Added potential: Going beyond manganese into other minerals

While Gabon has a well-established niche in the global mining market as the world’s second-largest manganese producer, its ambition to significantly expand exploration is generating strong interest from junior miners. Many of the majors, some of which are present in the country already, still consider the central African state essentially a greenfield proposal. However, the prospect of some of the world’s largest untapped iron ore deposits at the north-eastern Belinga site loom large on the horizon.

OPPORTUNITY: As Gabon revises its mining code in 2013, it aims to expand the state’s role in the sector, retain greater value locally and grow exploration and downstream processing (see analysis). With mining accounting for 6.3% of GDP and 6% of exports in 2012, according to the African Development Bank, there is potential for growth. The government hopes to quadruple the sector’s economic contribution by 2025 as part of the Industrial Gabon development plan.

The Ministry of Industry and Mines (Ministère de l’Industrie et des Mines, MIM) estimates that a mere 30% of the country has been fully explored, a low figure in light of the vast mineral wealth of some of the country’s southern neighbours. “The main priority is to encourage more exploration, given that only 30% of Gabon’s territory has currently been explored,” Fabrice Nze-Bekale, CEO of state-owned Société Equatoriale des Mines (SEM), told OBG. “In the long term we would like some 60-70% of the country to be covered, which will require more work by the government in terms of estimating reserves.”

The Gabon Mining Union (Union Minière du Gabon, UMIGA), with 19 members since its creation in 2010, estimates that investments in exploration, research and development reached CFA100bn (€150m) in 2012 compared to total production of CFA330bn (€495m). With most of the union’s roughly 2000 workers employed in the manganese segment, expanding exploration and production – along with ancillary activities – would have significant multiplier effects.

RESOURCES: Gabon’s estimated reserves of manganese stand at roughly 250m tonnes. It also holds proven reserves of 40 tonnes of gold, 22,400 tonnes of lead and zinc, 3m tonnes of barite, 70m tonnes of talc and an estimated 1bn tonnes of iron ore at the Belinga mine, according to the MIM. Many of these figures have not been revisited in decades, so reserves may be higher or lower. Alongside these estimates, there are prospects for finds of diamonds, uranium, niobium, phosphates, potash and, potentially, copper.

The Sysmin project, which ran from 2005 to 2009 and was backed by a €35m grant by the EU, generated geological, geophysical and geochemical data for the country, including a detailed inventory for 10% of the territory. “The EU’s Sysmin project generated a lot of interest from prospecting junior mining companies, and significant fieldwork is still needed to test this data and eventually estimate and prove reserves,” Thomas Pucheu, UMIGA’s vice-president, told OBG. Mining firms have since bought information from this database to identify promising exploration sites.

French companies have long dominated mineral extraction in Gabon. French nickel and manganese mining group Eramet established a 61%-owned local subsidiary Compagnie Minière de l'Ogooué (COMILOG) in 1962 to produce manganese from its mine in southwestern Moanda, while Areva produced 26,600 tonnes of uranium through its 68.4%-owned subsidiary Compagnie des Mines d’Uranium de Franceville (COMUF) from 1961 until 1999, when it closed its mine.

CASH COW: Manganese remains the cash cow of the Gabonese mining industry. COMILOG (in which the state holds 28.9%) is investing to expand annual ore production from its five-year average of 3.3m tonnes, around 15% of global production, to 4m in 2013. Gabonese ore is high-quality, with 45-50% manganese content. Roughly 90% is used in steel production, with around half of exports destined for China.

The French firm was awarded a 30-year concession to operate the single-track Trans-Gabon Railway (TGR) in 2005 through its 84%-owned subsidiary Société d’Exploitation du Transgabonais (SETRAG). The 648-km-long railway runs from the south-eastern provincial capital of Franceville to the Owendo port near Libreville, where COMILOG operates its own industrial mineral terminal and storage facilities that can hold three months of production. Under the agreement, COMILOG has planned investments of €75m over five years from 2011 to upgrade the line and adjacent installations, as well as to purchase more rolling stock.

Exports of manganese dropped from 3.4m tonnes in 2011 to 3.1m tonnes in 2012, partially due to technical difficulties at the Owendo port facility during the first half of 2012, which halted exports for a full month. The incident, which cost the group some €40m in lost revenue, caused the shortfall on planned production of 4m tonnes in 2012. Meanwhile, lower steel demand in China caused global manganese prices to drop from a high of close to $3.50 per kg in early 2012 to below $2.40 per kg by year-end.

Despite these challenges, COMILOG is developing the CFA135bn (€202.5m) Moanda Metallurgical Complex at the mine to produce 65,000 tonnes of silico-manganese metal and 20,000 tonnes of manganese metal annually, expected to come on-line in the fourth quarter of 2013. A number of further investments in downstream processing facilities are also planned. The MIM’s plan is to expand manganese production to 6.5m tonnes a year by 2025, with 35% of this processed locally (see Industry overview).

