Output is set to expand considerably in the medium-term

The natural richesse of Gabon is not limited to oil and gas, and the country is turning to mining to help diversify away from its reliance on hydrocarbons, which still represent 45% of GDP and 80% of export receipts. The African Development Bank estimated that in 2012 that the mining sector contributed 6.3% of GDP and 6% of exports, though estimates from the Ministry of Economy and Planning put it much lower, at under 2% of GDP. Either way, the sector has the potential to be a major economic driver, and the government hopes to quadruple mining’s contribution to GDP by 2025 under the Industrial Gabon development plan.

Manganese and gold production is on the rise, and prospection in new areas such as titanium, copper, rare earths, phosphates and potash promises to diversify the sector in the medium term. In line with the government’s industrialisation strategy, local processing requirements are gradually being imposed to increase the sector’s value-added and boost non-hydrocarbons activity. Several challenges remain, including efforts to ratify the new mining code and increase visibility on sector regulation, strengthen geological data, and improve transport and communication infrastructure. Yet the last five years have seen new mapping programmes and a marked increase in demand for research permits, which bode well for the sector’s future.

By The Numbers

Sector GDP rose to CFA109.2bn (€164m) in 2013, or 1.3% of national GDP, according to the Ministry of Economy and Planning. This represents a 38% year-on-year (y-o-y) rise from CFA79.3bn (€119m) in 2012 (1% of GDP), but is well below the five-year peak of CFA347.4bn (€521m, 4.3%) of 2011.

Today, the sector relies heavily on manganese and, to a lesser extent, gold production. Gabon is the world’s second-largest producer of manganese, used primarily in steel production, with at least 250m tonnes of reserves. It also possesses around 1bn tonnes of iron ore, 40 tonnes of proven gold reserves, as well as 22,400 tonnes of lead and zinc, 3m tonnes of barite and 70m tonnes of talc, according to the Ministry of Industry and Mines (MIM). Beyond this, Gabon has prospects for finds of uranium, niobium, rare earths, diamonds, phosphates, potash, copper and other minerals.

Data & Mapping

As geological data has improved and West African discoveries have multiplied, the number of research permits rose from 12 in 2003 to 51 in 2013, according to the MIM’s General Directorate of Mines and Geology (Direction Générale des Mines et de la Géologie, DGMG). However, authorities aim to raise the number of exploration permits to at least 100, in order to increase the pace of new discoveries.

To this end, improved geological databases and mapping will be critical to stimulate new investment and exploration. The SYSMIN project, for example, completed between 2003 and 2010 with a €35m grant from the EU, generated geological, geophysical and geochemical data for 65% of Gabon and developed a detailed mining inventory for 10% of the territory. The study identified new areas for exploration, and its follow-on project, called the Sector Governance Support Programme (Programme d’Appui à la Gouvernance Sectorielle, PAGOS), will help strengthen sector governance and develop more detailed maps of the country’s metal resources in the coming years.

National Operator

As in many countries throughout Africa, Gabon is revising its regulatory regime in order to capture a greater share of sector revenue and boost local content. Gabon’s first national operator, the Equatorial Mining Company (Société Equatoriale des Mines, SEM) was created in 2011 to represent the government’s stake in joint ventures. SEM will also act as a producer in its own right, similar to the newly created Gabon Oil Company in the hydrocarbons sector. At the moment, its primary activity is the collection and transformation of artisanal gold mining through its wholly owned subsidiary, the Gabonese Gold Collection Counter ( Comptoir Gabonais de Collecte de l’Or, CGCO).

Gabon’s revised mining code, which was still under discussion at time of press, is expected to reserve a nonnegotiable 10% carried interest for the state in all major mining contracts, with an option to negotiate the purchase of an additional 25% stake. For highly strategic projects, such as the Bélinga iron ore site and the Maboumine rare earths site, the state is expected to acquire a 35% stake, in an effort to both support and benefit from critical projects. Gabon currently holds a 28.9% stake in Comilog’s Moanda manganese mine and 25% of Managem’s Bakoudou gold mine.

