Fission for minerals: Unlocking the nation’s geological potential

Although Gabon possesses important mineral resources in its soil, the share of the mining sector in the GDP only amounted to 4.6% in 2011, compared to 4.5% in 2010. The government is anxious to increase this share, promoting the local processing of existing productions and attracting new mining firms to the country. It has also indicated a desire to play a direct role in the development of the sector, through public-private partnerships and, possibly, mandatory participation in projects involving strategic resources. Important administrative and legal reforms have been initiated to facilitate investments but the slow pace of these reforms has kept investors hesitant until now.

EXPLORATION: Most of Gabon’s mineral resources remain unexploited. Apart from manganese, iron and gold, Gabon’s soil also contains, diamonds, bauxite, copper, zinc, rare earth minerals, niobium, tantalum, uranium, phosphates and others. Approximately 900 occurrences have been recorded, however, the lack of transport infrastructure and sufficient energy has been the main obstacle to the development of exploration and extraction of these resources. The new Ministry of Industry and Mining will play a leading role in intensifying research, as studies are needed to update the map of Gabon’s mineral resources.

AngloGold Ashanti announced in August 2012 its withdrawal from the joint venture exploration projects with the Canadian Silver Bull Resources and its subsidiary Dome Ventures, for the Ndolé/Mevang and the Ogooué sites. Confident about the gold and manganese potential on the Ndolé site, Silver Bull confirmed its intention to renew its exploration licence and pursue the exploration of this site.

Eramet and the Compagnie Minière de l’Ogooué, (COMILOG) will begin the exploitation of a seam of rare earth minerals and niobium at Mabouiné, near Lambaréné. The project will be conducted as a joint venture between Eramet and the state of Gabon. France’s AREVA, which discovered uranium in the region in 1956, currently owns two exploration permits to tracts near Franceville that are 2000 sq km each. The site was host to a series of self-sustaining nuclear fission reactions 1.7bn years ago, and research into potential new uranium deposits is ongoing.

LEGAL & POLITICAL FRAMEWORK: The political landscape of the mining sector was modified in 2011, following a ministerial reshuffle and the creation of a new Ministry of Industry and Mining. These changes illustrate the government’s new strategy. According to Régis Immongault Tatagani, minister of industry and mining, “In order for the mining sector to successfully emerge, it is important for the sector to not limit itself to its primary activities, such as raw material extraction and exports. The strategy is to increase local processing of mineral resources, and it is for this reason that industry was paired with mining, as industry is key to the development of the mining sector.”

On the legal side, the ministry is promoting investment in new extraction projects through an updated mining code, which has been under review since 2010. However, the first drafts of the new mining code caused a certain level of concern among investors, as it included new taxation on profits while abolishing some fiscal incentives. It also added further social and environmental responsibilities and reduced possibilities for case-by-case negotiated tax breaks that have been implemented in other African nations.

KEY CONCERNS: The adoption of such a version of the mining code could very well discourage investors. Jean Fabre, the general manager of COMILOG, which is the largest mining company by revenue and volume in Gabon, had concerns. “The Code at this stage is very violent on a fiscal level,” he said, “and it needs to be attractive. The fiscal measures are heavy right from the beginning. There are no taxes for the first three years, but this is not long enough, it should be 10 years.”

Moreover, investors are concerned by the unclear conditions under which the government could acquire shares in projects that it identified as strategic. Fabrice Nze-Bekale, the CEO of the Société Equatoriale des Mines (SEM), which was created in August 2011 by the government to manage its participation in the mining sector, responded to this last concern.

“We are conscious that we have the desire to increase our resources, to participate in the project, but at the same time, this will be done in an intelligent manner to avoid scaring off investors,” Nze-Bekale told OBG. “There is no ambition to nationalise mining and the government’s strategy is to be an active minority partner, which is why there will be a split between free-carry and regular acquisitions. A distinction is made for strategic resources, for which the free-carry component will be higher.”

