Mining sector in Morocco diversifies away from phosphates

Although Morocco is home to a range of metals and minerals, the mining sector has long been dominated by phosphates. The kingdom possesses an estimated 77% of the world’s total phosphate reserves and remains the leading global exporter. Currently the sector contributes 10% of Morocco’s GDP, with 90% of this coming from phosphates.

However, the authorities in Morocco have sought to increase activity in underdeveloped segments of mining. According to the US Geological Survey, Morocco accounts for 16% of global arsenic output, 10% of barite, 2% of cobalt and 1% of fluorspar. Silver mining activity is also expected to accelerate. As the mining industry grapples with a drop in prices of metals and minerals, a new mining code has been passed with the aim of attracting foreign investment, increasing capacity, and spurring upstream and downstream activity in a more diverse range of strategic commodities.

Local Players

Founded in 1920 OCP S.A., which has been a joint stock company since 2008, is the largest mining company operating in Morocco and holds a monopoly over the extraction, transformation and sale of phosphates in the country. It was formerly a state-owned organisation known as the Office Chérifien des Phosphates. The firm comprises 15 subsidiaries and joint ventures, enabling it to be the world’s largest phosphate producer.

Outside of phosphates, a number of other locally owned players are present in the mining sector, such as Touissit Mining Company, which produces lead. The largest non-phosphate producer is Managem, a subsidiary of Moroccan private holding company Société Nationale d’Investissement, with operations in mining and hydrometallurgy. Managem operates through several subsidiaries, including Société Métallurgique d’Imiter (SMI), the world’s seventh-largest silver producer, which is responsible for extracting silver from Imiter, Africa’s largest silver mine, at a rate of 7.7m oz per year. Also operated by the company are subsidiaries Akka Gold Mining; Compagnie de Tifnout Tighanimine, which is specialised in cobalt production; Société Anonyme des Entreprises Minières, specialising in fluoride production; Compagnie Minière des Guemmassas, which produces concentrates of zinc, copper and lead; and Reminex, which is involved in technology and research, among others.

Global Actors

Several multinationals are also active in the mining sector. Canadian mining company Maya Gold & Silver focuses on gold and silver mining in the kingdom, and it has so far produced 304,206 oz of silver from the Zgounder mine 260 km east of Agadir. Australian company Kasbah Resources is also present, and is developing the Achmmach Tin Project and the Bou El Jaj Tin Project in northern Morocco, and recently signed an agreement with UK-based Moroccan Minerals to form a new joint venture at the Tamlalt gold project.

Government Strategy

Over the past several years a bold government strategy has been under way with the aim of increasing production and export volumes in mining outside of phosphates. Under the 2015-20 National Strategy for Mining Sector Development, the government aims to nearly triple the industry’s revenue to reach Dh15bn (€1.4bn) by 2025 and generate 30,000 additional jobs, a lofty goal given that Morocco’s mining sector currently employs around 39,000 people, according to the Office of Hydrocarbons and Mining (Office National des Hydrocarbures et des Mines, ONHYM).

The plan also seeks to develop a comprehensive geological map of the kingdom. To this end, investment in exploration and mining research will reach Dh4bn (€366.7m). The government included the creation of a National Geological Survey in its 2015-20 mining development strategy, with the aim of accelerating the mapping of Moroccan territory and assessing mining potential, given that only 30% of the country has been surveyed. Greater exploration has the potential to significantly increase the country’s reserves and activity. Speaking in relation to the Société Anonyme Chérifienne d’Etudes Minières (SACEM) manganese mine in Imini, Ahmed Benjilany, CEO of SACEM, told OBG, “Thanks to geological and mining exploration, we have increased the potential of the mine and its lifetime.”

There is also a 60,000-sq-km region where miners operate using traditional methods to extract resources including barite, lead and zinc. To encourage improved efficiency and productivity, the government has amended the 1960 law governing mining in Tafilalet and Figuig to allow larger private investors to form partnerships with artisanal miners and develop exploration and extraction activities. The reforms, if implemented effectively, should help generate a yearly revenue for small-scale miners of Dh1bn (€91.6m), an annual investment of Dh100m (€9.1m) and the creation of 3000 jobs.

New Mining Code

The sector strategy also seeks to modernise mining regulations – something that a new mining code adopted in July 2015 set out to do. Long governed by a mining code implemented in 1956, a new law put into force after years of discussion is aiming to expand the country’s mining industry, especially focusing on underdeveloped mineral substances. The new code sets out to improve resource development by increasing the number of exploration permits. The size of new exploration permits is set to be greatly increased and will allow for prospecting licences for larger areas of between 100 sq km and 600 sq km. Under the previous code the standard surface area allowed in a single exploration permit was just 16 sq km, far below the surface area permitted in other countries.

