Algeria's mining output to soar thanks to abundant, underexplored mineral deposits

The largest country in Africa, Algeria remains mainly underexplored as regards non-hydrocarbons mineral deposits, pointing to major potential opportunities in the mining sector. The authorities are keen to develop the industry, not only in order to boost minerals output itself, but also to provide raw materials for a range of emerging industries as part of wider efforts to diversify the economy away from its heavy reliance on oil and gas production. To this end, a new law regulating the industry that was passed in 2014 provides a number of new incentives for miners operating in the country.

Ambitious Plans

Iron ore and phosphate rock are currently the only minerals that are being produced in the country on a large scale. New projects in the pipeline or under consideration should see output of both increase dramatically in the future. Indeed, the country is set to become one of the leading international producers of phosphate by 2021. Plans are also in the works to expand the scope of the sector. Zinc output, for example, is also expected to be ramped up in the coming years, with future production hoped to be large enough to rank Algeria as one of the top producers in the world.

In addition to development on the production side, efforts are under way to enhance the logistical environment for miners. A number of major rail infrastructure projects are under construction or consideration around the country as part of efforts to facilitate the development of the sector.

Sector Size & Scope

The Algerian mining industry is dominated by state-owned mining firm Algerian Mines Company, Manadjim Al Djazaïr, known as Manal, which was created in 2011 as part of a reorganisation of the sector.

The company has four mining subsidiaries, namely phosphate and iron producer FERPHOS, non-ferrous metals (in particular gold) producer Entreprise d’Exploitation des Mines d’Or (Enor), marble miner Enamarbre and salt producer Enal. In addition to these four miners, Manal also operates a gold transformation and distribution subsidiary, Agenor, and a research arm, the National Bureau for Geological and Mining Research (Office National de Recherche Géologique et Minière, ORGM).

In 2015 the total value of mining output stood at AD26.1bn (€215.9m), according to data from the National Statistics Office (Office National des Statistiques, ONS). While the figure has been on an upward trajectory in recent year – growing from AD23.1bn (€191.1m) the previous year and AD18.2bn (€150.6m) in 2010 – it represents just 0.2% of GDP, underscoring the fact that while the country appears to be rich in a number of non-hydrocarbons minerals, the sector has suffered from long-term underdevelopment. This has stemmed from a number of factors, including the strong dominance of the economy by the oil and gas sector and the remote location of some major deposits.

Mining Law

However, as part of wider plans to diversify the economy, boost industry and reduce imports, the authorities are working to develop the sector and attract new investment into it. Such efforts include incentives contained in a new mining law that was passed in 2014, replacing previous legislation on the sector enacted in 2001.

The legislation, which was published in the country’s official gazette in March, revised the tax, fee and royalty framework for the sector, including the introduction of exemptions on value-added tax and Customs duty for equipment, materials and services used for mining exploration and production.

Under the legislation, royalties on the value of mineral production vary between rates of 1.5% for solid combustibles and metallic minerals and up to 6% for precious and semi-precious gems and metals. Miners also pay a surface tax determined by the size of the exploration or mining permit area and are obliged to set aside up to 2% of profits to rehabilitate mining sites after the completion of projects.

Other changes included the creation of a category of strategic mineral resources, which only stateowned entities may develop. The National Mineral Resources Agency (Agence Nationale du Patrimoine Minier, ANPM) will also be replaced with a new body with stepped-up powers to police activity at mines, the National Agency for Mining (Agence Nationale des Activités Minières, ANAM).

Iron Ore Production

The main iron ore facilities currently operating in the country are international steel major ArcelorMittal’s Ouenza and Boukhadra mines in the province of Tébessa in eastern Algeria, which contain total deposits of approximately 60m tonnes. FERPHOS, which is owned by the Algerian government, has a 70% stake in the mines, while ArcelorMittal owns the remaining 30%. Prior to 2014 the shareholdings in the mine were reversed.

FERPHOS additionally operates small iron ore mines at Anini near Sétif and Rouina in Aïn Defla province. The two facilities have reserves of around 3m tonnes and 3.5m tonnes of iron ore, respectively.

Southern Deposits

While the bulk of domestic iron ore production currently takes place in Tébessa in the north-east of the country, Algeria contains around 150 other known deposits, mainly situated in the Tindouf basin, the Ougarta and Hoggar regions and the Atlas mountain range.

The largest known iron ore deposit in the country is Gara Djebilet, which is located near Tindouf in south-west of the country. Gara Djebilet is estimated to contain reserves of 1.54bn tonnes.

Another major deposit, Mecheri Abdelaziz, is also located nearby with estimated reserves of around 702m tonnes. The deposit was first discovered in the 1950s, but activity at the site has been slow to take off. State-owned oil and gas company Sonatrach took over the licence for the deposit in 2009, but a subsequent call for expressions of interest in developing the deposit garnered little response.

Nevertheless, now efforts are once again under way to develop the reserves at the site. In 2014 the authorities created a new company, National Iron and Steel Company (Société Nationale du Fer et de l’Acier, Feraal) – a joint-venture project between Sonatrach, Groupe Industriel des Ciments d’Algérie, Manal and Sider – with a view to exploiting these deposits. Feraal is targeting production of between 10m and 12m tonnes per annum (tpa) of iron ore at Mecheri Abdelaziz by 2025.