As the country lacks appropriate power and transport infrastructure, and with labour costs among the highest in the region, mining firms might prefer more attractive destinations from a legal and fiscal point of view. Faced with a lobby from the mining industry, the government agreed to review the draft before submitting it to Parliament. “The Code is now with the ministry and it is evolving in the right direction, it seems,” Fabre told OBG. “So, the adoption of the new mining code should happen around mid-2013.”

IRON: In December 2011 the government cancelled the 2007 convention with Comibel, a subsidiary of the Chinese firm CMEC, due to the lack of development on the site at Bélinga. Belinga is the largest unexploited iron deposit in the world, with an estimated 1bn tonnes of high-grade ore. The government subsequently engaged in series of talks to find a new site operator. The Australian firm, BHP Billiton, was cited as a potential operator but a convention is still to be announced, despite a visit by President Ali Bongo Ondimba to BHP headquarters in April 2012.

The aforementioned bureaucratic changes may well delay the decision. The Ministry of Mining and Industry has expressed its desire to conduct additional research on the site as well, in order to better evaluate its potential. As past studies were made only on a portion of the site, the completion of such research activities on the entire site could take two more years.

GOLD: The production of gold, which was estimated at 160,000 ounces per year in 2011, remains largely artisanal until now. The only firm actively extracting gold in Gabon is Morocco’s Managem. It currently operates the site of Bakoudou, near Bakoumba, in a 75:25 joint venture with the government. The potential of the site is estimated at 5 tonnes of gold, however, exploration is still ongoing.

In January 2012 Managem opened its extracting plant, which has a capacity of 1400 kg per year. Bakoudou’s gold bars, which contain between 93% and 97% of gold, will be exported toward Europe. Managem’s extraction activity created 220 direct jobs in the region. The firm is also exploring the Eteké region, where 500,000 ounces of gold have been detected. Extraction is set to start in 2014.

MANGANESE: The production of manganese ore reached historical levels in Gabon in 2011, with 4.1m tonnes of wet ore being produced, a 28% increase from 2010. COMILOG, a 65:28 joint venture between France’s Eramet and the state of Gabon, accounts for 83% of the 2011 production. Gabon aspires to become the largest global producer of manganese ore by 2015, but is facing a competition from Australia and South Africa, whose production have also increased significantly since 2011. Indeed, from 2007 to 2011, Gabon’s production grew by 24%, whereas Australia’s production grew 39% and South Africa’s 57%.

Consequently, Gabon, with a 14% share of global exports, currently holds the third rank among world producers, behind Australia with its 6.8m tonnes and South Africa with 8.8m tonnes. Gabon’s ambitions might be tempered by an anticipated negative difference of 11.1% between its annual objective for the year and its real production by the end of 2012.

EXPORT MARKETS: In 2010 Gabon’s main buyer of manganese was China, which purchased 52% of the country’s production. The country was then the third-largest foreign supplier of manganese ore to the Chinese market, with 1.3m tonnes of its output traded there. In 2011 this volume was unchanged, while Australia’s volume of exports to China grew by 31% and is now three times that of Gabon’s.

Global reserves of high-grade manganese ore are estimated at 680m tonnes. With 25%, Gabon’s share is the third-biggest. The country’s largest deposit of manganese ore is located at Moanda, in the province of the Haut-Ogooué. Its reserves are estimated at 200m tonnes of high-grade ore (50% of manganese). The deposit has been mined since 1962. Other key deposits include the site at Franceville, which holds some 60m tonnes, according to research; Mbembélé, with 30m tonnes; and Ndjolé, estimated at 26m tonnes.

In August 2012, Canada’s Silver Bull released the results of its two-years exploration activities on its Ndjolé licence. Soil samples drilled by the company over an area of 50 sq km revealed significant manganese mineralisation near the surface. The best drilling results showed that ore with a 22% concentration in manganese could be found at 34.5 metres from the surface, and that ore with a 42% concentration could be found at 50 metres from the surface. Silver Bull has renewed it exploration licence for three additional years. The licence was previously held has a joint-venture with AngloGold Ashanti. Given the latter’s confirmed departure from Gabon, Silver Bull now enjoys a full ownership of the licence.