OTHER PLAYERS: A second manganese mine came on-line in 2012 operated by Compagnie Industrielle et Commerciale des Mines de Huazhou (CICM Huazhou), a wholly owned subsidiary of China’s Citic Dameng Holdings. The mine in Bembélé, near the central town of Ndjolé, holds approximately 30m tonnes of estimated reserves with 31.5% ore content. Granted exploration rights in September 2006, CICM commissioned the mine and associated concentration plant in 2010 with the aim of starting exports in 2011. Slightly delayed, the mine exported around 340,000 tonnes of ore in 2012 and aims to reach 500,000 tonnes in coming years, transported by the TGR to Owendo and exported to China. The firm has been allocated an 80,000-sq-metre site at Owendo, where it developed its port facilities adjacent to COMILOG’s.

Other operators have been attracted by the country's manganese deposits, but none have so far begun production. BHP Billiton conducted prospecting in the areas of Mounana and Okondja while it considered investing in a 300,000-tonne-per-year manganese mine; however, the company pulled out in 2012 as it rebalanced its global portfolio.

FIRST GOLD: Gabon started producing gold in 2012, both from a Moroccan-operated mine, as well as from artisanal mining operations managed by the state-owned SEM. As part of a 75:25 joint venture with SEM, Morocco’s Managem operates the Bakoudou mine project south of Moanda, along with an associated processing plant. The open-pit mine, which holds an estimated 1.7m tonnes of reserves, started exporting in 2012 with about 600 kg of gold produced.

The firm expects to produce 1200 kg per annum in the coming two years, despite a drastic drop in global prices from a peak of above $1600 per oz to around $1200 in mid-2013. Managem is also prospecting for gold in Eteké, near the central-western town of Mouila, where it estimates reserves of 500,000 oz.

The government is also working to organise the country’s estimated 5000-10,000 artisanal gold miners. Operational since early 2012, SEM not only manages the state’s stake in mining projects but also actively intervenes in the artisanal market. In 2012 SEM created a wholly owned subsidiary, Comptoir Gabonais de Collecte de l’Or (CGCO), to buy gold powder from up to 3000 artisanal miners spread over a wide area in central and southern Gabon. The subsidiary then flies the dust to Libreville, where it smelts it into gold bars that are 95% pure without being refined, according to the SEM.

The CGCO has an off-take agreement with the Caisse des Dépôts et Consignations, a newly created agency that manages government finances and is building up the state’s strategic gold reserves. The firm expects to produce between 50 kg and 100 kg of gold in 2013, and to expand to 300 kg in 2014. It is also seeking a partnership with a refinery (in South Africa, the UAE or Switzerland) to refine the gold to 99.99% purity.

Beyond structuring the informal trade, SEM is working to upgrade artisanal practices to improve productivity. The SEM is working with Gabon’s Chamber of Commerce, Agriculture, Industry and Mines to provide training, technical assistance and equipment to the small miners and help them structure themselves into small-scale mining units. “Our big focus is on gold, as this has the potential to generate quick profits for SEM and will have a significant social impact through our work with artisanal miners and efforts to establish five small-scale mining enterprises in the coming years,” Fabrice Nze-Bekale, SEM’s CEO, told OBG.

For instance, while miners typically buy bowls from markets and individually adapt them for gold sifting, the partnership plans to import dedicated sifting bowls from South Africa – SEM expects this could double yields from the current average of 0.1 g of gold per kg of earth. Structuring these miners into units would also allow them to be formalised and covered by the national health insurance scheme.

JUNIORS: Existing production accounts for only a fraction of what the government estimates is Gabon’s potential resources. With significant proven potential in neighbouring countries of the Republic of Congo and the Democratic Republic of Congo, Gabon is expected to hold significant shared deposits in a wide range of minerals. The new mining code expected by the end of 2013 aims to strike a balance between encouraging new exploration and optimising the state’s take in future mines (see analysis).

French uranium giant Areva, through wholly owned Areva Gabon, returned to Gabon in early 2008 to explore for fresh uranium deposits and rare earths. Areva’s efforts are building on the databank built up by its part-owned production arm, Compagnie des Mines d’Uranium de Franceville, which closed in 1999. Exploration is expected to last until 2017, when the company may move to production. Meanwhile COMILOG’s 70%-owned subsidiary Maboumine is exploring for niobium, phosphate, uranium and rare earths in Mabounié, near the west-central town of Lambaréné, likely to result in a project worth over €500m. Although other mining majors like BHP Billiton and AngloGold Ashanti exited the country in 2012 and 2013 due to global rebalancing of their exploration portfolios, junior mining companies are still particularly active in Gabon.