While the clause is not retroactive, the state is working to carve out a 10% share for SEM in China’s Compagnie Industrielle et Commerciale des Mines de Huazhou’s (CICMHZ’s) Ndjolé manganese mine. The DGMG will also be restructured to separate the upstream and downstream functions; the texts were adopted in 2013, but no change has yet been made.

Regulatory Changes

The draft code is intended to increase visibility on sector regulation and add new incentives for exploration and investment; for the most part, though, the changes are relatively minor. Research permits are valid for three years and renewable twice, for a total of nine years. The new code stipulates that companies can hold three permits, down from four, and reduces the maximum permit area from 2000 sq km to 1500 sq km, in the hope of encouraging diversity in terms of partners. The code also requires an element of professional training and local processing for all extraction projects in an effort to support local industry and create employment. Processing operations will reportedly be eligible for unique fiscal and Customs incentives, though these have not been specified. The code will also impose more strict regulations on companies for the decommissioning of active mines and subsequent environmental controls.

In line with many other new mining regimes in Africa (including Ghana and South Africa), the draft code also increases contributions to public funds, as is the case in the hydrocarbons industry. Between 0.75% and 1% of turnover during the production phase will be dedicated to the Industrial Responsibility Fund, which will protect people from environmental impact after the life of the mine. Another 3.725% will go to the Social Responsibility Fund, of which 1.125% will fund social infrastructure and 2.6% will be reinvested in the mining industry. The Gabonese Mining Union estimates that the total government take, including active participation and various fund contributions, will rise to roughly 60%; this is on the higher end, but still within the average range for fiscal structures elsewhere on the continent.

Manganese

Manganese has traditionally been the backbone of Gabon’s mining industry. Comilog, the primary operator and a subsidiary of France’s Eramet, accounts for the vast majority of production from its Moanda mine. Comilog’s output increased 22% y-o-y to reach 3.7m tonnes in 2013, up from 3.04m tonnes in 2012, and turnover rose 30% y-o-y to reach €612m.

Performance in 2013 was bolstered by stronger demand for steel – 90% of Gabon’s manganese goes toward steel production – and improvements to the transport network; performance in 2012 was affected by train derailments and work stoppages due to technical problems at the Port of Owendo. The country’s only railway, the Transgabonais, was constructed to carry minerals from south-east and central Gabon to Owendo. Today, Société d’Exploitation du Transgabonais, a subsidiary of Comilog, operates the railway.

In addition, CICMHZ opened Gabon’s second manganese mine in 2012 near Ndjolé. The mine contains 30m tonnes of estimated reserves. According to the DGMG, the Chinese group boosted production from 340,000 tonnes to 440,000 tonnes by the end of 2013, and ultimately aims to reach 500,000 tonnes. BHP Billiton also began prospecting for manganese in Mounana and Okondja before freezing its projects in Gabon in early 2013 as it paused a number of African investments.

New Projects 

Comilog is working to improve maintenance and operating efficiency, and is expecting production to hit 4m tonnes from 2015 onwards. It had also launched operations at its CFA155bn (€232.5m) manganese processing facility, the Complexe Mé tallurgique de Moanda (CMM), as of August 2014. The CMM, the sector’s first major processing operation, includes a 20,000-tonne-per-year manganese metal plant and a 65,000-tonne silico-manganese alloy plant.

A new actor, Gabon Manganese and Ferro Alloy (GMFA), emerged in June 2014 with the signature of a 85:15 joint venture between India’s Navodaya Trading and SEM to develop the Okondja manganese deposit in the eastern Haut-Ogooué province. Studies conducted by Brazil’s Vale in 2005 indicated that the site holds 27m tonnes of reserves, with manganese content at 35-40%. While the size of the deposit is modest compared to Comilog’s reserves, GMFA plans to construct a CFA75bn (€113m) processing plant, which would further expand local industrial capacity and export value. The MIM aims to increase manganese production to 6.5m tonnes per year by 2025 and to process 35% of output locally. This would require a major uptick in investment and exploitation, but these new projects are a step in the right direction.

