ENHANCING THE CONTRIBUTION OF THE MINING SECTOR

There are no large-scale mines in Ethiopia. The only large-scale mine is operated by MIDROC Gold in southern Ethiopia. The company started mining in 1998 and annually produces four tons of gold in the Lega Dembi mine in the Oromia Regional State. It mainly exports the gold bullions to Switzerland. MIDROC’s Lega Dembi Gold mine is ranked 170th in the world in terms of value of production in 2012.

The state-owned Ethiopian Minerals Development S.C. (EMDSC) mines tantalum concentrate in the Kenticha mine in the Oromia Regional State in Guji zone. The Kenticha tantalum mine operations has been on hold since 2013 due to the government’s effort to privatize it. EMDSC wants to process the tantalum concentrate rather than exporting the raw tantalum concentrate. The tantalum concentrate is mainly exported to China.

In the south there is also a small state-owned mine called Adola, where alluvial gold has been mined for over half a century. Placer gold has been mined in Ethiopia for more than 2000 years, but a significant large-scale mining sector has not been developed yet. More than one million people are engaged in artisanal mining primarily focused on gold. Artisanal miners pan eight tons of gold every year, contributing a significant amount of foreign currency to the coffers of the government.

Gemstones, mainly, opal, are produced by artisanal miners. Rough and curved gemstones are exported to India, Europe and the US. The Ethiopian Ministry of Mines (MoM) is encouraging and assisting artisanal miners. Tantalum is also produced by artisanal miners. Artisanal miners generate more than 400 million dollars, the lion’s share coming from gold export.

Ethiopia is also endowed with a range of industrial minerals deposits including potash, limestones, coal, iron ore, tantalite, field spar, quartz, dimension stones and dolomite, among others.

In the past 25 years no new mine was opened in Ethiopia. Now there are about three new large-scale mines in the pipeline that will go operational in the coming few years. The largest new mine would be the Allana Potash mine in the Afar Regional State in the Dallol Depression.

The Canadian mining firm, Allana Potash, plans to mine one million tons of potash every year beginning in 2017, then by generating 430 million dollars annual revenue. According to Allana, the potash deposit is estimated at 3.2 billion tons. The project is valued at 1.2 billion dollars. Allana, together with its partners, will invest 630 million dollars in the potash mine and related infrastructure, the largest Foreign Direct Investment (FDI) in the mining sector so far.

The other new mine is the Tulu Kapi gold mine in western Ethiopia. A sizable gold mine was discovered by a British company, Nyota Minerals, in West Wollega of the Oromia Regional State. The Tulu Kapi gold reserve is estimated at 24.9 tons. International Finance Corporation (IFC) is involved in the project, which was expected to be operational in 2014. This failed to materialize due to the declining price of gold in the international market and the dearth of investment capital.

Nyota recently farmed out the concession to another British company, KEFI Minerals. KEFI is now updating the feasibility study undertaken by Nyota. The Tulu Kapi mine could be operational within three years.

The third new mine will be Sakaro Gold mine discovered by MICROC Gold. The Sakaro gold mine is only five km away from the Lega Dembi mine. The gold deposit is estimated at 22.5 tons. MIDROC is expected to start production soon.

The ministry has issued 200 mineral exploration licenses. A number of companies have reported gold discoveries including ASCOM Mining, Stratex and Ezana Mining in the Benishangul, Afar and Tigrai regional states.

In 2011-2012, the mining sector earned 618 million dollars from mineral exports – 2/3 coming from artisanal mining. The mining sector is expected to generate 2 billion dollars by 2024, thereby employing 8000 citizens.

The Ethiopian government aims at building and developing an essentially new economic sector – a large-scale mineral sector. The current policy framework envisions the mineral sector to be the backbone of the industry by 2020-2023.

The World Bank this week released an extensive study on the Ethiopian mining sector at a consultative meeting held at the Hilton Hotel on October 7 and 8. The report assesses the potential of the mining sector and the challenges the sector is facing.

The study, entitled Strategic Assessment of Ethiopia’s Mining Sector, jointly prepared by the World Bank and the Department for International Development (DFID), the governments of Australia and Canada as well as the Ministry of Mines, was launched during the two-day forum. The study assesses the potential of Ethiopia’s mining sector to contribute to sustainable economic growth and development. It further provides recommendations for the initiatives and actions that will be required for such development to take place, and identifies the risk and opportunities that this entails. The World Bank says the need for this type of strategic analysis follows from the Government of Ethiopia’s (GoE) ambition to – as part of the Growth and Transformation Plan (GTP) – develop the mining sector to become the main pillar of the economy.

The report indicates that despite the fact that large-scale mining is still virtually non-existent, Ethiopia does have the geological potential for the discovery of new and sizeable economic deposits. The report identifies gold, copper, tantalum, and potash as the main foreign currency earners.