Providing Transport

In a related development, in February 2016 the Ministry of Industry and Mines announced it was in discussion with Chinese firms for the creation of a consortium to mine ore at the site and build a railway to transport its output. According to local media reports in February 2016, Boudjema Talai, the minister of transport and public works, said that he had discussed the construction of a 950-km railway from Abadla, near Bechar (where the country’s easternmost northsouth railway line terminates) to the site. The following May ANAM and Feraal signed an agreement to finance an AD3bn (€24.8m) feasibility study to for the exploitation of the deposit. Increased local iron ore production would help to feed Algeria’s rapidly growing steel industry, including the 2m-tpa Bellara steel complex currently under construction by Sider (a joint venture between the Algerian government and ArcelorMittal) and Qatar Steel. The first phase of the Bellara project is expected to be commissioned by the end of 2017. Total capacity at the site will be increased to 4.2m tpa by 2019.

Phosphates

Algeria is thought to have deposits of around 2bn tonnes of phosphates, mostly located in the north-east of the country. National phosphate production currently stands at around 1.5m tpa, most of which takes place at two open-cast mines operated by Somiphos, a unit of state-backed phosphate and iron miner FERPHOS, near Djebel Onk in the Bir El Atar area of Tébessa province.

The segment is set for major expansion, with the authorities planning to raise phosphate rock output to 10m tpa by the end of the decade, which based on 2014 figures would rank Algeria as one of the top-five phosphate producers in the world (Jordan was the fifth-largest producer in 2014, with output of 7.5m tpa). Much of the increase will come from the Bled El Hedba mine in Tébessa province, which is being developed under a joint venture between Manal, Asmidal and Indonesian firm Indorama under a joint venture agreement made in July 2016 (see Industry analysis). The new mine is expected to have a production capacity of 6m tpa.

Almost all current phosphate output is exported as raw phosphate, due to a lack of local processing facilities, with around 25,000 tonnes provided each year to Fertial for the production of phosphate-based fertilisers. Exports of the commodity stood at 1.07m tonnes in 2013, according to the latest available data from ONS.

However, the authorities are now working to develop a range of phosphate-processing and phosphate-based fertiliser plants, with Indonesian company Indorama having agreed to establish a joint venture phosphoric acid plant together with state-owned Asmidal and Manal, in addition to its investment in the Bled El Hedba mine.

With production of both raw phosphate and phosphate-derived products set to rapidly increase in coming years, Abdesselam Bouchouareb, the minister of industry and mining, said in June 2016 that the company needed to identify new markets in which to sell such commodities abroad.

Gold Production

The country’s sole gold producer is Enor, which is a wholly state-owned company. Australian miner Gold Mines of Australia previously held a majority stake, which it had acquired in 2005-06, but sold the 52% it held in the firm back to the government in 2011.

The company operates the Amesmessa mine in Tamanrasset in Algeria’s far south. Output from the facility has been on the decline in recent years. Enor produced 140 kg of gold in 2013, according to the latest available data from the US Geological Survey, down from output of 264 kg the previous year and a peak of around 1000 kg in 2009.

However, Canadian firm Cancor Mines, a wholly owned subsidiary of Yorbeau Resources, is currently exploring for gold in at least four permit areas, all also in the far south of the country, which if successful could see production of the precious metal rise once again in coming years.

Zinc Exploration

Algeria could soon become a major zinc producer. Western Mediterranean Zinc – a joint venture between Australian miner Terramin (with a 65% shareholding), the state-owned Enterprise Nationale des Produits Miniers Non-Ferreux (with a 32.5% stake) and the ORGM (holding 2.5%) – is exploring for the mineral in the Oued Amizour deposit area in the north-eastern province of Béjaïa.

According to Terramin’s findings, the Tala Hamza deposit in the permit area, covering 125 sq km and located around 15 km from Béjaïa city, contains an estimated 68.8m tonnes of 4.6% zinc and 1.1% lead, for a total of 3.9m tonnes of the two metals.

This, according to the company, could by itself make the country one of the top-10 producers of the metal in the world. Drilling in the south of the deposit are in 2015 was especially promising, showing that the deposit there was thicker and higher grade than initially expected.

Furthermore, Terramin has reported that the permit area also contains several other potential prospects for zinc and lead as well as copper, and a number of other deposits that have yet to be fully explored. In 2015 the company successfully applied for its exploration licence in the permit area to be renewed, and in August 2016, while announcing that it was facing financial problems, said that the project was progressing well and announced that it expected to make progress soon “towards a decision to mine and mine lease approval”. To this end, the project partners are working to finalise a feasibility study for mining activity in the area.

Minerals Railway

The Tébessa mines of ArcelorMittal will soon be able to benefit from improved transport connections, with work currently under way on the first phase of the so-called Eastern Mining Railway project, which involves the double-tracking and modernisation of the Annaba-Djebel Onk-Tébessa section of the country’s railway network to improve transport and logistics connections from the area’s mining and processing facilities.

The first phase of the AD50.6bn (€418.6m) mining railway project, which was approved by the government in May 2016 and due to be completed in 2018, will facilitate the transport of approximately 1.5m tpa of iron ore from the mines. When fully completed in 2020, the line will cover 177 km and have capacity to carry 26m tonnes of the iron ore, phosphate and phosphates derivatives produced by phosphate-processing plant under construction at Oued Keberit (see Transport chapter).

Outlook

Algeria’s phosphate output is set to increase dramatically in coming years as part of wider plans to develop a major phosphate processing industry, potentially ranking the country among the largest producers in the world. Additionally, significant expansions in iron ore capacity could follow soon after, helping to feed the country’s rapidly expanding capacity for steel production. The country could also become a major international producer of zinc, a segment in which explorations show signs of significant reserves.

Efforts are also under way to improve the business environment. The new mining law and the incentives it contains should help to attract additional interest, as underscored by Indorama’s major recent investment in phosphates, while new rail connections should ease logistics connections for miners’ output.