Good As Gold

Investors have also turned to Gabon’s gold reserves to diversify mineral output. Sites currently under development by Morocco’s Managem and London-listed GoldStone Resources, as well SEM’s artisanal activity, stand to create a promising new source of export revenue, despite a sharp drop in gold prices from $1600 per oz in mid-2012 to $1300 in mid-2014.

Morocco’s Managem operates the Bakoudou mine south of Moanda under a 75:25 joint venture with SEM. Production of processed gold jumped from 600 kg in 2012 to 1250 kg in 2013, with similar projections for 2014. Managem is also prospecting in Eteké, near the central-western town of Mouila, which is estimated to hold gold reserves of 500,000 oz. UK-based GoldStone Resources is exploring gold resources on its permits in Oyem and Ngoutou, which it obtained in 2011. The company has confirmed the presence of high-grade gold mineralisation from drilling on both sites in 2013, and it is reportedly working to generate the financing to advance both projects in 2014.

Artisanal Mining

Like several countries in the region, artisanal gold mining is an important economic activity for rural populations; the number of informal miners is estimated at 5000-10,000. The CGCO, SEM’s wholly owned subsidiary, was created in 2012 to structure the sector, improve conditions for artisanal miners, and ensure that these resources are channelled into the treasury, rather then being smuggled across the borders. The CGCO collects gold powder from some 3000 artisanal miners throughout central and southern Gabon, with permanent counters in Makokou and Ndjolé, and temporary missions in other areas.

Raw materials are flown to Libreville to be smelt into gold bars. Ingots are currently produced at 95% purity, and the firm is seeking a technical partner to improve refinery quality to 99.9% purity.

The CGCO collected 43 kg of gold dust and nuggets in 2013, and aims to increase this to 100 kg in 2014. SEM reported that it sold 35 kg of gold ingots in 2013, primarily to the Deposits and Consignments Fund (Caisse des Dépôts et Consignations, CDC), for turnover of €1.14m. The CDC’s gold purchases will eventually be transferred to the Banque des États de l’Afrique Centrale to be used as collateral for Gabon’s international debt issues. SEM signed a €450,000 financing agreement with the CDC in January 2014 to expand artisanal gold activity by creating new collection counters in Mitzic, Lastoursville and Mouila, providing training and better tools to miners, and encouraging aggregation.

Iron Ore

Perhaps the most promising long-term prospect is the Bélinga iron ore deposit in the northeast, near the border with Cameroon and the Republic of the Congo. The site holds an estimated 1bn tonnes of high-mineral-content iron ore, yet remains untouched, mainly due to a dispute with the former permit holder, Compagnie Minière de l’Ogooué (Comibel), a 75:25 venture between China Machinery Engineering Corporation and the state. Comibel was awarded the exploitation permit in 2007, but it was frozen in 2011 due to a lack of progress on the site and insufficient reporting from the company. The contract was dissolved in November 2013. The UK’s SRK Consulting was subsequently contracted by the government to carry out a two-year, $25m scoping study to reassess Bélinga’s resource estimates, based on government claims that reserves may be larger than initially thought. According to press reports, Gabon began discussions with interested parties in early 2014, but a formal licence tender will be held in 2016 when the study is complete. The minister of mines, industry and tourism, Régis Immongault, said in May that production could begin by 2024/25.

The project’s potential is huge, but it faces challenges. Transport and logistics top the list, as Bélinga is separated from Atlantic ports by thick rainforest; its development will require the construction of a 650-km railway connecting Bélinga to Port-Gentil, a deepwater minerals port, and road and hydroelectric infrastructure. The government has estimated that costs could reach €2.9bn. Global iron ore prices have also fallen since late 2012 in the face of surplus output, reducing the attractiveness of large greenfield projects.

