New discoveries bolster opportunities in Côte d'Ivoire's mining sector

With several of the world’s mining operators increasing their commitment to West Africa, Côte d’Ivoire remains one of the least explored countries in the region. Although the sector’s contribution to the national economy remains limited – at around 2% of GDP – proven reserves in gold, bauxite, iron ore, nickel and diamonds have positioned the industry as an important way for the country to diversify the economy away from its dependency on agricultural commodities. The ongoing implementation of a new mining code, optimistic gold exploration results and a rebound in the price of some base metals are setting the stage for the mining industry to progress steadily over the near future.

According to the Professional Miners Association of Côte d’Ivoire (Groupement Professionnel des Miniers de Côte d’Ivoire, GPMCI), the mining sector had a turnover of CFA480bn (€720m) in 2016, accounting for CFA37bn (€55.5m) in direct taxes for the Ivorian state. Still, mining activity in Côte d’Ivoire remains, to some extent, in its infancy. “The full potential and extent of our mining resources is not even known yet”, Christine Logbo-Kossi, executive director at the GPMCI told OBG. “We haven’t even began the mining boom.”

Greenstone

Côte d’Ivoire is part of the Birmian Greenstone Belt, a mineral-rich geological formation that connects a large part of the West African region, from Senegal all the way into Ghana. It is this geological formation that has allowed neighbouring Ghana to become Africa’s second-largest gold producer after South Africa. Côte d’Ivoire, which has a third of the mineral belt within its borders, is still largely under-explored, putting it in a position to attract fresh mining investment. Although political instability prevented consistent levels of investment from reaching the mineral industry in the past, a return to peace has meant that the sector can now compete with other countries in the region for foreign direct investment.

A sign that the sector is still taking its initial steps came from a recent discovery. In August 2017 South Africa-based Randgold Resources, which has been operating the Tongon gold mine in northern Côte d’Ivoire since 2010, announced it had discovered very promising gold prospects in its Boundiali concession. The firm reported it had found gold-in-rock mineralisation for an extension of 50 km.

Sector Expansion

The positive results, which Randgold executives classified as potentially one of the most exciting gold mining discoveries in West Africa, demonstrates the country’s potential. If proven to be as relevant as preliminary tests indicate, Boundiali will add to other existing reserves across several regions of the country. Gold production has grown from 13.2 tonnes in 2012 to just over 25 tonnes in 2016, according to the Ministry of Industry and Mines.

Investment in gold exploration and development of mine operations has continued over recent years, even as international prices for the resource have sustained a consistent decline since 2012. Up to 80% of applications for exploration licences received by the government are to assess the potential of gold deposits, according to the GPMCI. Currently, a total of four gold mines are operational, and an additional three sites have been moving closer towards production stage. By 2021 Côte d’Ivoire is expected to have seven gold mines under operation and reach an annual output of 40 tonnes.

Gold prices took a hit in 2011, moving down from $1900 an ounce in September 2011 to around $1324 an ounce by January 2018. The move momentarily affected the appetite for new exploration licences, argues Logbo-Kossi, but not the projects where gold was already being exploited. “Between 2013 and 2015 some players in Côte d’Ivoire reduced their exploration budgets by as much as 60%. Those that had already begun production maintained their efforts while trying to cut costs. However, exploration efforts have started to pick up again”, Logbo-Kossi told OBG.

Bringing new mines into exploitation stage will impact yearly production and the income derived from mining activity. Tongon mine, for instance, which began operations in 2010, has already brought in close to $1bn in taxes, royalties, salaries and payments to suppliers involved in its operation to the country’s economy, according to figures by Randgold.

Manganese

Although it remains a strategic component of Côte d’Ivoire’s mining potential, manganese exploitation in the country was badly affected by the fall in the commodity’s price. This led to unfulfilled expectations, with authorities having estimated that manganese production could reach 1m tonnes per year by 2017, before the collapse of international manganese prices. The lowering of prices internationally affected local production patterns, encouraging miners to suspend activity. Production rose from 121,000 tonnes in 2012 to 362,000 tonnes in 2014, but has fallen ever since, reaching 263,200 in 2015 and just over 217,000 in 2016, according to the Ministry of Industry and Mines (Ministère de l’Industrie et des Mines, MIM). Although the country has three manganese mines, all of them halted production for most of 2015, with two of the mines coming back into operation by early 2016 and the third expected to restart operations in early 2018. A fourth manganese mine is under construction, and the government announced it expects national manganese production to climb up to 400,000 tonnes in 2018.

