Out with the old: The state is implementing a new investor-friendly code to diversify production beyond just phosphates

With the government expected to pass a new set of laws in 2013 that will replace the current 62-year-old mining code, Morocco is making a bid to spur new investments throughout the North African kingdom’s currently under-exploited mining sector.

In the past, mining remained a relatively closed sector in a generally open economy (see analysis). The new mining code, however, aims to end this situation and promote greater foreign investment. Morocco’s National Office of Hydrocarbons and Mines (Office National des Hydrocarbures et des Mines, ONHYM) is looking to offer more concessions to extract and transform the country’s diverse and sizeable mineral wealth.

Generally speaking, the mining sector is conducive to foreign investment, with minimal restrictions on foreign ownership and limited government demands. In certain cases, foreign companies may even enjoy positive discrimination when investing in Morocco.

REVENUES: Phosphates mining, on which the Moroccan government has granted a monopoly to the OCP Group, accounted for 92.7% of total mining production and as much of the mining revenue, which totalled Dh74bn (€6.58bn) in 2011. Although Morocco is the only North African country that lacks sizable commercial hydrocarbons deposits, its phosphate reserves nonetheless help to provide it with a comfortable flow of commodity revenues, as it is home to well over half of the world’s total known reserves.

Mining contributed to 10% of the GDP in 2011, but less than 1% of that contribution came from revenues realised outside phosphates by the private sector – a clear sign of the continuing need to increase private sector activity and boost exploration and production in other mining segments. Some 60% of total sales (Dh79bn, or €7.03bn) of mineral products came from exports in 2011. Export values have increased in recent years, accounting for 30.5% of total national exports in 2011, according to provisional data from the Mineral Industry Federation (Fédération de l’Industrie Minérale, FDIM), up from the figure of 25.6% recorded in 2010.

OCP remains the largest player in the sector, and one of the largest single employers in the country.

However, Morocco is working to diversify the sector, which is currently dominated by phosphate exports. Mineral production reached some 30.2m tonnes in 2011, but only 2.2m tonnes of that production was comprised of non-phosphate minerals.

CURRENT MINING CODE: The current mining code is built largely on regulations leftover from the days when Morocco was a French protectorate. Total permits ( usually covering 16 sq km each) cannot collectively add up to more than 250 sq km, an area considered fairly small by modern mining standards.

In order to prospect for minerals or metals, an investor must first apply for a prospecting permit. This is valid for an initial three-year period, and renewable for another four years thereafter. If deposits of interest are found, the investor can then apply for the prospecting permit to be converted into a new exploitation permit. That exploitation permit, in turn, is valid for four years, and can be renewed for three additional four-year periods.

There is also an option of getting an additional onetime extension of 12 years. Together, these rules limit total exploitation time to a maximum of 24 years.

The current mining code also does not address a number of other issues critical to modern-day mining, such as sustainability and safety concerns.

FISCAL POLICY: There is a generally favourable tax regime in the country. Depending on the region, investors can expect to pay royalties of between one and three dirham per extracted tonne to the regional government. Licence or concession holders, contractors and subcontractors are exempt from value-added tax (VAT) on imported goods and services required for their activities. The standard corporate tax rate for exporting mining companies is 17.5%; however, companies are granted a 50% exemption for the first five years of operation. Although this is a significant corporate tax reduction, exporting companies in other sectors receive a 100% corporate tax exemption for the first five years. The FDIM has spoken out against this so-called “fiscal injustice”, and asked that the total corporate tax exemption enjoyed by other export-led industries also be applied to the mining sector.

NEW MINING CODE: The new mining code increases the area covered by the prospection permit to a maximum of 2400 square km (about 15 times the current maximum area) and has rules meant to accommodate aeroplane-based geophysical surveys or surveys done by helicopter, one of various changes to make prospection easier. The new code asks the investor to submit a plan for the abandonment of the mine when exploitation will be over, requiring the investor to restore it.

It also extends the list of minerals that can be covered, though a final list has not officially been published, and accommodates small-scale mines with adapted regulations. Extraction of materials for construction, however, will continue to fall under the separate regime for quarries. The code review is the first part of a broader strategy to revitalise the mining sector outside of phosphates by encouraging research and exploration. One of the main objectives is for the mining sector to take a leap in terms of investment and production.

SECTOR STRUCTURE: In addition to phosphate, the kingdom boasts a wealth of other mineral resources: gold, silver, cobalt, manganese, tin, fluorspar, barite, iron, lead, zinc, copper and salt. Outside of phosphates, the range of players is also more diverse. Approximately 90 companies exploit over 20 minerals, although as evidenced by total output, the scale of most operations is fairly modest. The kingdom was named the 17thlargest silver producer in 2011.

The major source of the country’s silver wealth continues to be the Imiter mine, which is the world’s 14thlargest silver producer, though several other mines are expected to come on-line within the next year. Production at Imiter is overseen by a subsidiary of the majority-state-held mining company Managem, the Société Metallurgique d’Imiter, while high-quality cobalt is mined in Bou Azzer, the only mine in the world where cobalt is extracted as a primary product.