Firms can currently bid for up to four distinct three-year exploration permits covering a combined total of 2000 sq km, renewable three times. Data from the MIM indicates that some 20,000 sq km has been awarded for gold exploration, mainly in the southern part of Gabon. Canada’s Ivanhoe Mining is exploring for gold and associated minerals around Ndangui, near the central town of Lastourville, while London-listed Goldstone Resources is exploring for gold, lead, zinc and copper around the south-western site of Longo; the latter reported encouraging early results in July 2013, indicating a 15-km gold-in-soil anomaly at Ngoutou. Smaller juniors like ToroGold are exploring in partnership with SEM. Other juniors like Dome Ventures, which had been prospecting in partnership with AngloGold Ashanti prior to their withdrawal, were said to be facing financial difficulties in 2013.

Meanwhile, China’s Jiahua Mines, which is exploring for gold and copper in south-western Gabon, fell foul of the law this year when their miners were found extracting gold on Managem’s site. The World Wildlife Fund also highlighted a potential issue in 2012 when it identified artisanal mining activities overlapping exploration licences awarded to junior miners.

OTHER MINERALS: Gabon also has strong potential for phosphates and potash, two of the three key ingredients for complex fertiliser production. Engrais Gabon holds three licences to explore for potash – in April 2013 the British Virgin Islands-registered company Monomotapa Gold that owns Engrais Gabon was sold to Australia’s Oz Brewing. Société Potash Gabon has also been exploring for Potash in south-western Gabon, encouraged by major finds on the Republic of Congo side of the border.

Armada Exploration, which was granted two exploration licences in September 2012 for copper and base metals, is conducting prospecting fieldwork with a view to expanding its interests in Gabon. Larger firms will be monitoring this closely, given the high demand for the metal. Finally, although past exploration by De Beers and Motapa Diamonds did not reveal significant reserves of diamonds, authorities do expect new exploration in the coming years.

IRON ORE PRIZE: Perhaps the biggest potential prize, however, is the Belinga iron ore mine in the extreme north-east, bordering large-scale reserves in the Republic of Congo and Cameroon. Originally discovered in 1895, the last assessments date back to the 1970s when the MIM estimated reserves of some 1bn tonnes of 64%-pure iron ore.

A number of majors have since demonstrated interest – Brazil’s Vale initially pursued a deal for the site, but China Machinery Equipment Corporation (CMEC) ultimately won the permit in 2007. The Chinese firm had planned greenfield infrastructure, including a new railway, a deep-sea port and social infrastructure. The deal raised a number of questions given its uniquely advantageous terms: covering an unusually large area of 7000 sq km over 30 years, CMEC – through its subsidiary Compagnie Minière de Belinga – was eligible to claim any deposits it found there, iron ore or other. Despite financial guarantees from China’s EXIM Bank of up to $10bn, according to media reports, CMEC’s record as a trading and construction firm meant it was a relative newcomer to the mining sector and questions over its ability and environmental track record led to the freezing of the project. CMEC’s prospecting permit was suspended in 2011 and BHP Billiton initially pursued the licence before withdrawing from the country in 2013. The government is now completing further research at the site.

The MIM has signed a $25m contract with British mining consultancy firm SRK Consulting to conduct new estimations of Belinga’s reserves over a two-year period. “By the time we get the results from SRK in 2015 we expect iron ore prices to have rebounded and are hoping they find more than 1bn tonnes of reserves. This could help us fetch a higher price in any competitive bidding process,” SEM’s Nze-Bekale told OBG. A number of majors are said to be interested in Belinga, including Glencore Xstrata, underweight on iron ore and cash rich since the merger; Anglo American through its majority-owned subsidiary Kumba; and Vale, particularly if it loses its stake in the Simandou mine in Guinea. The exploration strategy is not without risks, however. Miners have questioned whether the $25m assigned to SRK is sufficient to meet the two-year target in such a logistically isolated area.

The new mining code could hinder interest from the majors if it is applied to Belinga, as cutting the deposit into smaller 1500-sq-km concessions could fragment ownership excessively. Mining executives see more potential in linking Belinga to iron ore reserves under development in Congo and Cameroon, right across the border, including Sundance Resources’ project in Congo’s Mbalam-Nabeba region.

As the industry awaits 2015 for movement on Belinga, a number of juniors have launched exploration for iron ore in areas adjacent to the fabled reserves. To this end, Waratah Resources has gained licences on adjacent sides of the Congo-Gabon border, banking on the Belinga reserves being larger than previously expected; meanwhile the London-listed Ferrex, Australia’s Volta Mining and IronRidge Resources have started exploring for iron ore in areas further away.

OUTLOOK: Gabon holds significant potential for mining investors, although its proven reserves are still modest compared to its neighbours. The implementation of a new mining code in late 2013 is set to revise several rules (see analysis).

The country’s expulsion from the Extractive Industries Transparency Initiative (EITI) in 2012, due to late reporting and discrepancies in reporting mineral revenues, sends the wrong signal to investors, even though authorities seem eager to regain membership. As Gabon seeks to catalyse investment in exploration and increasing its downstream processing capacity, striking the balance between its development prerogatives and incentives for investment will be crucial.