In the 2011/12 fiscal year the Ethiopian mining sector contributed about 1.5 percent to the country’s GDP estimated at 32 billion dollars. The sector accounted for 618 million dollars (19 percent) of the country’s export, with gold making up close to 100 percent of the mining exports.

According to the report in 2012, total sales from the mining sector in Africa were valued at 120 billion dollars representing nearly 10 percent of the continent’s GDP. In Africa metal mining and coal mining are about the same magnitude in terms of value. Among the metals, gold, copper and iron ore make up more than half of the value. “If one assumes that the geology of Ethiopia is as prospective as the African average, then these numbers would imply that the present day economic potential for the development of the Ethiopian mining sector would be to achieve an annual turnover of nearly 5 billion dollars,” the report said.

The report highlights the hurdles in the Ethiopian mining sector. In adequate promotional work, in efficient licensing procedures, dearth of trained professionals, low productivity, and border conflicts (disagreements related to land use) are some of the challenges facing the mining sector. Back in 2011 the MoM suspended licensing for about two years saying that they wanted to review applications and working procedures.

“In the absence of the recent success stories (apart from Allana Potash) and with limited geological data pertinent to exploration, the collection of new high quality data and the subsequent marketing of these data through a long-term strategy for investment promotion assume vital importance,” the report states.

The report indicated that the existence of a modern and well-functioning mining cadastre and registry system and clear rules for the award of licenses are key features for the promotion of investments in the mining sector. The Ministry of Mines commissioned a computerized mining cadastre system in 2011 but it has not been functioning. According to the report, there are critical capacity constraints at the Ministry of Mines licensing department.

The report stressed the importance of having a clear legal framework both to attract investors and to facilitate regulation of the industry. The lack of trained professionals and staff turnover at the Ethiopian Ministry of Mines and Ethiopian Geological Survey (GSE) were discussed.

“While considerable competence exists in particular among many MoM and GSE long-term employees, the overall capacity at the ministry and GSE for proper promotion, supervision and regulation of the sector is limited,” says the report. “The main reasons for this include the historically non-existent large-scale mining sector, which has not provided the opportunity for consistent capacity development; the high number of staff at MoM and the GSE (Totally 1,500 according to the structural plans with current number of employees being about 900) of which the majority are working in administration or support process rather than core process; a high turnover of staff and a decrease in the number of long term experienced staff, prevents consistent capacity building and which is related to civil sector salaries being significantly lower than those offered by the private sector, and non-flexible budgeting and procurement procedures,” the report reads.

In planning for future mining development, the report recommends the establishment of “resource corridor”. The recommendation includes the establishment of a clear policy direction, addressing organizational and capacity building needs at MoM and increased provision of information on the geological prospects of Ethiopia. The report also highlighted the need for the engagement of civil society in the mining sector in dealing with communities’ concerns.

The World Bank, the Canadian Foreign Affairs, Trade and Development (DFATD), the Australian, Chinese and the British governments assist the Ministry of Mines.

The report said significant support to the Ethiopian mining sector is being planned through the Australian government, DFATD, DFID, the World Bank and Chinese initiatives, the work that is identified must be carefully coordinated to avoid duplications of efforts.

In the course of the meeting DFATD announced the launch of a new support program to the Ethiopian mining sector. Minister Counselor and head of development cooperation, Amy Baker, told The Reporter that DFATD allocated 12.5 million Canadian dollars for technical assistance program that would last for five years. Baker said the program will assist Axum and Addis Ababa University Science and Technology in the areas of strengthening mining education. DFATD has been providing technical assistance for the MoM licensing department.

The World Bank has been proving technical assistance to the MoM in the artisanal mining sector and the accession of Ethiopia to the Extractive Industries Transparency Initiative (EITI) with an outlay of 3.6 million dollars. Kristen Hund, senior mining specialist with the World Bank, told The Reporter that the whole purpose of the study and the forum was to identify the gaps in the mining sector and cooperate in filling the existing gaps. “Based on the needs of the ministry the World Bank wants to assist in addressing policy issues, and capacity building programs. We want to help them in revising the petroleum law, if they think it is necessary,” Hund said.

Guang Zhe Chen, World bank Country Director for Ethiopia, said, “Sharing of international best practices on Extractive Industries will contribute to building a solid base for their good governance, which in turn will facilitate sound management of revenue and equitable growth that will further the sustainable development of Ethiopia.”

Officials of the Ministry of Mines seem to be happy with the World Bank’s study. Minister Tolossa Shagi said the ministry will work with development partners in the areas of capacity building. “The report is good. It identifies the gaps in the mining sector and where we can cooperate,” Tolossa said.