalek, Panjshir, and Nuristan. Most operations today are small-scale, but the potential undoubtedly exists for the development of a significant precious stone mining industry in Afghanistan. The value generation from gemstones in Afghanistan is suggested by the Ministry of Mines and Petroleum to be up to USD 160 million.
Afghanistan is bestowed with prevalent gold reservoirs which can usher an era of economic prosperity and development. They can be found in two natural forms i.e. gold in different shapes from mines and in sediment collected by people from riverside sands. Both yellow and white gold can be found in Afghanistan according to the experts. Following are the main gold reserve estimates:
The Wikador gold mine is situated in Badakhshan province, which is 2 meters wide and 350 meters long having good quality gold reserves.
The Samti gold mine is situated in northern Takhar provinces and has three mining areas. One part is 1700 meters wide and 8000 meters long with 12-24 tons of gold reserves, and this part is allotted to a local company for mining. The right side of the gold mine is 490 meters wide and 5020 meters long with an estimated 493 milligrams of gold in every cubic meter area. The third or central part is 500 meters wide and has an estimated 288 milligrams of gold in every cubic meter area.
The Nooraba gold mine is also situated in Takhar province near the Samti gold mine. The estimated reserves of this mine are 260 tons out of which 580 kg are pure gold. This mine is also allotted for extraction to an American company.
The Zarkhshan gold mine is situated in Ghazni province. It is stretched on 484 square kilometers. The estimated reserves are 7500 kg of gold.
The Pashani gold mine is eight meters wide and 1700 meters long and is situated in Takhar province. The three sides have 493, 288, and 375 milligrams of gold respectively in every cubic meter of area.
The largest iron oxide deposit is found in Hajigak in the province of Bamyan. The Hajigak iron mine streches over an area of 32 km. Due to the big strech of the mine, it is divided into 16 zones (5 km long, 380 m wide, and 550 m down). The ore of this mine occurs in primary and oxidized states where primary ore is 80% and consists of magnetite, pyrite and chalcopyrite, the remaining 20% is oxidized and consists of three hematitic ore types. The availability of coal in close proximity and the government plans to fetch electricity to this area, make the deposit a feasible site for the potential development of an Afghan Steel industry in the future. Three of the four Hajigak blocks were awarded to seven Indian companies and the fourth block was awarded to Kilo Goldmine company in 2011. The government is planning to tender another iron ore deposit called Syadara situated approximately 110 km west of the Hajigak mine. The Syadara deposit is estimated to have 400 million tons of iron ore reserves and it is similar inequality to the Hajigak deposit.
The main lithium deposits are located in Herat and Nimroz provinces in the west and Ghazni province in the center east in the form of lithium chloride in dry lake beds. Other deposits are in the Northeastern provinces of Badakhshan, Nangarhar, Uruzgan, and Nuristan in the form of hard rocks.
Although emeralds and beryl were known to ancient civilizations, Abby Hauy first recognized them as the same mineral in 1798. Most of the Afghanistan’s beryllium deposits are found in the eastern provinces of Nangarhar and Laghman. The estimated value of these reserves is USD 88 billion.
Rare Earth Elements
The Japanese call them “the seeds of technology,” while the US Department of Energy calls them “technology metals”. They are the elements that have become irreplaceable in our world of technology owing to their unique phosphorescent, magnetic, and catalytic properties. The United States Geological Survey identified rare element deposits in Afghanistan and estimated 1.4 million metric tons of reserves in the southern Helmand province. Uranium also has substantial reserves in the same province.
The marble mines of Afghanistan have very large deposits. The quantity and quality of Afghan marble deposits is very good and provides a comparative advantage that can lead to competitive advantage if properly utilized. There are total of 60 known deposits that contain 400 varieties of marble. Marble can be a major player in the Afghan economy, and can create many jobs for the rural population near quarries and in its value chain. Chesht and Khogiani deposits produce top quality white marble very similar to Cararra marble from Italy. There are many markets for Afghan marble such as the Gulf countries, U.S., and Italy. Use of low tech, wasteful, and explosive-based extraction occurs at about 90% of the sites and Afghanistan captures only 17% per ton from its value chain i.e. from quarry and tax. In the value chain of marble production industry, most of its value is created in the final two steps which is done in the bordering countries. It is a key challenge for Afghanistan and an investment opportunity for the private sector. Some investments have been done in standard marble processing plants but are not enough to meet domestic demand.
Oil & Gas
Afghanistan has rich resources in oil and gas mines. There are an estimated 3.8 billion barrels of crude oil available in Balkh and Jawzjan provinces, mostly in the Afghan-Tajik basin. According to the United States Geological Survey and Ministry of Mines and Petroleum, it is forecasted to be 444 billion cubic meters of natural gas and 563 Mbbl of natural liquid gas in the Amu Darya Basin. The domestic demand for oil consumption is 2 million barrels per year. Private sector investment in oil and gas exploration, oil refineries, and in oil exports may generates good returns. Some blocks of these reserves have already been awarded to investors from China, Azerbaijan, U.S, and Afghan firms.