Subterranean windfall: New mineral discoveries hold potential for growth

The mining industry is set to become an important sector in Oman’s diversification programme. Various exploratory studies, commissioned by the Directorate-General of Minerals at the Ministry of Commerce and Industry (MCI), have recently uncovered substantial deposits of metallic and non-metallic resources across the country, mainly carbonate-based minerals, such as limestone and marble, and ophiolite rocks, which contain copper, gold, chromite, lead and zinc. If developed, these newfound mineral reserves could help to propel an already growing industry into a more significant contributor to GDP.

The value of overall mineral production increased from OR24.16m ($62.6m) in 1996 to OR168.89m ($437m) by 2008 and has fluctuated slightly around that value through the latest data in 2011, according to the MCI. These figures do not account for mineral production in the Dhofar governorate, which has increased significantly over the past few years.

Between 2008 and 2011, production of Oman’s primary minerals continued to increase, according to the MCI. Marble production nearly doubled from 501,381 tonnes per annum (tpa) to 931,409 tpa, limestone production rose from 3.85m tpa to 5m tpa, gypsum from 348,796 tpa to 1.25m tpa and copper from 78,034 tpa to 111,408 tpa.

Copper

Copper is attracting significant attention due to new geological surveys revealing sizable reserves. Mawarid Mining, a subsidiary of MB Holding Company, is the dominant player in Oman’s copper-gold industry, with three mining blocks around Sohar that contain eight deposit sites. According to the company, its recent discoveries and known deposits located at the Ghuzayn site would extend Mawarid’s mining life for copper through to 2021.

As a new entrant to the copper market, Australia-based minerals exploration and development company Alara Resources has invested in two mining operations in the Samayil Ophiolite belt in northwestern Oman, namely, the Washihi-Mullaq-Al Ajal Copper-Gold Project and the Daris Copper-Gold Project. A subsidiary of the firm, Alara Oman Operations, has acquired the rights for interest in five exploration licences that include over 1188 sq km of potential mining areas in Oman. Alara initiated a scoping study in the second quarter of 2012, which led to an estimated throughput of 500,000 tpa, and a proposed facility would process feedstock from the Washihi, Mullaq and Daris projects. Estimates since that study display that throughput levels can be even higher.

Chromite

The discovery of immense deposits of chrome ore, also known as chromite, has attracted significant investments over the past few years. Reserves have already been exploited in the North Batinah region, yet the MCI’s minerals directorate announced that as many as 79 locations along a coastal strip between Shinas and Sohar potentially contain rich chromite deposits. Other deposits have been located in Ibra and Samad Al Shan in the Sharqiyah region, and privately funded surveys show signs of deposits on the coast of the Al Wusta region, according to local press reports.

As a result, Oman is set to become the first ferrochrome producer in the GCC, and four ferrochrome smelters are in various stages of development at the Sohar Freezone. The first two smelters are part of a 50:50 joint venture between Muscat Overseas Group and India’s Indsil Group. The joint company has already invested $35m in the first phase of development to spur production at 6000 tonnes per month as of mid-2013. Another $45m-50m is planned for the second phase before the end of 2013, which will double production capacity to 150,00 tpa by mid-2014. An additional two smelters are also under way, with a recent $30m investment from Oman-based Gulf Mining Materials, and a separate ferrochrome joint venture announced by Freezone Sohar. According to the of Oman, the four smelters taken together would provide the country with a total of around 2m tpa of processed ferrochrome to export to markets abroad.

Non-Metallics

Carbonate-based minerals such as limestone and marble have been exploited for years, with 2011 limestone production reaching 4.9m tpa and marble hitting 931,409 tpa, according to MCI data. However, recent surveys from the mining directorate show that vast quantities of the minerals have been discovered in the governates of Dhank in the Dhahirah region and Sur in South Sharqiyah, and near the city of Duqm in Al Wusta. “Limestone, marble and other carbonate-based mineral resources are found in abundance across wide geographical areas, extending from the north to the far south of the sultanate,” a ministry official said in a July 2013 report. “Depending upon their quality, these mineral deposits are used primarily in the cement manufacturing, steel production, construction and cladding, and agriculture and environment-related industries. Thus, Oman can gain significantly from its vast limestone and marble wealth if suitably commercialised.”

Limestone is the primary raw material used in cement, and its abundance in the Al Wusta region, specifically in Al Safiya and Al Hydaybah, is located 15 km from the Port of Duqm. Raysut Cement Co (RCC), Oman’s largest cement producer, recently signed an agreement with the Special Economic Zone Authority at Duqm (SEZAD) to construct a cement handling and distribution terminal at the port. The port development and the complementary special economic zone (SEZ) are priority state projects and are intended to transform Duqm into a commercial transport and logistics hub. Consequently, a majority of the initial cement output from RCC’s Duqm terminal will serve the requirements of infrastructure projects around the SEZ, and Raysut plans to begin operations by the third quarter of 2014.

Duqm will house another minerals facility following a joint venture announcement between Takamul Investment Company, a subsidiary of government-owned Oman Oil Company, and Canadian mining firm Medallion Resources to investigate the viability of a monazite-based, rare-earth extraction facility at the economic zone. Rare earths are used in almost all computing and mobile electronic devices.

In Dhank government contractors discovered sites that contain potentially hundreds of millions of tonnes of marble and tertiary limestone concentrated within several square kilometres, according to local press reports in July 2013. The same story holds for Sur, where geologists came across major deposits of limestone marble and other carbonate-based ores. An estimated 10m cu metres of high-quality marble deposits were found beneath the surface of Qalhat, 20 km north of Sur, and approximately 8.5m cu metres of similar deposits in Tiwi, nearly 40 km north of Sur.

Regulations

With such significant deposits comes significant responsibility. Oman’s surge in mineral wealth has hastened the call for tougher regulations and a new mining law. The drive to capitalise on value-added industry is the primary concern, and as the government is set to energise production, it is amending its investment criteria – requiring raw materials to be processed domestically before export. The intended result is to develop a downstream mineral industry that creates jobs and more valuable exports. “The objective is to give priority to the local factories for the allocation of raw materials. When we are exporting the raw materials we need to look at the true value of these raw materials so that we can maximise the local benefits without hammering the profitability of exports,” said Ali bin Masoud Al Sunaidy, minister of commerce and industry, in an interview with the Muscat Daily.

New legislation has yet to be announced, according to OBG’s legal partner Curtis, Mallet-Prevost, Colt & Mosle. A new mining law could potentially become effective before the end of 2013, due to the increasing interest in the sector, and the minerals directorate said that mining licence applications could be submitted starting as early as January 2014. However, it is impossible to determine the degree of value addition that the government is planning to enforce before the law comes into effect, which is keeping some mining firms and other potential investors on the sidelines until the legislation is in place.

In the meantime, the authorities are taking a tough stance on licence renewals and operator violations. The MCI has decided not to renew licences to operators that show no significant exploration work in the licence area, according to Curtis, Mallet-Prevost, Colt & Mosle. Local reports also highlight that the MCI has started to clamp down on operators that have committed outright violations of their licensing terms (such as overproduction), and dozens of mining sites have been closed down. Environmental concerns and community disturbances led to a brief moratorium on the issuance of new quarrying permits. After a panel of officials reassessed the permit guidelines, new licences are only to be granted to companies under joint ownership with a minimum of 35 Omani nationals, and at least 5% of profits must be reinvested in community welfare projects, according to the MCI.