Gold mining in Ethiopia
Ethiopia has just experienced its ninth successive year of robust economic growth. Michael Schwartz takes a closer look at this east African success story.
According to African Economic Outlook, Ethiopia can expect a 6.3% real GDP growth in 2014. Consumer price inflation, which is monitored by the Central Statistical Agency of Ethiopia, registered 8.7% in March 2014, part of a long-term downward trend. An increasing focus on economic diversity is essential, and mining has a key part to play, with money being raised from a scale of mining royalties and income taxes.
Three greenstone belts make up Ethiopia’s mining geology. The northern belt, around the Tigray region, hosts the primary gold occurences (Terakemti, Adi Zeresenay and Nirague), the base metals are centred on Terer and Tsehafi Emba, and Tigray’s placer gold deposits. The southwestern-western belt also features major gold and base metals deposits as well as the Yubdo platinum deposit, molybdenite at Fakushu, iron within four deposits and further placer gold. The southern belt, known as the Adola Belt, features gold as well as columbo-tantalite, nickel, chromium, platinum, talc and kyanite.
Potash mining has generated great interest in recent years, reflecting the need to increase crop yield. For example, Canadian firm Allana Potash focuses on global acquisition and development of potash assets. In Ethiopia, its potash holdings comprise two properties in the northeastern Danakil Depression totalling 312km2 (small-scale workings have continued since the early 1900s). Until recently, another potash producer in Danakil was AgriMinco, a Canadian company that trades on the TSX-V index. However, in spring 2014, Premier African Minerals Ltd exercised its option to acquire AgriMinco’s 30% interest in the Danakil project (AgriMinco’s JV partner at Danakil, Circum Minerals Ltd, has a 70% interest).
Gold, too, is highly regarded. In February 2014, East Africa Metals (EAM) acquired all the issued and outstanding common shares of another Canadian company, Tigray Resources, which focuses on identifying and advancing early-stage mineral projects in Ethiopia. EAM continues mining at Tigray’s key property, the Harvest polymetallic volcanic massive sulphide exploration project with high-value copper-gold-silver-zinc. It covers an area of 155km2, 600km north-northwest of Addis Ababa.
Ethiopian gold mining has long been centred on the Lega Dembi mine, operated by Midroc, a conglomerate chaired by Saudi-Arabian/Ethiopian Sheikh Mohammed Hussein Ali Al Amoudi. Gold and silver production at Lega Dembi averages around 4,500kg annually. Meanwhile, Midroc has just completed a pre-feasibility study for a possible new gold mine at Metekel, 500km north of Addis Ababa.
Ethiopia imposes a sliding scale for royalties, of 2–8%. The highest charge applies to precious minerals, with 6% for semi-precious, 5% for other metals, 4% for salt and industrial minerals, 3% for potash and construction minerals and 2% for geothermal deposits. In certain circumstances, the licensing authority may reduce, suspend or waive the royalty following consultation with the relevant government body.
Income tax of 35% also applies. Nick Watters, who holds the business development portfolio at EAM, explains, ‘There have been discussions of revising the income tax lower, to 25%’.
In March 2014, the Fraser Institute published the results of its survey of business confidence distributed to approximately 4,100 managers and executives (38% were company presidents) around the world involved in mining exploration, development, and other related activities. The survey reported on attitudes to 122 countries and internal administrations such as individual provinces.
Ethiopia and neighbouring Eritrea feature in the report for the first time. African countries have fared poorly in past reports when it comes to senior managers’ confidence in investment, with the key exception of Botswana, which tends to occupy around 20th place. Ethiopia is, at present, nothing like as attractive, ranking 85th (Eritrea is 48th). One respondent to the survey highlighted, ‘High royalties, a moratorium on granting new licences, and the introduction of further bureaucracy at the early stage of exploration programmes’.
Much more encouraging were the responses to over-regulation as a deterrent to investment. Only 31 of the 122 countries were perceived as presenting fewer challenges than Ethiopia when it came to this factor. Further criteria include environmentally based deterrents to investment (where Ethiopia is 46th most favourably regarded) and regulatory duplication and inconsistency – here the country ranks 41st. Eritrea was fifth and top respectively for these two factors – no respondent considered over-regulation a strong deterrent to Eritrea.
Another area of interest is transport. Reviewing Ethiopia as a whole in its country assessments, KPMG recently listed certain transport developments that will benefit mining. The Ethiopian Government has made transportation infrastructure a priority and has contributed more than a third of the funding for asphalt and gravel roads, including a US$50 million six-lane expressway between Addis Ababa and Adama, a city 80km to the southeast of the capital. The new road will reduce the time and distance taken between Addis Ababa and the sea – the wider significance is that Ethiopia is landlocked and relies heavily on the port of Djibouti.
Access will also be helped by a new road between the Dallol area and Afdera, from where there are paved roads to Djibouti. In addition, commitments have been made by China and India to build 5,000km of railways, including to the Danakil potash area.
February’s news that EAM had acquired Tigray Resources coincided with news of the company’s intersections at the Mato Bula, Adyabo project in the north of the country. Diamond drill results from a second phase comprising six additional holes revealed mineralisation to a depth of 150m. More specifically, drill sections of 17.55m at 13.18g/t gold, 28.2m at 8.5g/t and 7.90m at 7.95g/t have been attained. Close to Mato Bula, at Da Tambuk, a four-hole test yielded best results of 12m at 17.34g/t gold.
EAM’s confidence has remained steady. Nick Watters explains, ‘The price of gold dropping from US$1,900–1,300 has affected the producers and exploration companies worldwide, although nothing in particular has changed in Ethiopia.’
The Premier African Minerals Ltd (previously AgriMinco) Danakil project encompasses an established, large-tonnage, high-grade, shallow-potash deposit, with sylvinite horizons as shallow as 45m, and is amenable to open pit and solution mining.
In addition to the previously mentioned financial events affecting AgriMinco, an initial NI43-101 mineral resource estimate has made key recommendations regarding mining and processing. Specifically, the report selects solution mining for the Danakil resources because, at 200–400m, they are too deep for an open pit approach, while conventional underground methods were discounted due to the weak bischofitite member located between the upper and lower mineralised zones, and the perceived risk of flooding.
Allana’s potash project comprises four concessions within the Danakil Depression. The company’s 2013 feasibility study revealed an updated NI43-101 compliant resource estimate based on the results of 68 drill holes. Measured and indicated mineral resources totalled 2.45Bt containing approximately 438Mt of KCl and additional inferred mineral resources of 1.12Bt containing 178Mt of KCl.
The players in Ethiopian mining are positive when it comes to contributing to the communities where they are based. Nick Watters outlines EAM’s future commitment to Ethiopia. ‘Our CSR initiatives include re-forestation projects and the education of women in Tanzania. We plan on bringing these corporate agendas and philosophies into Ethiopia.’
Allana and its strategic partner ICL will, over the next two years, contribute US$200,000 and US$330,000 respectively to a programme that will be conducted by the Ethiopian Agricultural Transformation Agency (EATA). Over two years, the fertility levels of Ethiopia’s agricultural lands will be mapped, including 600 field trials and demonstrations in 30 districts. EATA itself will donate US$60,000 to the programme, which will also develop an agricultural growth strategy for Ethiopia, engage in soil fertility mapping, and sponsor the training of a post-graduate PhD students to develop expertise on the benefits of potassium fertilisers for increased production of crops.
Transportation challenges aside, Ethiopian mining has at last started to attract the investment it has lacked for so long. And its potash deposits, in particular, look to be secure to meet the fertiliser requirements of an ever-growing food industry.