Magazine

Afghan Mineral Wealth: No Easy Road for Westerners


War, chicanery, and corruption will likely keep the estimated $1 trillion trove just out of reach

(Corrects an erroneous figure for Metallurgical Corp. of China Ltd.'s bid for the right to mine Afghanistan's Aynak copper concession in the eighth paragraph.)

When the Pentagon announced last week that Afghanistan is sitting on mineral wealth worth $1 trillion—one thousand times the government's annual revenues—the resulting excitement overshadowed one simple fact. Much of the wealth is inaccessible due to war, political chicanery, and outright corruption. At a time when the Obama Administration could use some good news from Afghanistan, the Pentagon was just restating what already was known.

"The raw data they were using dates back to the '70s and '80s," says Stan Coats, former principal geologist for the British Geological Survey. "These resources are not worth anything if you can't get there or don't have enough security to get them out of the ground."

In 2004, when a U.S. Geological Survey caravan set out through the northern emerald district, it was escorted by five armored Land Cruisers and two pickups equipped with bed-mounted machine guns. Mines, encampments, and regular convoys can be even harder to secure. No major Western mining company is likely to place large bets amid such instability, Coats and other experts say.

Afghan licensing regulations add to the uncertainty by requiring exploration companies to register their findings with the government, which then puts the resources out to bid. "You're not going to see a lot of Western interest in going out to expend scarce exploration dollars just to be outbid by the Chinese or someone else with more influence," says Jim Yeager, a U.S. consulting geologist who advised the Afghan Mining Ministry on the 2007 tender of the 6 million-ton Aynak copper deposit.

Afghanistan's mining minister, Wahidullah Shahrani, visited London on June 25 in an attempt to rekindle investor interest in the 1.8 billion-ton Hajigak iron ore deposit, 60 miles west of Kabul. Shahrani canceled previous bids on the deposit in February, just weeks after replacing his predecessor, Mohammad Ibrahim Adel, who was linked in published accounts to taking more than $20 million in bribes on a previous mining license. He denies the allegation.

"Afghanistan has no capacity to manage these resources in a transparent, equitable fashion, so inevitably it will be the warlords who will be the beneficiaries and collect the resource rents," says Michael Klare, professor of Peace and World Security Studies at Hampshire College in Amherst, Mass., and author of the 2008 book Rising Powers, Shrinking Planet.

The U.S. Defense Dept.'s report promoted Afghanistan's minerals trove as a path to "economic sovereignty." It tallied $908 billion in copper, iron, gems, and precious metals. More than two-thirds of Afghanistan's resources are yet to be quantified, the report said. Paul Brinkley, director of the Pentagon's Task Force for Business and Stability Operations in Afghanistan, acknowledged at a press briefing that unearthing the treasure "is not a quick win."

In 2007, the China Metallurgical Group Corp. (MCC), a state-owned enterprise, won the right to mine the Aynak copper concession, 21 miles south of Kabul, with a $1.8 billion tender, including $800 million to be paid over the first five years. The company agreed to pay $808 million for exploration and mining rights, and will also make royalty and tax payments based on the price of copper and production totals, according to company filings. Production will begin in 2014, according to Ministry of Mines spokesman Jawad Omar.

MCC and two other companies dropped out of the Hajigak bidding before it was scrapped, Shahrani's deputy, Abdul Qudus Hamidi, said in February. Notably absent, after nearly a decade of U.S.-led war against the Taliban and al-Qaeda terrorists, were any North American, European, or Australian companies.

The bottom line: The Pentagon's projection of $1 trillion in Afghan mineral wealth turned heads, but it may be putting the hype in hypothetical.

Smith is a reporter for Bloomberg News. Najafizada is a reporter for Bloomberg News. Rupert is a reporter for Bloomberg News.

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