Launching a mining operation requires a significant amount of land, and the increased exploration permit is expected help bring Morocco up to international standards and attract more investors. As of the end of 2014 the total number of mining permits was 6736, with ONHYM holding 16%, individuals holding 35% and companies holding the remaining 49% of permits, according to the most recent information available from the Ministry of Energy, Mines, Water and Environment.

Under the old code, any individual or corporate entity could carry out mining and, with the exception of phosphates, establishing mines came on a first-come first-served basis. The new law regulates all mineral substances, including phosphates, oil shale and oil sands, with the exception of construction materials, such as sand.

Exploration

In addition to easing the path to a permit, the new code sets up a clearer system for authorisations, distinguishing between three categories of licence that will be granted by the ministry. The first, exploration authorisations, are awarded for two years, can be renewed once for one more year and can only be issued to companies. The second type, prospecting permits, are awarded for three years and can be renewed once for an additional four years. The third type, mining permits, are issued for a 10-year period, and can be renewable until the reserves are depleted. Unlike the exploration permit and prospecting permit, the mining operating licence must be issued to a Moroccan legal entity, although the code does not restrict Moroccan legal entities with foreign shareholders. The new mining code also aims to set out rules to improve environmental protection and ensure sustainable development.

To ensure a smooth transition once the code is enacted, valid mining concessions will remain subject to the previous code until their renewal, at which point the new law will be applied. Holders of prospecting and mining permits will need to renew their permits within the year following the code’s adoption. One of the key objectives of the new code is to attract foreign companies to invest in Morocco’s mining industry. The government has offered a five-year tax exemption for new mining projects valued at least Dh200m (€18.3m) and a reduced tax rate of 17.5% for miners exporting their products.

The government will also contribute 5% of the value of the investment towards infrastructure needs, including roads, water supply and electricity for projects valued at least Dh200m (€18.3m). “The mining code was overhauled in 2015. With a positive definition of minerals and metals and enhanced exploration zones, we are now looking for partners to boost exploration and production,” Amina Benkhadra, director-general of ONHYM, told OBG.

Non-Phosphate Results

The mining industry in Morocco has felt the negative effects of the global decline in commodities prices, and has been particularly affected by the drop in the price of precious and base metals, owing to slowing demand from China and an increase in supply of most metals. In 2015 the industry faced drops of 18% in silver prices, 20% in copper, 17% in gold and 15% in lead. Nonetheless, companies have still managed to record profits, largely through cost-cutting measures and increasing production.

Despite the recent decline in silver and copper prices, Managem recorded positive results, reporting a 13% increase in net profit in 2015. This was attributed to the introduction of improved production methods and reduced costs. In 2015 the firm’s production volumes increased by 27% in gold, 24% in cobalt and 18% in silver. The company’s copper production also rose by 20%, helped by the recent launch of its copper project in Oumjrane. Managem has set a goal of boosting copper output to 50,000 tonnes in 2020. The firm’s operating profits in 2015 were Dh617m (€56.5m), an increase of 38% year-on-year (y-o-y), as consolidated sales reached Dh4.3bn (€394m), a y-o-y rise of 12%.

Managem’s subsidiary SMI also maintained a positive turnover in 2015 and reported net profits of Dh234m (€21.5m), a 4% drop y-o-y. The fall in silver prices was offset by an increase in sales volume as well as the rise in value of the dollar. Despite the fall in revenues, the company maintained its research and exploration programme, which resulted in the discovery of new silver reserves, estimated at more than 402 tonnes, or two additional years of production. Silver production recorded a 12% increase in 2015 due to the positive impact of higher processed tonnage and consolidation of content.

Touissit Mining Company saw Dh227m (€20.8m) in sales in 2015, an 11.3% rise y-o-y despite the major drop in the prices of silver and gold. The gains were the result of a favourable dollar exchange rate and an increase in sales volume, with the company increasing profits from silver sales by 15% y-o-y.

Phosphates

Although Morocco has the world’s largest phosphate reserves, with more than three-quarters of the estimated total, along with the biggest phosphate company, production has lagged behind that of China. In 2015 Morocco was the second-largest producer of phosphates in the world, producing an estimated 30m tonnes, behind China’s 100m tonnes.

The phosphate sector had a challenging year globally in 2015, despite steady increases in fertiliser usage in sub-Saharan Africa and South-east Asia. The price of fertiliser was at its lowest point since 2007 amid global oversupply, a result of increased exports from the Chinese market. By February 2016 fertiliser prices bottomed at below $350 per tonne, although supply has tightened again as Chinese exports have slowed, paving the way for an improvement in the external environment.

Performance

Despite the more challenging global context, OCP S.A. has continued to see steady improvements in terms of finances and exports. In 2015 exports of phosphates and derivatives increased to Dh44.2bn (€4bn), according to preliminary figures from the Office des Changes, up from Dh38.3bn (€3.5bn) in 2014 and Dh37.3bn (€3.4bn) in 2013. Crude phosphates had a 22.6% share of Morocco’s phosphate exports, up from 21.4% in 2014, while phosphate derivatives accounted for 77.4%, compared to 78.6% in 2014.

