Afghanistan Minerals! A game India has to play

Baghlan Province, Afghanistan

"Afghanistan is seeking investors for 'World Class' mineral resources" reads Bloomberg Businessweek's article title. Guardian helpfully provides the Baghlan Province's picture, a province where some of these minerals exist.

Is Afghanistan going to be the Saudia Arabia of South East Asia? Well some in India think so. The recent India-Afghanistan Strategic Partnership Pact while it does good to Afghanistan, India and America, one would advice some caution in rushing into these accords because of promise of richness from a 'foreign' source. It would pay India or any other country to do its own due diligence. It is just common sense. However, is there a way for India to conduct its own survey? Probably not. So due diligence is almost ruled out. India could use its connection in Afghanistan to investigate the truth of the matters. By the way, say, India manages to bag some mining areas and extracts the ores, how is it going to transport them out of Afghanistan? Through Pakistan. I do not think so. It has to be through Chah Bahar port in Iran. India better get into the good books of Iran. America won't like that. Tough luck for somebody - America or India.

There are several theories floating around the existence of minerals, some of them are:
1. There are no minerals, it is a just a ruse to motivate the good Taliban beat the crap out of the bad Taliban.
2. There are no minerals, it is just a ruse to motivate the regional players, like India, to enter Afghanistan and participate in the 'recovery'.
3. There are minerals, but the RoI is many years away. Considering we live in the times where Quarterly financial reports make headlines, can a company afford to spend capital in a country like Afghanistan and wait for years?

I say it is wise to be suspicious and play it with caution, and not rush into judgments and agreements. It is not like Pakistan is going to take away Afghanistan :-) You might believe in one of those (conspiracy) theories or think human ingenuity can address all problems of life, and if minerals exist in Afghanistan, some company will extract it and profit. So why not an Indian company, you ask me. I have no answer. This is where I invite you to ponder about reading rest of the blog :-) Is it worth your time, when I do not have any answer but just a gut feeling to be suspicious. Some times such gut feeling might have to take a back seat, especially when one considers China's presence in Afghanistan.

New York Times, a reputed newspaper is an institution in itself. It provides news, articles and commentaries to thousands of clients worldwide. Newspapers around the globe carry syndicate columns; one could say New York Times sets the American national agenda and talking points that are discussed threadbare by TV anchors and Radio talk-show hosts. New York Times has such a good reputation that Conservatives in America like to bash the newspaper, yet have to read it to stay on top of national and international news. So with such a reputation it is a ripe conduit for government leaks to reach the public. Through out the World, media and government enjoy a symbiotic relationship - they need each other to survive, it is more true for democracies. New York Times was used in the war mongering that led to Iraq war, it was so shamed that it had to publish an apology in 2004.

How much of the 2010 news about Afghanistan Minerals was really a news and not a American government plant? Only time will tell. Let us look at some of the startling news again.



Let us begin with the map that shows the "mineralized areas":

Next let us see what the newspaper reports on how these areas were identified.

Like much of the recent history of the country, the story of the discovery of Afghanistan’s mineral wealth is one of missed opportunities and the distractions of war.

In 2004, American geologists, sent to Afghanistan as part of a broader reconstruction effort, stumbled across an intriguing series of old charts and data at the library of the Afghan Geological Survey in Kabul that hinted at major mineral deposits in the country. They soon learned that the data had been collected by Soviet mining experts during the Soviet occupation of Afghanistan in the 1980s, but cast aside when the Soviets withdrew in 1989.

During the chaos of the 1990s, when Afghanistan was mired in civil war and later ruled by the Taliban, a small group of Afghan geologists protected the charts by taking them home, and returned them to the Geological Survey’s library only after the American invasion and the ouster of the Taliban in 2001.

And....

Armed with the old Russian charts, the United States Geological Survey began a series of aerial surveys of Afghanistan’s mineral resources in 2006, using advanced gravity and magnetic measuring equipment attached to an old Navy Orion P-3 aircraft that flew over about 70 percent of the country.

The data from those flights was so promising that in 2007, the geologists returned for an even more sophisticated study, using an old British bomber equipped with instruments that offered a three-dimensional profile of mineral deposits below the earth’s surface. It was the most comprehensive geologic survey of Afghanistan ever conducted.

The handful of American geologists who pored over the new data said the results were astonishing.

Scientific American in its October 2011 edition begins an essay as follows:

The scene at first resembles many that play out daily in the war-torn Red Zone of southern Afghanistan: a pair of Black Hawk helicopters descend on a hillside near the country’s southern border with Pakistan. As the choppers land, U.S. marines leap out, assault rifles ready. But then geologists sporting helmets and heavy ceramic vests jump out, too. The researchers are virtually indistinguishable from the soldiers except that they carry rock hammers instead of guns. A human chain of soldiers encircles the scientists as they step forward on the dusty ground. 

Iron and Copper mineral deposits are large enough to make Afghanistan a key global producer of Iron and Copper. Brazil's Vale and the Anglo-Australian companies BHP Billiton and Rio Tinto are three of the largest producers of Iron ore. However China leads country-wise production of iron ore, followed by Brazil, Australia and India. China leads the league by huge number, it produces as much as Brazil, Australia and India produce together. The Iron-ore prices are traditionally set in closed-door negotiations. Iron being widely used, the consumers and producers often negotiate (read fight) to arrive at bench mark rates.

This is what Wikipedia states about Copper.

Copper is used in electrical power cables, data cables, electrical equipment, automobile radiators, cooling and refrigeration tubing, heat exchangers, artillery shell casings, small arms ammunition, water pipes, and jewellery.

Chile, Peru, USA, China and Australia lead the list of copper producing countries.

