Iraq struggles to mine a rich vein

04 August 2014

Insurgency casts shadow over one of the country’s brightest investment markets

In Iraq today, no industry is safe from the country’s political turmoil.

The Baiji oil refinery’s strategic importance to Iraq’s economy at least ensured a robust defence of the facility by Iraqi state security forces from advancing Islamic State in Iraq and Syria (Isis) militants.

But a sulphur mine near Mosul enjoyed no such insulation and is now in the hands of Isis, just weeks after the state-run mining and processing facility had taken delivery of $53m-worth of equipment from US-based engineering firm Devco.

Mine capture

The jihadists’ capture of the Mishraq State Sulphur Mine was followed by further troubling news relating to Iraqi minerals. Reports that Isis had acquired 40 kilogrammes of uranium compounds kept at Mosul University triggered hysterical headlines in Western media, indicating – incorrectly – that these could be used in the manufacture of a crude nuclear weapon.

The sulphur mine’s future is now indeterminate, but it appears unlikely the plant will be hitting its target of purifying 500,000 tonnes a year (t/y) of sulphur by January 2015 as originally intended.

Modernisation

The contract with Devco, which is related to the ongoing rehabilitation of the mine, was part of a $78m turnkey deal – the largest ever awarded by Iraq’s Ministry of Industry & Minerals since Saddam Hussein’s ousting in 2013.

Iraq phosphate deposits (‘000 tonnes)
Akashat430,000
Swab3,502,900
Hirri193,000
Dwaima2,758,000
Marbat2,114,190
H3313,000
Ethna218,000
Total9,529,090
Source:  Geosurv-Iraq

It involved the delivery of submerged customisation technology that would enable the project to live as intended in January next year.  The contract involved installation of a sulphur purification system including a sulphur filtration unit, a sulphur recovery unit and a submerged combustion distillation unit, with the possibility to increase capacity to 1 million t/y.

It may be hard to conceive that the Isis rebels would have any coherent plans for the Mishraq sulphur mine, although they have proved able to commandeer oil facilities formerly held by the regime in Syria and use these to good commercial effect.

Affected productivity

In reality, the bigger challenge for Iraq’s mining and minerals sector is that terrorism is only one of several problems that are undermining its contribution to the economy.  

The Mishraq mine experienced a devastating fire in June 2003 that burned for a month, causing severe pollution effects as more than 21,000 tonnes of sulphur dioxide were pumped into the atmosphere, reaching levels considered dangerous for public health. 

That accident, soon after the US-led invasion, set back the chances of the mine getting up and running again. At its peak, the mine, located 45 kilometres north of Mosul, boasted a production capacity of 820,000 t/y, according to estimates from the US Geological Survey.

MEED’s sounding suggests only limited amounts of sulphur are being produced in Iraq, with the latest figures from Mishraq suggesting just 1,406 tonnes were marketed in May 2012 (the last month for which figures have been given).

According to estimates from Kimberly Gustin, a sulphur analyst at UK-based CRU Group, Iraq produces about 70,000 t/y of sulphur, which rather pales in comparison with neighbouring Saudi Arabia’s 3.8 million t/y of expected production in 2014. 

“It’s been off the map for a considerable period of time as far as sulphur output goes, and what it produces is incredibly small even when compared to smaller countries,” says Gustin. 

Sulphur is only one of a number of products mined in Iraq. Over the years, the country has produced limited amounts of bentonite, cement, clay, gypsum, iron oxide pigments, kaolin, limestone, nitrogen and phosphate fertilisers, phosphate rock, salt, sand, and gravel.

Resource rich

Overall, the resource depth is not insignificant. Government estimates for Iraq’s proved mineral resources include 10 billion tonnes of phosphates, 8 billion tonnes of limestone (mainly in the Anbar province and in the Kurdistan region), 1.2 billion tonnes of kaolinitic clay stones, 600 million tonnes of native sulphur, 330 million tonnes of dolomite, 130 million tonnes of gypsum and 50 million tonnes of salt in the Anbar and Basrah provinces. 

Gold deposits also exist in the Western Desert and in the Kurdistan region in the north, which boasts significant resources of zinc, copper and marble. 

Such resources have led the authorities to consider a series of investment projects to tap them, ranging from sodium sulphate to phosphates, silicone sand, alumina and sodium carbonate. The Ministry of Industry & Mines has formed a permanent coordination committee to oversee investment in the minerals sector.

The Iraq Geological Survey (Geosurv-Iraq) has identified 12 investment opportunities in the minerals sector, including phosphate rock mining and beneficiation projects at the Swab Wadi and the Wadi al-Hirri in Anbar, and the mining and processing facility for native sulphur deposits at Mishraq and Lazzaga in the Ninevah province.

Scant progress

These investment opportunities were offered under the 2006 Investment Law, but have seen little material progress in recent years.

Despite that, the authorities claim some advances have been made in attracting investors. Geosurv-Iraq signed an agreement with China’s Beijing Trading & Development Company to build a bentonite-activation plant at Fallujah, which would convert calcium-based bentonite into sodium-based bentonite for use as a drilling mud for oil and gas wells.

