A rich vein: Developing mineral resources in conjunction with international partners

Although it is well known as a major player in the global oil and gas industry, it is Algeria’s mining sector that is now in the spotlight, with the country expected to benefit from recent legislative and regulatory changes, as well as increasing government backing. Mining has long been considered an important basis for industrial development and is a vital part of various national plans and strategies. As part of a broader effort to diversify the economy away from reliance on hydrocarbons, Algeria is now tapping into its vast mineral resources and setting up joint ventures with international mining companies to explore and exploit the country’s mineral reserves.

GEOLOGY: The largest country in Africa, Algeria varies geologically, and there are four main areas that can be distinguished from north to south: the Tell Atlas (or Tell), made up of reliefs and littoral plains; the High Plateaus (commonly referred to by their French name, Haut Plateaux); the Sahara Atlas, constituting a long succession of reliefs stretching from the north-east to the south-west and beyond into Morocco and Tunisia; and the Sahara Desert, made of large stretches of dunes and stony plains that contain most of the country’s hydrocarbons resources. Tectonically, Algeria can be divided into two major areas which are separated by the South Atlas fault.

UNTAPPED RESOURCES: The country has huge resources of minerals that so far have been largely unexplored. According to the minister of energy and mines, Youcef Yousfi, Algeria is “a mining country with a huge but under-developed mineral potential”.

Algeria has proven deposits of valuable minerals such as gold, zinc, copper, lead, uranium and phosphates, as well as some gemstones, including diamonds. For the past few years it has also produced barite, bentonite, diatomite, dolomite, gold, gypsum, iron ore, limestone, nitrogen fertiliser, phosphate rock, salt and silver, among others. Additional research will need to be carried out, however, as little is yet known about the depletion levels of these minerals.

Most of the mining deposits are located in remote areas of the country with limited access and infrastructure. That said, the country’s proximity to Europe, which is already its most important mining export market, suggests there is significant potential should the appropriate infrastructure be put in place. In addition, the sector also benefits from Algeria’s low labour costs and the government’s willing to assist foreign firms interested in investing in the sector.

The mining sector’s contribution to Algeria’s GDP has declined steadily over the past few years. In 2010, the most recent year for which data was available, mining and quarrying (which includes oil and gas) contributed 37.1% to GDP, compared with 48.5% in 2006, according to African Development Bank’s “African Economic Outlook 2012, Algeria”.

COORDINATION: The various state-owned mining companies have been brought together under one conglomerate to facilitate sector development. Manadjim El Djazaïr (Manal) was created by a government decree in 2011, replacing GSP Somines, and was given initial capital of AD5bn (€48m) to coordinate and guide the activities of the five main Algerian mining companies: Entreprise Nationale du Fer et du Phosphate (FERPHOS), Entreprise d’Exploitation des Mines d’Or (ENOR), Entreprise Nationale de Sel (Enasel), Entreprise Nationale du Marbre (Enamarbre) and Entreprise Nationale des Granulats (ENG).

Enasel is the country’s largest producer and distributor of salt, while ENOR is the first mining firm to produce gold in Algeria. UK-based GMA Resources entered into a joint venture with ENOR to develop the Tirek and Amesmessa gold deposits. Enamarbre produces and distributes marble in northern Algeria, while ENG is responsible for the production, marketing and development of calcium carbonate as well as ornamental stone and marble. FERPHOS manages the portfolio of shareholdings and has strategic control of phosphates, iron ore, pozzolan and the foundry, production and road transportation of minerals.

Manal is tasked with developing mining exploration and highlighting the potential of new mineral resources. The firm is also responsible for research, exploration and exploitation of mineral resources, creating jobs in the industry and promoting non-oil exports. As such, Manal will develop and operate mines and quarries, in addition to performing any processing and utilisation of minerals.

The firm is currently undertaking a number of flagship projects. The phosphate mine in Djebel Onk will be expanded to increase production to 6m tonnes initially, with this set to be raised to 10m tonnes at a later stage. Part of this upgrade will include the creation of two industrial chemical processing units. Marble production will also be boosted from 10,000 sq metres to 35,000 sq metres at the Fil Fila et de Kristel deposits in Oran, while another production increase is planned for salt, from 200,000 to 500,000 tonnes per year, as well as the establishment of a chemical processing unit. Manal will set up mining activities to exploit the gold deposits in Tirek Amesmessa and will be responsible for promoting new discoveries. Lastly, it will pay particular attention to the development of Oued Amizour, which is estimated to hold nearly 50m tonnes of zinc deposits.

SECTOR AUTHORITIES: The National Agency of Geology and Mining Oversight deals with setting up geological surveys and monitoring mining activities, which includes the establishment of the National Geological Mapping Programme. The main industry regulator is the National Agency for Mineral Endowment (Agence Nationale du Patrimoine Minier, ANPM), which was established in 2001 following reforms of the sector designed to create a modern and transparent regulatory framework and fiscal regime. ANPM is responsible for establishing and managing the mining cadastre and it issues mining permits. This includes the preparation of specific conditions attached to mining permits as well as authorisations under the control of the minister responsible for mines. Mining permits are made available via auction. ANPM holds regular auctions of mining sites that are open to investors. Several dozen auctions have been held, and in 2008-09 ANPM awarded 1093 permits, generating more than $95m in revenue for the Treasury.

