Updated prospects: The mining industry is preparing to implement a new mining code and sector strategy

Mining is a key sector of the Moroccan economy, but for a long time it was synonymous with phosphates. The country possesses the largest phosphate reserves in the world and is one of the three largest global producers. Recently, however, there has been a push to improve performance in the sector, in part by encouraging upstream and downstream activity in a variety of metals and minerals. The government rolled out a comprehensive strategy for the mining sector in 2013, which aims to boost investment and expand capacity, as well as introduce a new mining code. Foreign investment in the sector has been fairly constrained by comparison to other industries, and the new code aims to offer a package of incentives to boost extraction and export.

PERFORMANCE: Mining strategy has generally focused on phosphate and phosphate derivatives for markets in Europe, the US and East Asia. However, global demand – as it has been for a number of years now – was weak in 2013, resulting in a slight easing of the growth rate for the sector, down 3.2% year-on-year compared to 2012, although remaining at 5% overall, according to the Ministry of Finance. "2013 was a difficult year for mining companies because of the declining value of metals, which can be attributed to the drop in demand from investors, as well as the slowdown in China's economic growth and the existing surpluses on the global market for metals such as zinc, copper, and cobalt," Abdelaziz Abarro, CEO of Managem, told OBG. Office Chérifien des Phosphates’ (OCP) export revenue fell by 23.3%, ending 2013 with Dh37.1bn (€3.3bn). According to the National Office of Hydrocarbons and Mines (Office National des Hydrocarbures et des Mines, ONHYM), total mining exports in 2012 reached Dh53.8bn (€4.8bn), while investments were Dh13.6m (€1.2m). The sector contributes around 10% to GDP and accounts for 30,000 jobs, half of which are OCP-related. However, growth has been slow in recent years, and just 2218 jobs were created in the mining sector between 2000 and 2013. Phosphates alone accounted for 27.1m tonnes of production, which was less than the 28m produced in the previous year, according to ONHYM.

Overall mining production in 2012, outside of phosphates, was 2m tonnes. Morocco is also the top African producer of lead and zinc, producing 39,100 tonnes and 91,600, respectively, in 2012. Salt production fell dramatically between 2011 and 2012, from 720,800 to 144,300 tonnes. Morocco’s other top-producing minerals were barite (used in paper and plastics), iron, zinc and bentonite, a mineral used in seals for the building sector. In 2012 those segments saw production of 1.02m, 260,700, 91,600 and 91,200 tonnes, respectively. Morocco also produces more modest amounts of magnesium, cobalt, fluorine, clay and gold and silver.

According to the Ministry of Energy, Mines, Water and Environment (Ministère de l’Energie, des Mines, de l’Eau et de l’Environnement, MEM), overall investment in the mining sector between 2000 and 2013 totalled Dh55.4bn (€4.9bn), with Dh43.9bn (€3.9bn) in 2011 alone, which was concentrated almost exclusively in the Chaouia-Ourdigha, Doukkala-Abda, Marrakech-Tensift-El Haouz and Souss-Massa-Draa regions in the north of the country.

SECTOR STRUCTURE: OCP is the largest company operating in Morocco in terms of revenue and production thanks to the country’s generous phosphate reserves, representing some 77% of the world’s known reserves. The company has a monopoly over the extraction, transformation and sale of phosphates in Morocco. In terms of non-phosphate companies, Société Nationale d’Investissement subsidiary Managem – which has operations in a variety of metals, minerals and sulphates – is one of the larger domestic players, with Dh3.5bn (€310.8m) in revenue in 2012 and sites in Gabon, the Democratic Republic of Congo, Niger and Sudan. Managem’s subsidiary Société Métallurgique d’Imiter extracts and processes silver from Imiter, the world’s ninth-largest silver mine as of 2012. Compagnie Minière Touissit, a subsidiary of French firm OSEAD, also operates in Morocco, among other African countries.

The total number of permits in 2012 was 5927, with individual operators accounting for 47%, private mining companies 36% and ONHYM 17%, although a large share of permits are for exploration and are unused. Given the estimates of large quantities of minerals beneath Morocco’s territory, 30 foreign companies are prospecting at present. As of September 2013, 44 exploration projects were under way, of which 28 were being conducted by OHNYM. In 2013 a total of 38 exploration projects were ongoing, which include iron, uranium, precious metals, polymetallic and rare earth metals.

INDUSTRY REVIVAL: In 2013 the government laid out plans to expand mining production and export volumes. The plan’s objective is to generate 30,000 additional jobs and triple sector revenue to more than Dh15bn (€1.3bn) by 2025 (not including OCP), which would be carried out by the MEM’s Project Management Office. Currently, the sector provides 1% of Morocco’s GDP, which is considered low given the country’s mineral wealth. “The mining sector outside of phosphate production needs an overhaul in terms of the legal and regulatory framework, as well as its fiscal policy so as to better contribute to the economy as a whole, which would allow private sector companies to set up their investment efforts in a field that requires lot financial resources and is high risk,” Abderrahim Dinar, director of the mining department at the MEM, told OBG.

The plan will, therefore, also seek to increase investment in exploration and mining research, which is lacking, to Dh4bn (€355.2m) from Dh350m (€31.3m). At present, only 30% of the country’s territory has been geographically charted.