Expectations remain high for potential reserves of other valuable minerals. The Achmmach tin deposit in El Hajeb province is currently undergoing pre-feasibility work by the Australian company Kasbah Resources, and is believed to be one of the largest unexploited tin deposits worldwide. Canadian miner Maya Gold & Silver is also exploring a gold deposit in Marrakech with estimated reserves of 341,073 oz.

TRAINING & DEVELOPMENT: Morocco has a relatively good selection of schools offering professional training for those looking to work in the mining sector, including the École Nationale de l’Industrie Minérale in Rabat, the Institut des Mines de Marrakech and the École Pratique des Mines in Touissit. Graduates of these schools have typically aspired to work for either OCP or the Ministry of Energy and Mines, due to the lack of development amongst many private sector companies.

PERFORMANCE: The index of mining stocks dropped by 10.38% from 30,378.77 points to 22,224.33 points in 2012, due in part to a more negative outlook globally for the sector. Strikes in South Africa, combined with tighter demand and more onerous regulations everywhere from Ghana to Australia, influenced investor expectations and fears of worsening revenues and slower output than in previous years.

In many cases though, these fears proved to be largely unfounded. Regardless, Morocco’s index movement was in sharp contrast with its outstanding 2011 performance. In 2011, mining companies were among the Casablanca Stock Exchange’s best performers. Managem, for instance, gained 125% that year.

Managem is one of the largest mining firms listed on the kingdom’s stock exchange, and it extracts and transforms a number of metals and minerals. It operates in Morocco, Gabon, the Democratic Republic of Congo, Niger and Sudan. A controlling stake (81.97%) in the firm is held by the Moroccan investment fund Société Nationale d’Investissement. Other listed firms include Société Métallurgique d’Imiter, a subsidiary of Managem that extracts and processes silver from the ninth-largest silver mine in the world. Compagnie Minière Touissit specialises in the exploration, extraction and treatment of silver-bearing lead and zinc concentrate. Rebab Company, meanwhile, provides a number of long-term funding initiatives for development projects. It also is becoming involved in mineral production.

ARTISANAL MINES: Artisanal mines account for 39% of non-phosphate mineral production and 18% of the total value of non-phosphate products. They mostly exploit deposits of lead, zinc and barytine in the regions of Tafilalet and the west of the High Atlas.

The Ministry of Energy and Mines is putting in place a programme to rehabilitate and restructure existing small mines and increase small-scale miners’ chances of finding exploitable deposits. The ministry is also structuring a programme meant to offer technical assistance and to help small-scale miners access funding. Meanwhile, firms such as Compagnie Minière Touissit have said they would be interested in buying mineral products from small-scale miners for processing.

GEOLOGY: The first published sector-relevant maps of the kingdom date back to 1927, but the National Plan of Geological Mapping – a project initially launched in 1996 – has helped update the country’s geological maps and provide more contemporary information on potential deposits. Its goal was to encourage investment in different sectors of the economy, including mining and oil exploration, and promote the study of sources of water, planning, protection of the environment, and prevention of natural threats.

The maps can be purchased from the Ministry of Energy and Mines. At present there are 270 different geoscientific maps available for consultation or for purchase. They cover different regions of the country and have been made at the following scales: 1/500,000, 1/200,000, 1/100,000 and 1/50,000.

As of 2012, 4382 operational mining permits had been issued, of which 3655 are survey permits, 650 are exploitation permits and 77 are concessions. Mining companies account for approximately 45% of permits, with another 35% represented by individual operators and the remaining 20% are held by the ONYHM.

In some regions, companies have faced delays in having permits reviewed due to shortages of human and/or material resources. The Ministry of Mines and Energy is now in the process of strengthening and improving the permit control process. Furthermore, the ministry has also announced that a verification exercise will be completed to make sure inactive permits become available to interested investors.

THE LAY OF THE LAND: The FDIM breaks up the kingdom’s geology into three main areas containing various minerals. The Anti-Atlas and Sahara is a vast area that extends from Morocco’s border with Mauritania, in the south-west, to its border with Algeria, in the north-east. This bedrock favours polymetallic mineralisation and has Precambrian inliers with gold deposits. It contains the Imiter silver field, Bou-Azzer’s cobalt field – the only field where cobalt is mined as a primary product (elsewhere, it is a byproduct of nickel and copper) – the Bou-maadine polymetallic fields and the Iourirn gold deposits recently discovered within the Precambrian inliers of Akka.

The Rif, in the northernmost part of Morocco, skirts the Arc of Gibraltar, along the Mediterranean. It contains a massif of peridotite in Béni Bou-Izra with nickel, chrome, copper and other mineral showings. It has copper and antimony around the district of Béni M’ zala and lead-zinc at Cabnar, Badis, Zaïtouna, and surrounding areas. It also has fields of perlite and bentonite.