Companies participating in the tenders have come from Australia, Japan, Canada, China, South Korea, France, Japan, Jordan, South Africa and Turkey, while those that have received titles include Cecomines (China), Socum (China), Adwan Chemicals (Saudi Arabia), Cancor Mines (Canada) and Terramin Australia (Australia), among others.

“In Algeria, we have not yet experienced the involvement of European or American companies who might benefit from coming here,” said Farid Benhadji, the CEO of Manal. “To attract these companies, we need to prove that we have world-scale deposits. People will not come here just to make $1m per year. If they do not make a turnover of $20m or $30m, they will not come,” Benhadji added.

MINING LEGISLATION: Mining activities in Algeria are regulated by the 2011 Mining Law. According to Ernst & Young’s 2011 “African Mining Investment Environment Survey”, Algeria has one of the more conducive regulatory frameworks for the industry, with, for example, private enterprises able to own their own surface rights. The state owns mineral rights but mining rights are awarded to companies conducting the mining operation. All the mineral and mining rights are transferable, while private investors are allowed access to exploration, development and exploitation of mining resources. Partnerships formed between investors and state-owned entities can explore districts or regions, carry out mineral assessments for exploitations purposes or further develop already assessed minerals through additional feasibility studies. The mining legislation stipulates the separation of soil and under-soil ownership, and there is no differentiation between mineral commodities.

The mining sector was opened for investment in 2001, and the government is making efforts to attract foreign investment and expertise, and build up the industry. Investors benefit from incentives, including rebates on infrastructure and equipment, as well as advantages concerning the transfer of invested revenues, exemption from Customs tax and royalties, amortisation and rebates on royalties.

PHOSPHATES: According to the “Bilan des Activités Minières 2009” published by the Ministry of Energy and Mines, in 2009 (the most recent year for which data was available) phosphate exports continued to represent the bulk of mining exports with a share of 61.9%. However, this represented a decline of 50.3% compared to 2008 mainly due to drops in both export volumes (-43.65%) and prices (-64.8%).

Estimates vary as to the extent of Algeria’s phosphate reserves, but they may reach as high as 6bn tonnes. According to the US Geological Survey, the world’s largest producer of phosphates in 2011 was China with 72m tonnes, followed by the US (28.4m tonnes), and Morocco and the Western Sahara (27m tonnes). Algeria produced an estimated 1.8m tonnes of rock phosphate in 2009, a comparatively small amount. but FERPHOS plans to increase phosphate exports to 30m tonnes in 2020, making Algeria the third-largest exporter after the US and China and generating revenues of as much as €5.5bn-6bn.

One of the main producers of hard rock phosphate in Algeria is the FERPHOS-owned Djebel Onk mine, which has reserves estimated at over 2bn tonnes.

The government is planning to construct a new phosphate conversion plant with a production capacity of around 5m tonnes per annum. The international tender for the project was issued in September 2012. Through Sonatrach, the state-owned hydrocarbons company, the plant will be established at El Aouinet in Tebassa for an estimated cost of €1.55bn. Construction is set to commence before the end of 2012 and the facility is due to be completed in 2015. The plant, which will cover 774 ha, is expected to create more than 4000 jobs.

Algeria’s lack of infrastructure has had an impact on phosphate mining and production. However, since 2010 improving infrastructure has been a key focus of the government. The €14bn infrastructure improvement programme includes the opening of a new rail line to Tebessa, which will ease land haulage constraints. The current price of phosphate on the global market – $185 per tonne as of September 2012 compared with the low of $40 per tonne in 2005 – makes investments in this segment very attractive.

FERTILISER: In February 2012 the State Contributions Council approved a project to build a new phosphate fertiliser plant. Engro Corporation, a Pakistan-based firm engaged in the manufacture, purchase and marketing of fertilisers, food, energy and petrochemicals, invested €770m in the initiative. Production will start in 2015 with a targeted output of 1m-2m tonnes per annum of diammonium phosphate, of which the Tebessa area has some 2.2bn tonnes.

The government has also earmarked an investment of $14bn to build three fertiliser plants by 2020. According to a senior official at Sonatrach, the planned total output capacity for the three plants is 35m tonnes per year. International tenders are scheduled to be released by Sonatrach in the second half of 2013 to find suitable partners, while initial discussions and negotiations with a number of Spanish companies are already taking place. The plants will be located close to phosphate mines in eastern Algeria, in Tebessa, Souk Ahras and Skikda.

The former head of the Algerian National Privatisation Council, Abderrahmane Mebtoul, told the media he is convinced that the planned investments will make Algeria the leading producer of fertiliser on the continent. When the three new plants are up and running, their total installed capacity of 35m tonnes per annum will be more than sufficient to meet domestic consumption, which is around 300,000 tonnes at present, leaving “a significant portion for export to other African countries whose economies are dependent on agriculture”, Mebtoul said. According to World Bank figures, in 2009 fertiliser consumption in Algeria stood at 487.85% of production, resulting in a reliance on imports.

