Jordan: Mining matters

Jordan’s mining sector has a promising outlook for the coming year, and not just in the sector’s traditional segments such as phosphate and potash, but in newer areas of extraction as well. As profits for established mining companies grow, so do opportunities in shale oil and uranium extraction.

The International Monetary Fund has recently highlighted the sector’s growth prospects, noting the country’s “buoyant mining exports” and saying “real GDP is likely to grow by 2.75% in 2012, underpinned by modest growth in mining and financial services” in its 2012 Article IV Consultation Public Information Notice (PIN).

Facts on the ground seem to agree with the IMF’s assessment. The Kingdom remains a major player in the global extraction of phosphates, for which it holds about 4% of the world’s supply, and potash, of which it holds 4-5% of global supply. While both segments took a hit in 2009, when the prices of potash and phosphate dropped by 70%, they have since rebounded.

Jordan Phosphate Mines Company (JPMC), the country’s largest phosphate extractor, reported income of JD145m ($203.71m) in 2011, an 81% rise compared to the previous year. JPMC also reported JD812m ($1.14bn) in sales, a 44% rise from 2010, and JD156m ($219.16m) in operating income, a 144% increase.

This amounts to JD319m ($448.16m) in gross profits for JPMC, an impressive 120% increase compared to 2010. In a sign that the trend is continuing, in the first quarter of 2012 net profits jumped to JD38.7m ($54.37m), a 77.5% surge compared to the first quarter of 2011.

Arab Potash Company (APC), the Kingdom’s main potash producer, reported similarly impressive growth numbers for its first quarter in 2012. It had consolidated net income of JD60.3m ($84.71m) for the quarter, compared to JD54.3m ($76.29m) over the same period in 2011, an increase of around 11%. Gross profits for the quarter grew by 4%, from JD147.4m ($207.08m) to JD153.5m ($215.65), while the company’s consolidated gross margin increased 14%, from JD74m ($103.96m) to JD85.8m ($120.54m).

While the traditional fields of phosphate and potash extraction seem ripe for continued growth, other possibilities for further profit may soon be coming from other extraction segments, such as shale oil and uranium extraction.

The Kingdom has recently begun extracting its reserves of shale oil, which are estimated to be 40bn tonnes. The sedimentary rock, which contains solid bituminous materials that are released as a petroleum-like liquid upon heating, is expected to attract some $20bn in investment in the coming years, according to statements by Mousa Ali Alzyoud, the director-general of the Natural Resources Authority.

An Estonian-Jordanian firm, Jordan Oil Shale Energy, is expected to begin pumping the first-ever, commercially viable barrels of oil derived from the rock during 2012, the first step in what is expected to be a 44-year project that will culminate with 35,000 tonnes of oil shale being produced each day. Additional extraction sites, along with a power plant to be fuelled by the substance, are also now being discussed as investment possibilities.

The Kingdom’s uranium deposits, estimated at around 65,000 tonnes, are also another extraction segment garnering new interest. While the country currently generates most of its energy from fossil fuels – 95% of which are imported from its Arab neighbours – the Kingdom aims to generate 30% of its total energy needs with nuclear power by 2030. The French firm AREVA, an industrial conglomerate, has already begun carrying out exploration on extracting uranium from the country’s central regions and, should extraction prove feasible, the company is scheduled to commence uranium mining as early as 2015.

But in what is perhaps a result of the sector’s increasingly large profits, the financial and economic committee of parliament’s lower house has suggested an income tax rate hike for mining companies, along with a similar suggestion for the country’s banks. The current tax rate of 14% could be increased to 25% if legislation is approved.

While speaking with The Jordan Times, Anwar Ajarmeh, the committee’s rapporteur, said, “The current economic and financial conditions in the country require increasing taxes on such firms”. However, Ajarmeh went on to mention the panel might not have time to finish amending the legislation by the end of parliament’s second ordinary session, due to wrap up on June 26, 2012.

The prospects look strong for continued growth in the mining sector, particularly with new opportunities in shale oil and uranium extraction. Moreover, while the sector may soon face a tax increase, that is, in its own way, yet another sign of how well the industry is doing compared to the rest of the Jordanian economy.