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Middle East, North Africa on mining periphery despite hosting 30% of the world’s minerals

TOUGH NEIGHBOURHOOD The region’s mining industry is facing several challenges such as social and environmental pressure from communities living near mines

TERRORIST TROUBLES The Khunayfis and Al-Sharqiya phosphate mines in Syria are likely to have had their production affected by The Islamic State of Iraq and the Levant conflict and the preceding Syrian civil war

SALWAN SHRUTI Iran’s “vast resources” of bauxite, lead, zinc, chromite and iron-ore reportedly worth $1-trillion will be a “driving force” behind the region’s mining growth

15th April 2016

By: Ilan Solomons

Creamer Media Staff Writer

  

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Despite hosting more than 30% of global mineral reserves, the Middle East and North Africa (MENA) region severely lacks exploration and resource development investment.

The region’s mining industry is facing several challenges, such as social and environmental pressure from communities living near mines, the depletion of shallow mineral reserves, water scarcity and market volatility. These are some of the main factors deterring development in the region, says nonmetallic minerals intelligence research company Industrial Minerals market analyst Shruti Salwan.

She adds that slumping commodity prices have made the MENA’s mineral-rich resources unviable for future growth.

“The underdeveloped mineral resources of the MENA have also been bearing the brunt of political unrest, lack of proper governance, limited infrastructure and technological advancements and, above all, fading investor interest, particularly in the nonmetallic minerals market,” Salwan states.

According to a report on the industrial minerals market published by Industrial Minerals in May 2015, the Khunayfis and Al-Sharqiya phosphate mines, in Syria, operated by Syrian mining company Compagnie Generale des Phosphates et des Mines, were likely to have had their production affected by the extremist militant group Islamic State (IS) conflict and the preceding Syrian civil war, which began before the IS insurgence in 2011.

Salwan also notes that the MENA is a globally important region for phosphate production.
According to the US Geological Survey (USGS), Morocco and the Western Sahara produce 30-million tons of phosphate rock a year, Egypt and Jordan each produce six-million tons, Tunisia five-million tons and Saudi Arabia three-million tons.
Meanwhile, research firm BMI Research’s 2016 second-quarter MENA mining report predicts that there will be strong growth over the coming years in the mining sector in the region, particularly owing to the easing of sanctions on Iran.

Mining Weekly reported in October 2015 that the agreement reached between Iran and world powers in Vienna, Austria, in July 2015, on Iran’s nuclear programme would reopen the country’s economy to global trade and investment after ten years of international sanctions.

Further, the report states that, with low base effects, the Iranian government intends to increase non-oil revenues and, with the country having significant mineral resources, it appears that the region is set for strong growth.

Salwan comments that Iran is emerging strongly and is also likely to develop its aluminium and steel industries. The country’s “vast resources” of bauxite, lead, zinc, chromite and iron-ore are reportedly worth $1-trillion, which will be a “driving force” behind the MENA region’s mining growth, she adds.

BMI notes that Turkey and Northern Iraqi Kurdistan are also key areas for growth, but that the Middle East “will remain peripheral” in the global mining sector as it continues to underperform, owing to political instability in much of the region.
However, the firm points out that a key area for growth in the MENA will be in the gold sector. “Although we are forecasting lower average gold prices over the coming quarters, we expect prices to remain elevated by historical standards. Given the relatively low cash costs for gold production, as well as low base effects, we expect to see substantial growth rates over the coming years.”

Meanwhile, Salwan says countries such as Oman, Bahrain, Saudi Arabia, Qatar, Turkey, Morocco and Egypt have shown promising outcomes in the MENA mining sector.

BMI expects a boom in the mining and metals sectors in Oman in the coming years, as investment is set to gather momentum, particularly in the copper and aluminium sectors.

“As Oman’s government seeks to diversify its economy away from dependence on oil revenue, we expect mining and metals investment opportunities to abound.”

Oman holds sizeable mineral reserves that have been left relatively undeveloped, as the growth of the country’s oil sector has taken precedence. Oman also boasts sizeable mineral reserves of gold, silver, chromite, lead, nickel, manganese and zinc.

Bahrain Sticking with Oil

According to BMI, the Bahraini economy depends on the oil industry, albeit to a lesser extent than some other regional countries, and it expects this dependence to increase over the medium term, despite the steep decline in the oil price since 2014.

The country’s mining sector, which includes the oil and gas industry, is forecast to be the largest component of gross value-add in 2016 at 25.5% and to increase to 26.2% by 2019.