India, wisely, considers some of our natural resources will be exhausted and hence is looking at acquiring global mining areas.  Rana Som pointed out in 2009 the gestation period is quite high when it comes to mining. Rana also points out how tough it is to acquire mining resources and compete with existing mining giants like Rio Tinto and BHP Billiton.

Desolate Afghanistan terrain.
Image courtesy: Scientific American
http://www.scientificamerican.com/article.cfm?id=afghanistans-buried-riches

Extraction of mineral resources is usually done in large-scale and is capital-intensive. India, now has the money and experience to buy the mining areas from Afghanistan, if they truly exist. Afghanistan's rough terrain makes it tough to extract and transport the minerals - technologically challenging and include a very high gestation period. So RoI for any company - be it Indian or non-Indian - will materialize over time.

Scientific American, quoting US Geological Survey, points out that one earthquake could set mining activities back by 5 or 10 years. Earthquakes and water scarcity hamper mining activities. Copper mines require large quantity of water. If the RoI is meager, would the big giants make an entry or would they leave the mining activities with China or India? It reminds me of the time when English banks would not venture deep into Burmese rice delta regions, to loan money to the poor farmers; but the Tamil Chettiars went to villages and played an important role in providing capital and turning Burma into a major rice producer. You think multi-national companies are braver (read takes more risks), benevolent and have the ability to venture into uncharted territories? Well think again, this is what Aryn Baker writes in a blog @ Time.

International mining companies want to know that their investments will be protected through rigorous implementation of the law. “At a minimum, they want to know that if they put their equipment and investment into the country, it is still theirs at the end of the lease,” says Mary Louise Vitelli, an American legal advisor to the mining ministry who is currently helping to draft new mining laws. “They want to know that the operation will not be nationalized,” That doesn't mean just having laws in place, but faith that the government can enforce them.

I would not blame them, Corporations exist to make money.

Tom Zoellner in his book "The Heartless Stone: A Journey Through the World of Diamonds, Deceit, and Desire" quotes an Australian mining executive:

Our thanks to the Indians, who made so much of our product and without whom there would have been no pont in digging it out at all.

The Australian was giving credit to India for having the ability to erect factories and put teenagers to work polishing the dull rough diamond. Indians added beauty to otherwise a listless stone. It is hard sweaty and dangerous work.

India or China might end up doing similar work in Afghanistan mines.

U.S. Geological Survey conducted a survey between 2009-2011 and released its new research details. The gist is Afghanistan has plenty of Gold, Iron and Copper - all 'rare' earth elements. Here is the list of Area of Interests (AoI): http://afghanistan.cr.usgs.gov/infopack-index

Helmand Province. Sites for Gold & Copper Ore Deposits
Image courtesy: Irish Weather Online 

Look at the terrain of Afghanistan and the "mineralized areas" according to Pentagon. Humans have exhibited their skill in extracting resources from harsh territories - be it diamonds or ores that sustain life as we now know it. Our life is a mechanical life powered by batteries. Odd. Life, in the developed countries, take a different turn when it loses 'electricity'. Our devices, especially the mobile ones, thrive on batteries. While there are several types of batteries, Lithium powered batteries are quite popular. And Afghanistan is supposed to have Lithium ores too. Afghanistan has Iron, Copper and Lithium - all that any modern country would love to have in plenty. The security situation and rough terrain are two of the biggest stumbling blocks for any country or company that expects to partner with Afghanistan in extracting the resources. Not to speak of capital, infrastructure - roads to transport all that ore, power and water. All essential for any large industry.

Bamiyan Province. Hajigak Iron Ore Project? Image: Time
http://globalspin.blogs.time.com/2011/10/14/mining-for-silver-bullets-why-afghan-minerals-wont-save-the-country/

If Afghanistan's mineral resources have so much potential to turn around Afghanistan and its economy - there are estimates of providing hundreds of thousands of jobs, as it is providing profits to the investors and companies; why would USA leave Afghanistan in anyone's control? It beats me. However reports indicate India is working with USA in developing capacity in certain areas in Afghanistan.

A recurring theme at the meetings was stepping up the Indian private sector investment in Afghanistan. India is in the race for Hajigak iron ore project, said to have the region’s largest untapped deposits of iron ore. India has also signed a trilateral MoU with Iran and Afghanistan in utilising a route to reach Pashtun-dominated areas in addition to the existing networks through Pakistan.

India must be one of the six countries to bid on the Hajigak iron ore project. Pakistan is not far behind, it wants to capitalize too. It is not bidding, but thinking about the possibilities of it having mineral resources too. Nice.

China Railway is involved in a study of railway construction between Kabul to Mazar-e-Sherif and Kabul to Torkham. MCC of China, known as China Metallurgical Group  Corp was awarded in 2008 $3 billion deal to extract copper from the Aynak Copper Mine. Some reports quote a figure of $ 4.4 billion. When it comes to China, you can never be sure of which number is right. There were rumors of China paying $30 million in bribes.

Some Americans are upset that American companies are not being awarded contracts. Zalmay Khalilzad (former US Ambassador to Afghanistan) points out:

In the second major award involving Amu Darya Basin oil, no U.S. companies even bothered to compete. But two Western companies were among the finalists.

By the way, China National Petroleum Corporation (CNPC) was awarded the contract. Americans blame Pentagon for its processes and way of handling things in Afghanistan for the 'sorry' state of affairs - i.e China bagging contract after contract while the American companies are left with nothing. It is not hard to imagine why they would feel that way - American tax payers spent millions of dollars in Afghanistan's recovery, USGS work and helping Afghanistan in the bidding processes. Or did America know there is not enough minerals to be extracted profitably :-).

Well India does not have much choice, but to play the game.