The Atlas and Mesetian is an area stretches to the north until the tertiary rocks in the Rif. Its main feature is the High Atlas Mountains. This area is favourable to sulphur in Hajar, copper-gold deposits and granites that tend to contain tin, tungsten and gold in Jbel Aouam. Furthermore, limestone in the regions of High Atlas, Middle Atlas and le Pays des Horsts in the district of Touissit have lead-zinc deposits that contain silver. Most of the phosphate is found in the Basin of Khouribga. Mining occurs in Benguerir and Youssoufia in the north, and at Boucraa, in the south. The Atlas area, meanwhile, is rich in such other mineable substances as iron ore, lead ore, mercury, salt and marble.

PHOSPHATES: Morocco, the world’s largest exporter of phosphate rock and an important exporter of phosphoric acid and phosphate fertilisers, has more than half of known reserves on the planet. According to the International Fertiliser Development Centre, that figure is closer to 85%, or roughly 51bn tonnes. Phosphate and phosphate-derived exports represented some 28% of Morocco’s foreign trade in 2011 and remain the leading foreign exchange earners.

Rock phosphate is an essential global resource, crucial in agriculture, food production and biofuels. Continuing global uncertainty and a muted growth outlook have had a negative impact on demand for minerals and, by extension, prices. However, phosphate prices remain strong, buoyed by expanding demand for fertiliser to boost food production in emerging markets.

Even as other major producers such as the US and China – which accounts for just over a fifth of global reserves – see their output steadily decline, the outlook for Morocco continues to appear encouraging. Meanwhile, phosphate-derived products and sales both rose slightly after the first nine months of 2012, compared to the same period in 2011.

BOOSTING PRODUCTION: Morocco is planning to boost its existing output through a massive investment programme in the mining sector worth some Dh91bn (€8.1bn) between 2010 and 2020. OCP intends to expand annual phosphate production capacity from 30m tonnes to 50m tonnes by 2015, while also tripling its finished fertiliser production capacity.

Several new mines are set to be opened and fully equipped, and extensions are planned for existing ones, including: El Halassa, which will be expanded to 5.5m tonnes per annum (tpa) by 2014 at a cost of Dh2.2bn (€195.6m); Ouled Fares, which is to start operations in 2017 with a 1m tpa production capacity, at a cost of Dh1.9bn (€168.9m); a Dh1.6bn (€142.2m) extension project in the wider Khouribga zone to increase the area’s capacity to 6m tpa; and an Dh800m (€71.1m) investment in Benguerir Sud to raise the production capacity of the Gantour zone to 3m tpa. Capital expenditures and redevelopments are being carried out with an eye to cutting costs. According to the group, new techniques will help bring costs down by 30-40%.

VALUE-ADDED: Authorities are encouraging companies to increase output of processed products and derivatives, declining by 7% from 2010 to 2011. ONHYM has called on companies to invest more in research and development and value-added opportunities.

OCP has received a €200m loan from the African Development Bank to build a new industrial facility in the coastal town of Jorf Lasfar, located 110 km southwest of Casablanca to increase Morocco’s ability to process locally mined raw phosphate into value-added derivatives, such as phosphoric acid and fertiliser, which will bring the company closer to its goal of tripling its fertiliser output to 9m tonnes by 2020.

Major projects also include a Dh8.6bn (€764.5m) investment to increase the beneficiation capacity at Khouribga, which should reach 35m tpa over the next decade through the expansion and construction of new washing plants. A Dh4.8bn (€426.7m) phosphate slurry pipeline system is currently being constructed to transport phosphate across 187 km from Khouribga to the industrial facilities located at Jorf Lasfar.

The new pipeline, currently being built by Turkish company Tekfen Construction, will have a capacity of 38m tpa, facilitating easier and cheaper transport of materials. It is estimated that transport costs will drop by $8-10 per tonne, while some 3m cu metres of water will be saved per year. Financing for the pipeline has come in part from the French Development Agency, which awarded a €240m loan to OCP. Port capacity is being expanded, including a Dh2.9bn (€257.8m) investment in infrastructure at Jorf Lasfar port.

SUSTAINABILITY: A 2012 study reported that some of the older Moroccan mines currently lack state-of-the-art environment management systems. However, the industry is increasingly working to better align itself with international environmental standards. OCP is looking to reduce its energy and water consumption while transporting minerals and in other processes by seawater desalination, waste water retreatement and rainwater capture. No additional groundwater will be used in the expanded production.

OUTLOOK: While the country’s mining sector will continue to mainly focus on phosphates for the foreseeable future, increased efforts to diversify away from the mineral seem likely to bear fruit and expand the sector’s overall offerings. Similarly, government efforts to bring in new investors should also help to ensure the sector is not as reliant on a few large players in the future.

A massive investment programme, estimated to be worth some Dh91bn (€8.09bn) by OCP, should have the twin effects of expanding phosphate production capacity enormously and attracting increased attention towards new opportunities, both for phosphates as well as for other types of exploitable mineral resources.

Updates to the mining code include increasing the maximum prospection permit area and accounting for new techniques such as aerial surveying. The planned revisions promise to bring Morocco’s somewhat outdated legislation in line with modern global standards.