Other minerals are becoming part of mining development plans as well. After receiving an exploitation licence in late 2016, Ivorian mining firm Nickel de L’Ouest Côte d’Ivoire announced an investment of CFA220bn (€343.5m) for the development of its nickel concessions at Touba and Biankouma. Ivorian authorities confirmed at the time the existence of reserves of up to 60m tonnes with a nickel content of 1.7%, international media reported.

Bauxite

Ivorian mining firm Lagune Exploitation Bongouanou is currently working on the country’s first Bauxite mine in the Bongouanou department, north of Abidjan. Initial exploration efforts have detected bauxite reserves of up to 34.9m tonnes, although the firm expects known reserves to increase as exploration of surrounding areas included in the concession proceeds. Development of the mine began in October 2017, and extraction of bauxite reserves is scheduled to begin over the first quarter of 2018, according to company sources. The mine’s initial annual output is expected to reach 750,000 tonnes, and the project will also include a bauxite processing plant to transform the mine’s output into calcinated bauxite initially and into aluminium at a later stage.

In its initial stages, the company expects to export 315,000 tonnes of calcinated bauxite through the Port of Abidjan, although plans to develop a mineral port at the facility will likely allow to raise exports over the near future. “The bauxite project will be developed in three phases: the construction of the site, the exploitation and further exploration of the mine, and the construction of the calcined bauxite unit, for a total cost of CFA29bn (€43.5m). The next phases include the construction of processing units,” Michel Moumini Bictogo, chairman and CEO at Lagune Exploitation, told OBG.

Regulating The Market

A critical element to better position Côte d’Ivoire on the map of international mining firms was the implementation of a new mining code, which came into law in 2014. The new law aimed to streamline access to exploration licences, simplify processes and procedures for investors, and secure transparency and traceability in the management of mining licences. Although as of January 2018 some details of the law remained dependant on specific decrees to add detail, the broader changes outlined in the new regulation were welcomed by local and international investors to a large extent.

One key aspect of the new code was the increase in the duration of exploration licences from seven to 10 years, with the possibility of companies to be given two 12-month extensions. In hand with another measure that reduced the maximum size of exploration areas from 1000 sq km to 400 sq km, such changes are expected to spur investor interest in exploration efforts. To further encourage an efficient use of allocated exploration areas, the new code has included a requirement that exploration work begin during the first six months after an exploration licence has been granted. The duration of exploitation licences was kept at 20 years, although additional renewal licences were shortened from 20 to 10 years. “Theoretically, the mining code is attractive. However, the challenge remains in its application and delays in the decision-making procedures by the authorities. Mining permits are seldom processed efficiently, which negatively impacts the sector,” Jean Jacques Koua, CEO of EPC Côte d’Ivoire, a French mining conglomerate, told OBG.

Although the market has welcomed the new rules, certain adaptations might be needed to ensure that the regulatory framework can fit all of the different mining activities that will likely push the sector forward over the coming decades. “The problem with the current duration of exploration licences is that the timeframes and deadlines were established with gold mining in mind,” Nouho Koné, advisor of the president of GPMCI and chairman of the Exploration Working Group of GPMCI, told OBG. “If you want to develop a gold mining project, you can do it in 14 to 15 years. However, a project to mine base metals can take between 25 and 30 years. This technical vision is sometimes lacking in the administration at the moment.”

Under the regulatory structure the government has attempted to increase the involvement of local human resources and suppliers, by imposing that licence holders give preference to Ivorian suppliers and staff hiring, provided they offer the same price and quality as international providers in the market.

The new rules have also implemented a system to improve the contribution of mining projects to the local communities. Mining operations are now required to establish a local mining development fund to contribute to regional development initiatives. The funds are managed by local committees, which are charged with prioritising the projects set to be undertaken. According to the GPMCI, as of September 2017 up to 70% of companies with exploration licences had already established their local committees. Additionally, half of them had already started to receive the funds set to be spent under the mining local development funds.

Getting the financial benefits of the mining sector to trickle down will also require rising the number of mining operations in the country that pay taxes. This will depend on how well the government can use new the regulations to bring illegal mining under control and formalise small independent miners.

Illegal Mining

The problem, which affects large swaths of territory in countries across the region, has several negative consequences. Besides channelling funds away from the state into the informal economy, illegal mining also pollutes water sources and accelerates environmental degradation.

Sector authorities have estimated that the total amount of gold that is currently lost to illegal mining in Côte d’Ivoire is roughly 20 tonnes per year. This is close to the total amount of legally mined gold, which reached 25 tonnes in 2016, according to the GPMCI. Illegal mining in Côte d’Ivoire is also known to employ a large amount of people. Although official figures have put that number of illegal miners at 500,000, Logbo-Kossi believes that the number is closer to 2m people. “The problem is that illegal miners are mobile: they move across borders in and out of the countries in the region. That is why we believe we are dealing with a lot more people,” she told OBG.