KEY PLAYERS: The historical player in the extraction of manganese ore is the COMILOG, a joint venture between France’s Eramet (63.7%), the government (29%) and the Netherlands’s Formang Holding BV (7%). COMILOG, employs 3200 people, including 1700 at the Operating Company of the Trans-Gabonese Railway (Société d’Exploitation du Transgabonais, SETRAG). COMILOG operates the mine of Moanda and produced 3.43m tonnes of ore in 2011, a 7% increase from the previous year. Out of this production, 3.383m tonnes were exported. COMILOG also exported a volume of 64,000 tonnes of manganese alloys.

Despite a 5.8% increase in the volume of its exports, COMILOG’s turnover declined 17% in 2011. This negative performance is the result of an 18% drop in global prices, and left the firm with a turnover of CFA161bn (€241.5m) that year, compared to CFA252bn (€378m) in 2010. The government received nearly CFA29bn (€4.35m) in tax revenues from COMILOG. The firm’s production is expected to reach 4m tonnes by the end of 2012. The state, in line with its desire to have expand its participation in strategic mining projects, is in the process of acquiring a 4% to 5% share of Eramet, while its share of COMILOG is also expected to increase by up to as much as 35% by 2015. The firm is planning to increase production capacity to sinter manganese ore fines and residues. Its current sintering capacity is 600,000 tonnes per year. The sinter produced has a 58% concentration in manganese. Eventually, the sintering of fines and residues could account for one-third of COMILOG’s output. The firm is also building manganese processing plants at its Moanda site, due to open in 2013. It will produce 20,000 tonnes per year of ferromanganese metal and 80,000 tonnes of silicomanganese.

The other key player is the Chinese company CICM Huazhou, a subsidiary of CITIC, which signed a 30-year contract to operate the site of M’bembélé, near Ndjolé. Extraction started during the second quarter of 2011. The mine is expected to produce 500,000 tonnes of manganese ore in 2012. Its production should increase to 1.4m tonnes of ore by 2015.

One requirement of the agreement stipulates that CICM Huazhou will be continuing construction of 225 km of rail that will connect its site to the marshalling yard of Ndjolé. Meanwhile the government is constructing an 84-MW hydroelectric dam on the Ngounié river. CICM’s investment of CFA38bn (€57m) requires the support of 340 employees, including 255 for Gabonese workers. As for the government, it invested CF70bn (€105) to build the dam, creating 400 direct jobs. CICM has signed a 24-year contract with SETRAG, the railway firm, which will operate CICM’s two locomotives and 88 wagons to transport CICM’s manganese ore from Ndjolé to the port of Owendo.

BHP Billiton has been negotiating a contract to begin exploiting a manganese seam near Franceville. However, in August 2012, BHP Billiton reported that it was putting the project on hold due to long delays in obtaining the signature on the agreement. Preliminary discussions indicated that the mine was to be operated as 80:20 joint venture with the state of Gabon. Extraction activity was supposed to begin during the fourth quarter of 2013. This 50-year life-of-mine could have produced up to 300,000 tonnes of manganese ore per year, initially. Production could have reached 1.8m tonnes of ore by 2015, and the project was expected to create 200 jobs.

Finally, Gabon’s production of alloy is also set to rise, with the opening of the Indian Abhijeet Group’s ferromanganese plant in the Special Economic Zone of Nkok. The plant will have a processing capacity of 300,000 tonnes of ore per year. Abhijeet’s investment is roughly $1.3bn, including an $800m electrical plant.

OUTLOOK: “We continue to be approached by other potential investors interested in processing manganese in Gabon,” Nze-Bekale told OBG. Given fierce competition between global manganese producers, Gabon’s strategy of adding value to its exports by locally processing some of its manganese output into ferroalloys appears to be the appropriate approach both for its own industrial development and for the continued growth of the manganese industry. “If we have a choice between several investors, we will favour those who want to process locally,” Nze-Bekale said.