With a monopoly over the nation’s phosphate mining, OCP S.A. realised a turnover of Dh47.75m (€4.4m) in 2015, compared to Dh41.45m (€3.8m) in 2014. Though fertiliser sales were down, higher rock and acid revenues offset the fall. According to the company, earnings before interest, taxes, depreciation and amortisation (EBITDA) increased to $1.8bn, compared to $1.4bn in 2014.

The EBITDA margin increased by 37% in 2015, compared to 28% in 2014. The company’s operating profit was $1.4bn, up from $1.1bn in 2014. Lower material costs were also a factor in the increase, in addition to higher revenues.

Over the course of 2015 Dh14.26m (€1.3m) in investments were disbursed, part of which went to completing the 235-km Khouribga-Jorf Lasfar slurry pipeline, which came on-line in 2015 and has made direct transportation of phosphates from the Khouribga mines to the Jorf Lasfar industrial platform possible. Phosphates previously required washing, crushing and floating before being transported by train. The slurry pipeline now fully integrates upstream and downstream activities, and reduces transportation and energy costs. With 6.5m tonnes of rock transported via the pipeline in 2015, more than double the 2.7m tonnes of 2014, OCP S.A. estimated that the new pipeline resulted in Dh800m (€73.3m) in cost savings.

Upgrades

OCP S.A. introduced a Dh130bn (€11.9bn) industrial development plan in 2012 in an effort to raise output and modernise production, which includes three new mines in Khouribga and one new mine in Benguerir, to increase on-site production from its current 18m tonnes to 38m tonnes by 2020. The company also announced plans to invest a total of Dh18bn (€1.7bn) in Moroccan/Western Sahara, including Dh8.3bn (€761m) towards a new fertiliser plant, Dh4.2bn (€385m) towards a new port near Laâyoune and Dh3.1bn (€284m) in other phosphate industrial facilities. Ultimately, OCP S.A. plans to raise output to 47m tonnes of phosphate rock in 2017, up from 34m tonnes in 2014.

Africa Expansion

While OCP S.A. has previously been focused on the US and Asian markets, which accounted for much of the company’s export demand, it has increasingly been looking towards sub-Saharan Africa, where fertiliser use remains low, at 4.7 kg per resident. In 2015 Africa accounted for 24% of OCP S.A.’s total fertiliser exports, 13 percentage points higher than in 2014.

Recent years have seen several agreements to help improve OCP S.A.’s trade and investment flows with African markets. In February 2016 OCP S.A. began production at a new fertiliser plant in Jorf Lasfar with production of 1m tonnes dedicated to sub-Saharan markets. The company invested Dh5.3bn (€486m) in the new plant. OCP S.A. had previously announced that the company was signing a partnership with Gabon’s Société Equatoriale des Mines to build two factories in Gabon at an estimated cost of $2bn, where some 2m tonnes is expected to be produced by 2018.

Links with Niger are also due to improve after Morocco’s minister of mining signed a cooperation deal with the country in November 2015. This is also true in Nigeria, where Dangote Group is constructing a $14bn refinery and petrochemicals complex, and is also in talks to buy phosphates from Morocco as feedstock. Non-phosphate-producing companies have also pushed towards the continent. Managem’s operations have expanded outside Morocco with sites in Gabon, the Democratic Republic of Congo and Niger, and the company recently won contracts to explore for gold in Sudan.

Sustainable Development

As is the case in most mining countries, environmental sustainability has become an increasingly prominent issue in Morocco’s mining sector in recent years, particularly following protests in Imiter over the impact of extractive activities. As a result, several different firms have begun rolling out various initiatives to reduce their carbon footprint. Managem has pushed towards the use of energy from wind farms to power its mining and in turn reduce greenhouse gas emissions, as well as control energy consumption of the firm’s various activities.

The company has signed a contract with Nareva Holding to supply electric energy from wind to some of its operations in the country, including in Imiter and Akka. OCP S.A. has sought to improve its image as well through sustainable development policies. The company was the first in Morocco to join the national programme for safe polychlorinated biphenyls management and disposal, and has recently implemented programmes to cut water consumption, increase the use of renewable energy and rehabilitate decommissioned mines.

Outlook

While the effects of the new mining code remain to be seen, there are several positive signs that it may have the intended effect of boosting non-phosphate output and diversifying the nation’s export partners. In the 2015 Fraiser Institutes’s annual survey of the mining industry, Morocco ranked 24th out of 122 countries on the attractiveness index measuring the ease of doing business in the country, above Ghana at 31st, but behind Botswana and Zambia.

However, despite the continuing decline in global metal and mineral prices, Morocco’s mining industry has fared well by using cost-cutting measures and increasing production, while turning towards sub-Saharan African markets. Should the new code succeed in attracting foreign investors and boosting production, the future for Moroccan mining is expected to be bright for the foreseeable future.