The USGS notes that mineral commodities produced in Bahrain include aggregate, aluminium, cement, crude oil, iron-ore pellets (from imported iron-ore), methanol, natural gas, nitrogen fertiliser, refined petroleum products, sand and sulphur.

No Golden Growth for Saudi Arabia

Despite the Saudi Arabian government’s plans to encourage investment in gold reserves to reduce its oil export dependence, only “modest growth” will occur over the next few years, BMI forecasts, adding that this will ensure that the gold boom predicted by government will not occur and “will do little to dent” the country’s reliance on oil.

The firm further states that, while the country will remain the second-largest gold producer in the MENA after Egypt, it expects production growth to slow over the long term unless significant new deposits are exploited.

Construction Influencing Qatar

The USGS says a comprehensive look at the future of the minerals industry and production trends in Qatar has to take into consideration the expected effect of implementing the country’s national development plan and economic diversification policy.

The non-oil industrial sector is expected to continue as the key driver of economic growth, owing to domestic demand for construction materials such as cement and steel, projected to receive a major boost in the next few years.

The USGS expects that an acceleration in the country’s energy demand is likely to be a reflection of the increasing need for infrastructure projects for manufactured minerals.

Wealth in the Pipeline for Turkey

BMI contends that the outlook for Turkey’s mining sector is “highly promising”, as it forecasts a wealth of mineral reserves to come on line over the next two to three years.

“The focal point of growth will be gold production, as Turkey will establish its position as Europe’s largest gold producer on the back of a plethora of projects set to come on line . . . The downside risk to this bullish outlook will be weakness in commodity prices, which will weigh on miners’ margins.”

Nevertheless, the research firm states that the outlook for strong domestic precious and base metals demand, as well as for coal for electricity generation, will coalesce when a favourable regulatory environment is established.

Mining Major in Morocco
According to Morocco’s Ministry of Energy and Mining, the sector holds an important place in the country’s economy, as it contributes 21% of the value of export remittances and employs about 39 225 people.

“For centuries, mining has been one of Morocco’s most practised economic activities. Moroccan mining technologies, like copper works and steel manufacturing, were exported abroad, particularly to Europe.

“Since the beginning of the twentieth century, major manganese, iron, zinc, lead and phosphate fields were discovered. The strongest point of the Moroccan industry is phosphate mining,” the Ministry states.

In addition to phosphates, the Ministry notes, Morocco is a major producer and exporter of industrial minerals and base metals. It also produces silver, zinc, cobalt, copper, fluorine, lead, barite, iron-ore and anthracite.

Mulling Investment Climate in Egypt

BMI avers that political stability will continue to improve in Egypt in the short term, which it believes will herald a return of investment in the mining sector over the next few years.

“Over the longer term, unless considerable efforts are taken by [the country’s] government to improve the overall investment climate, we believe the pervasiveness of political turbulence will remain a salient constraint to further development in the mining space,” the research firm cautions.
Further, BMI says the period of “policy drift” should come to an end and it expects clarification on government’s mining policy in the near future as the new administration attempts to attract investment.

To increase revenue and expand the country’s overall economy, the Ministry of Petroleum’s Mineral Resources Authority is looking to offer several international bids for mineral exploration sites, particularly in the gold sector.

“Aside from its stellar gold deposits on offer, estimated at 6.7-million ounces, Egypt is home to an abundance of mineral resources, including phosphate, iron-ore, kaolin and coal, located predominantly in the Eastern desert, the Western Sahara desert and Alaqa Valley,” BMI points out.

MENA Mining Future Prospects

The research firm says, despite boasting rich deposits of untapped mineral resources, countries across the MENA continue to experience “lacklustre growth” in the mining sector.

BMI notes that, while the growing attractiveness of frontier mining might encourage an increasing number of companies to cast their sights on the MENA, the firm remains “downbeat” about its future growth prospects and does not expect investment in the coming years.
“For the most part, the lack of a reliable regulatory framework, elevated political instability and infrastructure deficits will remain overriding concerns for investors and continue to impede developments in the MENA’s mining sector.”

However, BMI highlights that, considering the amount of mineral wealth on offer, Saudi Arabia is the leader in its MENA mining risk and reward rating owing to its generally more stable business environment, compared with other countries.

In contrast, Morocco and Iran are ranked the lowest among the MENA countries that BMI covers.

“The dominance of State-owned companies in Morocco will present a major roadblock for private investors, while growing concerns over political instability in Iran will be a perennial constraint on development in the country’s mining sector,” BMI concludes.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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