Bélinga is located in a 200-sq-km zone extending from north-eastern Gabon to neighbouring Cameroon and the Republic of the Congo that is particularly rich in iron ore, and a handful of smaller sites on Gabonese territory have generated interest from key players. Most notably, London-based Ferrex upped the resource estimate at its Mebaga iron ore site, located near the northern town of Mitzic, from 20m tonnes (60% iron) to 90m-150m tonnes with 35-65% iron content, and another 550m-900m tonnes with 25-50% iron content. Following this announcement, Anglo-American and its subsidiary Kumba Iron Ore agreed in December 2013 to fund Mebaga exploration for up to two years, with an option to acquire 100% of the project.

A number of other key projects in the iron-rich zone may rival Gabonese production in the medium-term. Australia’s Sundance Resources is developing the Mbalam-Nabeba deposit along the Cameroon-Congo border 80 km from Bélinga, and Swiss-based Glencore is pursuing the development of the Zanaga deposit in the Congo. Some authorities and companies, including Sundance, have proposed a joint approach to the zone’s development in order to minimise infrastructure costs. Cooperation has not been ruled out, but varying local regulations, such as Gabon’s focus on local processing and value-added exports, make such propositions tricky.

Mabouminé

The Mabounié project, being developed by Maboumine, a subsidiary of Comilog, offers potential to improve rare earth and metal revenues. The firm is developing the Mabounié site, 50 km from Lambaréné in the country’s interior, which contains deposits of strategic minerals such as niobium, tantalum, uranium and rare earths. China currently produces nearly 95% of rare earth minerals, and the development of new producers could help ensure market competition and protect against commodity price shocks.

Since the 2000s, Maboumine has been developing a special hydrometallurgical process to maximise mineral extraction from its poly-metallic deposit. A pilot plant to be built near the site is under study; it will have the extraction process and determine the project’s commercial viability. It is expected to begin operations in 2016. If successful, a commercial plant could enter into production by 2024-2025.

Labour 

Efforts to boost natural resource processing will create a sharp uptick in demand for qualified personnel. Comilog’s CMM plant will require 400 employees, and the Maboumine plant is expected to create 2000 direct and 6000 indirect jobs if it arrives at the commercial stage. In the short term, the National Scholarships Agency and professional training ministry will work with miners to get these projects off the ground.

New facilities such as the Moanda Mining and Metallurgy School, which is being developed largely with funding from Eramet, should help to reduce the deficit of skilled local personnel once launched in 2016. However, additional training capacity will be needed if the sector is to expand as the authorities hope. Gabon’s requirement that foreign workers make up no more than 10% of total staff will be difficult to meet, and the state may need to relax labour regulation, particularly for highly skilled personnel, in the ramp-up phase.

Moreover, these processing projects will draw workers to less-populated regions where education, health care, communications and transport networks are much thinner. This will require a sizeable investment in the long-term to build up local infrastructure, but will also encourage economic decentralisation.

Transparency Goals

Gabon had made Extractive Industries Transparency Initiative (EITI) confirmation a focus in previous years, although candidate status for the EITI is currently shelved, due to late and insufficient information reporting on revenue streams by the government. Luis Pardelhas, the EU attaché for mining, told OBG, “A study conducted by the consultancy KPMG in 2013 highlighted that Gabon does not currently have the institutional capacity to collect, maintain and report sufficient sector data.”

Efforts to reintegrate into the EITI have been tentative so far, but it will be a priority in the future as Gabon’s ejection has raised investor concerns about the lack of visibility on sector regulation. “Much work remains to be done, but programmes such as the EU-funded PAGOS project should help to improve the government’s statistical capacity and strengthen overall governance in the medium-term,” said Pardelhas.

Outlook

If the current exploratory and pilot projects make it to the production phase, activity stands to increase considerably in the next two decades. Recent efforts to strengthen both sector administration and geological data should continue to boost demand for research permits. The mining sector, meanwhile, has the potential to contribute significantly more to GDP, although infrastructure and personnel shortages will be an obstacle to development in the medium term.