To reduce the negative impact of illegal mining but still allow small-scale miners to live off the sector, authorities are trying to formalise part of the illegal activity through the allocation of artisanal mining licences. However, the details that will structure artisanal mining operations are still under consideration. “What we need to determine is how the state taxes small miners, how they can be organised to work on specified lands that do not belong to other concessions, and how to establish the way in which these licences be given to small miners”, Logbo-Kossi told OBG. The fight against illegal mining is being undertaken at a regional level. In neighbouring Ghana, President Nana Akufo-Addo, elected in 2017, has increased the state’s commitment to solving the problem. An initial step was the temporary banning of artisanal mining across the country. There is also the question of the environmental impact of unlicensed mining. In early 2016 South Africa-based AngloGold Ashanti had its Obuasi mine in Ghana invaded by illegal miners. This came after the South Africa-based miner interrupted underground mining at the site in 2014 due to the losses related to the operation. The stand-off lasted for most of 2016, with the company announcing that the illegal miners had been removed in early February 2017.

Côte d’Ivoire’s coffers have been similarly hampered by illegal mining. Gold is the country’s single-largest source of foreign currency. Government estimates have put the cost of illegal mining in terms of loss tax revenues at more than $2bn in 2016 alone, according to international media reports.

Infrastructure

With gold consuming a considerable proportion of the total mining investment, the lack of adequate infrastructure is currently not a key obstacle for at least part of the sector’s development. However, the question of large-scale infrastructure development is relevant for the expansion of base metals exploitation. “For the development of infrastructure, such as railways and ports, the state was counting on the expansion of the base metals industry, mainly bauxite and manganese”, Logbo-Kossi told OBG. “However, with the current prices, those projects have slowed down. For example, even the economics for the Port of San Pedro project have changed, so the mining industry needs to partner with other industries to justify new infrastructure projects.”

For decades, plans to establish a railway line between San Pedro and Man were considered but never fully pursued. Although the project would greatly benefit mining exploration, the potential cost of such a project remains a deterrent. “These infrastructure projects were not done in the past because mining was not a priority for the country’s economy. Agriculture was a bigger priority; but agricultural output can be moved around in trucks,” Koné told OBG.

Human Resources

Further exploration and investment in the development of new mines will be key to move the sector forward. However, increasing the weight that mining can have in the economy will depend on human resources preparation. So far, the country lacks a dedicated mining university. The state-run Institut National Polytechnique Félix Houphouët-Boigny in Yamoussoukro offers a course that covers oil and minerology, and a recently opened university in the city of Man also offers engineering courses in some of the subject areas needed by the mining industry. However, Logbo-Kossi believes that setting up a sector-specific higher-education institution in the near future would accelerate sector development considerably.

Regional Players

In the coming years Côte d’ Ivoire’s mining sector will have to compete with other regional markets to attract investment in new exploration and development. Although Côte d’Ivoire has been named the top country in sub-Saharan Africa in terms of its potential for mining sector growth during the 2017-21 period in a recent BMI Research report, the fact that several other countries in West Africa have untapped mining opportunities will determine how foreign investment will pour into Côte d’Ivoire’s mining industry over the medium term.

In neighbouring Mali it has been estimated that the country has gold reserves of approximately 822m tonnes. Despite this, only six out of 133 sites with the potential to hold gold reserves had been mapped out as of early 2017, according to BMI Research. Nearby, Burkina Faso is another country that has vast mining resources, which for the most part remain relatively underexplored. Houndé Gold, of which South Africa’s Endeavour Mining has a 90% stake, is investing CFA162bn (€243m) in its industrial gold mine in Tuy, which is expected to produce an average of 5.4 tonnes of gold annually over the coming decade, according to international media reports.

Outlook

Mining activity is set to increase in the coming years. While gold will remain the key contributor to the sector’s expansion, minerals such as manganese, nickel, bauxite and diamonds will have their own role in the sector’s development.

However, further investor confidence will depend on the ongoing implementation and validation of the new mining code over the medium term. Easing operating costs by improving infrastructure and logistics performance as well as reducing electricity prices, which can account for 27% of production costs for mining companies in Côte d’Ivoire, will galvanise further investment.

Part of this easing of operation costs might well come from the country’s ongoing energy generation projects. “There are a number of projects for the construction of dams, and this will help on the energy side by increasing the available supply of electricity,” Koné told OBG.