The plant would tap into bentonite reserves located in the Traifawi area in the Western Desert. The ministry has also invited interested companies to invest in mining silica sand deposits in Anbar, which could be the site of a 150,000-t/y silica plant. The silica sand produced would supply the ceramic and glass industries, as well as a proposed white cement plant.

Phosphate potential

However, the biggest effort has gone into getting phosphate projects under way. There are 22 reported occurrences of phosphate mineralisation in Iraq, mostly in the barren west of the country.  

The Ministry of Industry & Minerals and Geosurv-Iraq announced two investment opportunities to extract and concentrate phosphate deposits in partnership with the General Company for Phosphate by building a phosphate rock processing plant at Akashat in Anbar.

The plan was for that plant to  produce 1 million t/y of phosphate fertiliser and phosphoric acid at a cost of $50m, with rock sourced form the Wadi al-Hirri deposit. The proposed plant would produce phosphoric acid and phosphogypsum as a byproduct from treating phosphate concentrates with sulphuric acid. The project is intrinsically linked to the Mishraq sulphur scheme as it would have used sulphuric acid sourced from the hydration of native sulphur at the Mishraq deposit in Mosul.

Iraq’s phosphate resources make up about 3.1 per cent of currently estimated world phosphate rock resources and reserves, making it a potentially significant player.

Analysts say the biggest phosphate deposits at Akashat and Swab are large enough to rank in the top 10 per cent of deposits worldwide. Akashat alone is believed to contain 1.7 billion tonnes of phosphates.

The Akashat deposit was discovered in 1965, but an open pit mine only started production in 1983. Output reached a peak of 2.4 million tonnes in 1988, before beginning a steady decline after the 1990 invasion of Kuwait and the subsequent imposition of sanctions. By 2003, the year of the US-led invasion, production had slipped to just 192,940 tonnes. By 2006, the last year of production, a mere 500 tonnes of phosphate rock were being mined.

Looking East

Phosphates are nonetheless important for Iraq, given robust regional demand from countries such as India, Pakistan and Bangladesh, which require phosphate-based fertilisers for their large agriculture sectors.

Currently, Iraq is forced to import total filterable phosphorus (TFP), a form of phosphate-based fertiliser.

“The State Enterprise for Phosphate plant at Al-Qaim in Iraq has the capacity to produce phosphoric acid and TSP, although production of both has been idle since 2002,” says Alice Charlton, a phosphates analyst at CRU Group.

Demand, however, for phosphate-based fertilisers such as diammonium phosphate (DAP) is there. “Since 2009, Iraq has imported minimal quantities of DAP. Therefore the question remains whether the industry will continue to be reliant on imports or if domestic producers believe it to be cost-effective to recommence production,” says Charlton.

However, domestic production would be dependent on reliable raw material supplies. The production of TFP only relies on phosphate rock, which Iraq has reserves of, and sulphur, which could be sourced from the reopening of a currently idle domestic brimstone mine. In addition to phosphate rock and sulphur, the production of DAP also requires ammonia, which Iraq currently has capacity for, although this is almost entirely used in urea production.

According to Charlton, if domestic nitrogen suppliers chose to increase ammonia capacity without a corresponding rise in urea production, it will be interesting to see if this stimulates Iraqi phosphate producers to reinstall phosphoric acid production and commission a DAP production facility, the product of which could be targeted at both the domestic and international markets. This, however, would be dependent on the installation of a stable government and investment in the domestic industry.

It may be a while before Iraq is able to capitalise on its phosphate and sulphur reserve potential, given the security issues confronting the northern and western areas of the country.

Kurdistan advantage

Kurdistan, meanwhile, is a different matter. The autonomous Kurdish region’s stronger security situation and more advanced investment climate compared with the rest of Iraq gives it a distinct advantage in developing natural resources.

The Kurdistan Regional Government (KRG) has been working on drafting a mining law to generate interest in the sector. It is looking to private sector developers to play a prominent role investing in and developing the minerals industry. A draft non-metals mining law is awaiting ratification by the Kurdistan parliament and a metals mining law will be drafted at a later stage.

The Kurdish authorities claim a high potential for deposits of metals such as iron, chromium, nickel, platinum, gold, copper, barite and zinc in a 15-25 kilometre-wide mountainous belt running across the Kurdistan region. Other areas of the region are likely to be rich in limestone, gypsum, sands, clays, gravel and evaporates.

Steel output

The attractions of a stable region rich in resources attracted the attention of the world’s largest steelmaker four years ago, with Luxembourg-headquartered ArcelorMittal signing a memorandum of understanding in March 2010 to establish a joint venture with Turkey’s Dayen to build a steel mini-mill in Suleimaniyah, in the east of the Kurdish region.

Plans called for the mill to produce up to 250,000 t/y of rebar (finished steel used in construction) in its initial phase, with expected investment of $100m-$130m. However, there has been no material progress on this scheme in the past few years.

All this leaves Iraq’s ample minerals wealth hostage to a challenging security and investment climate.

The uncertain fate of one of the more advanced of Iraq’s mining projects – the upgrade of the Mishraq sulphur development – depicts the obstacles that confront investors looking at minerals projects in Iraq. And the thought of Isis producing commercial quantities of sulphur using fresh equipment supplied from the US is one that few Iraqi officials will be happy to entertain.

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