Developing a comprehensive geological map of Morocco is central to this, and in 2013 four new surveys were carried out at a cost of Dh15m (€1.3m). This figure is only a fraction of the amount larger producers such as South Africa spent on geological surveys and mapping during the same period.

MINING CODE: The mining code currently in place is based on a mining law that dates to 1951, which was written when Morocco was a French protectorate and is based on a French legal framework. Under the current code, mining can be carried out by any individual or corporate entity. Other than phosphates, the right to establish a mine is based on a first-come first-served basis. Currently exploration permits are approved for three years, are renewable for a further four years, cover a surface area of 16 sq km and cannot add up to 250 sq km.

The need for a regulatory update to the code is clear. “The current standard surface area allowed in Morocco is about 16 sq km for an exploration permit. The newly drafted Moroccan mining legislation offers the possibility of adjusting to an identified potential mineral reserve on the grounds of the 16 sq km previously allowed under the current legislation. In other countries the surface area is in the thousands of kilometres,” said Mohammed Cherrat, the director of human resources and communication at Managem, told OBG. As a significant amount of land is required to launch a mining operation, the new mining legislation intends to establish an exploration authorisation as a prerequisite for large exploration surfaces of 100-600 sq km. “Today, the current Moroccan code is being reviewed by the Moroccan authorities in order to align it with international mining standards. The new mining laws will be an opportunity for potential investments in Morocco, and will be a step up for the mining business in the country as a whole,” Cherrat told OBG.

EASING ENTRY: Mining exploitation permits are valid for four years and may be extended for a further 12 years. The new mining code, to be implemented in 2014, will institute changes that will allow foreign investors to more easily enter and operate in the sector. The code is expected to boost production and the industry’s contribution to GDP and employment. The new code will create zones in which major firms will be able to explore for up to two years and which will be renewable once. Mines will also be exploitable until their exhaustion rather than limiting sites to a 12-year permit extension. The new code will similarly be applicable to maritime areas, allowing for offshore extractive activity. Mines currently in use will be given a one-year transition period to adhere to the new mining code.

FISCAL POLICY: Generally, strong fiscal incentives are in place for foreign investors. Mineral royalties paid to the regional government are low, and range from Dh1 (€0.09) to Dh3 (€0.27) per tonne extracted. There is also a 50% reduction on corporate or income tax for mining companies that export for the first five years of operation, after which a 17.5% corporate tax rate goes into effect. Only Chile has a lower rate, at 17% for mining firms. Given the expenses of establishing a mine, the state contributes between 50% and 70% of infrastructure costs, including roads, water supply and electricity. “Infrastructure investment is equal to 30% of the budget to establish a mining operation. Essentially, an entire community, with roads, electricity and running water and other facilities, needs to be established from scratch due to the isolated nature of the areas we operate in. This is not the case in other industries, which set up their businesses in highly structured cities like Casablanca,” Cherrat told OBG.

BOOSTING PRODUCTION: The push by OCP to expand upstream and downstream activity, as well as government efforts to expand existing sites and draw new investment into exploration and production, should have a significant impact on the sector’s performance. OCP alone will increase phosphate production to 30m tonnes, up from the current 20m, by 2015 and has already begun an intensive investment programme to expand and modernise production until 2020. The company will invest a total of Dh130bn (€11.5bn), and already in 2011 and 2012 a total of Dh47bn (€4.2bn) has been spent. As well as infrastructure upgrades and projects at the Jorf Lasfar hub, one of the primary ports for the country’s phosphate exports and the site of a number of downstream facilities, OCP has four mines, expected to enter into service in 2015. These will produce diammonium phosphate and monoammonium phosphate that will be transformed into fertiliser product. A 235-km pipeline is being constructed, which will connect the Jorf Lasfar site and a second in Khouribga. The project is a Dh4.5bn (€399.6m) investment.

A further Dh68m (€6m) will be invested in the company’s Safi desalination plant, port expansion and modernisation improvements. Part of the funds will be spent on building two desalination facilities in Jorf Lasfar and Safi, a water purification plant in Khouribga, as well as water conveyance and distribution systems in Youssoufia and Benguerir.

SUSTAINABLE DEVELOPMENT: Mining industries are increasingly concerned with their environmental impact and are keen to enhance their corporate image as they often face criticism for degrading the environment. Managem has also included sustainable development into its strategy. It is establishing recycling centres to exploit tailings from cobalt and zinc, which are rich in salt, such as sodium sulphate and magnesium sulphate. The tailings, which previously were stored in evaporation ponds and negatively impacted the environment, have been eliminated. The sodium and magnesium sulphates have generated an additional 10% in revenue for the firm’s cobalt activity. OCP has also implemented an environmental impact reduction strategy, which covers actions to reduce its carbon footprint, use renewable energy such as solar, cut water consumption, as well as rehabilitate decommissioned mines. In 2012 the group allocated Dh1.2m (€106,560) to reducing its carbon footprint, Dh38m (€3.4m) to a pilot solar station in Benguerir and Dh2.2m (€195,360) to reduce water use.

OUTLOOK: While the mining sector in Morocco has focused on phosphates, efforts aim to include more minerals and metals. New regulations will also expand maximum prospection permit areas, ensuring the sector is not as reliant on just a few large players.