Unwieldly Algeria mining model deters bidders

21 December 2007
Prospects in Algeria’s latest mining bid round are proving too small to attract major companies, but costs are too high for smaller firms.

Algeria’s inaugural international mining conference, held in Algiers on 2-4 December, was billed as a window through which the world could view the opportunities that the country’s largely undeveloped mining sector has to offer.

If the only reason for the conference was to generate inter-national interest, it succeeded. More than 20 countries were represented and more than 50 foreign companies attended the event. On the first day, delegates had to be turned away from the official lunch as the 350 expected delegates was exceeded by almost 100 people.

But the minister wanted more than that. In his speech, he called for “recommendations on how to improve the country’s plans”, and “the successful conclusion of business between mining operators.”

Under the 2001 mining law, what had been a totally state-controlled sector was completely opened up to foreign competition. “All companies can enjoy equal access to information and mining acreage,” said Khelil.

After his opening address, Khelil matched words with action, presiding over the opening of the country’s second international licensing round for mining acreage. This covers a broad spectrum of prospects throughout the country, from base metals and minerals to gold and diamonds, and consists of four prospecting licences and 16 exploration licences.

But the system Algiers’ has introduced to award its mining acreage is a poor way to attract foreign companies into the sector. The government has modelled its bid rounds on those used in the hydrocarbons industry, but by doing so it is deterring the same firms it is trying to attract.

“The idea is that the oil and gas exploration model works for mining, but in fact the opposite is true,” says Kevin Moriarty, chief executive officer of mining company Terramin Australia. “In the petroleum sector, large companies do the drilling and juniors follow once the bigger firms have exhausted the prospects they want to exploit. But in the mining sector, junior companies take the initial risks and the majors come in if large discoveries are made.”

Attracting companies

The importance of bringing in junior mining companies was emphasised by several conference delegates. “Algeria has to focus on attracting the juniors so they can advertise to the rest of the world what can be done in this country,” said Doug Perkins, head of UK-based GMA Resources.

“Juniors are the world’s miners,” said Abdelkader Khobzi, president of Canada’s Cancor Mines. “They take the risk and provide the expertise essential to any exploration programme.”

The bid round model is an unwieldy way of attracting such firms. “I think a lot of juniors will be put off by the bidding system,” says Terry Lemmon, business development manager at Australia’s Anvil Mining. “If they bid a lot of money on a prospect and it does not come off, then they are lost. People expect it in the petroleum sector, but there is a lot more money there.”

The acreage itself is also an issue. “The majority of the areas on offer are relatively small and are confined to specific targets,” says a senior geologist at another Australian mining company.

“To attract the juniors, the government needs to release bigger projects and allow companies to choose the territories they want to prospect, not predetermine them.”

While the junior firms are discouraged by an onerous bid process and a lack of freedom to prospect on large, unexplored territories, the targets are too small to attract the major players. Of the word’s largest mining companies, Australia-based BHP Billiton, Brazil’s Companhia Vale do Rio Doce and London-based Anglo American did not send delegates to the conference. Rio Tinto, also based in London, was represented, but its interest was limited to gaining insight into the market.

“We are not interested in the acreage - they are only small projects,” said a Rio Tinto geo-logist at the conference. “We are here to take a look at the sector, see what the legislative changes are, establish some contacts and see how it might fit in the longer term.”

Good potential

There is no doubting Algeria’s potential. It is the second-largest country in Africa and is almost completely unexplored. GMA is the only foreign partner that has so far had a successful mining project under the new law. Its Amesmessa gold project in the south is due to begin production by the end of 2007. Terramin Australia’s zinc project is also set to begin operations, but not before 2011.

“Algeria’s mineral potential is very high,” says Moriarty. “It has not been explored by modern methods, so the potential for new discoveries is good.”

The buoyancy of the global metals market, fuelled by the rapid growth of the Chinese economy, makes it a good time for Algeria to develop its mining potential. “Metals demand is high and it will continue to be so because of demand from China,” says an Australia-based mining analyst. “The lack of capacity coming on stream in recent years has also pushed up prices in the past few years.”

Further demand growth is expected and if Algiers really wants to capitalise on this, and open up its mining sector, it might need to rethink the way it does it.

TABLE: Algeria trade in mining products ($ million)


Source: Energy & Mines Ministry

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