PRECIOUS METALS: The country’s main gold field is the 1425-sq-km tract of the Tirek-Amesmessa concession. Amesmessa is part of the Algerian gold belt and is located in the Little Atlas Mountains. The Atlas Mountains extend from the Atlantic Ocean in Morocco across Algeria to the Mediterranean in Tunisia. According to estimates, these gold deposits could generate 200,000-300,000 oz of gold per year. The concession is managed by ENOR, with the UK’s GMA Resources previously owning 52% of the concession, while the remainder is in the hands of Sonatrach. As part of a joint venture the companies conducted an extensive exploration programme covering the entire concession and built a new heap leach facility. However, in October 2011 GMA Resources announced its intention to withdraw from the venture, citing falling gold grades and poor exploration results. GMA’s Algerian subsidiary completed the transfer of its shares to Sonatrach in April 2012.

Gold can be found either as hard rock deposits or as placer gold in the wadis as it washes down from the mountains. GMA Resources reported in 2011 that the gold output from its Amesmessa gold mine declined during the first half of the year. Between July and September 2011 the company produced 1814 oz of gold and 347.1 oz of silver. According to the company, falling gold grades were the major contributing factor to the lower output.

According to an update of its local activities released in September 2012, Cancor Mines, a Canadian mining company, had begun its drilling activities on the Tirek North permit, with logistical arrangements undertaken, including the transfer of a drilling machine as well as the provision of security, water and fuel. The Tirek North sector also includes the In Ouzzal North permit. Studies have confirmed that highly favourable gold-bearing concentrations are present in the target areas. Structural studies using satellite mapping and lithochemical alteration technologies were conducted in the Tirek North, In Ouzzal North and Tan Chaffao East and West permits.

Cancor Mines owns four Algerian properties 2000 km south of Algiers in the Hoggar region. These include Tan Chaffao West (4925 ha), In Ouzzal North (6528 ha), Tirek North (98,990 ha) and Tan Chaffao East (4950 ha). Studies have confirmed that the sites’ geological conditions are favourable for gold deposits, similar to Canada’s Abitibi greenstone belt. Further, numerous gold fields can be found on or near the surface and should allow for open-pit mining.

Meanwhile, at the end of 2011, Algeria and Qatar signed a memorandum of understanding regarding gold exploration. The cooperation agreement came towards the end of a visit by the Qatari minister of energy and industry, Mohammed bin Saleh Al Sadah. The two countries are considering establishing a joint venture to explore the possibility of mining for gold. As preparation for this, a joint company for maritime transport and logistical services will be created.

ZINC: State-owned Entreprise Nationale des Produits Miniers Non-ferreux et des Substances Utiles began a feasibility study in 2009, the results of which indicated that an investment of $285m would be needed to develop the Tala Hamza lead and zinc deposit. Terramin Australia has been in discussions with the government of Algeria regarding the approval and financing process for the Tala Hamza zinc mine, part of the Oued Amizour zinc project. Western Mediterranean Zinc (WMZ) fully owns the Oued Amizour project and its shareholders include Terramin Australia (65%) and two Algerian state-owned firms, Enterprise National des Produits Miniers Non-Ferreux et des Substances Utiles (32.5%) and Office National de Recherche Géologique et Minière (2.5%).

As of the end of 2010 the Tala Hamza mine held 68.6m tonnes at grades of 1.1% lead and 4.6% zinc, based on analyses of data from 88 diamond holes. Thick mineralised sections can be found in the ore-body with high grade intervals. It is expected to support a life-long mine development that may become the top-five zinc producers in the world.

The company designed the Oued Amizour zinc project to initially include a processing plant with a capacity of 2m tonnes per year that would produce 100,000 tonnes per year of zinc in concentrate and 25,000 tonnes of lead in concentrate. At a later stage, production will be increased to 200,000 tonnes per year of zinc in concentrate grading 53% zinc at a 90% recovery rate and 40,000 tonnes of lead in concentrate grading 60% lead at a 72% recovery rate.

So far, Terramin has spent around €32m on drilling and studies to obtain a better understanding of the deposits. Among these was a definite feasibility study for the development of a large new underground block cave zinc mine, jointly conducted by Terramin and WMZ in 2009. With a minimum annual throughput capacity of 4m tonnes, the study concluded, an average annual production of 370,000 tonnes of zinc and lead concentrate should be possible. The study also found that the tenement contains several lead-zinc and other prospects indicating that more discoveries can be anticipated.

OUTLOOK: Although Algeria has vast mineral wealth, it has yet to explore, let alone realise, the full economic potential of the mining sector. However, the government has demonstrated its commitment to developing the sector and is encouraging partnerships with foreign mining firms. A mining institute has also been established to train the technicians and engineers needed in the industry. In addition to diversifying the economy, a more productive mining sector would help meet the country’s increasing demand for construction and industrial materials, reduce the import bill and improve overall export revenues.