Morocco mining code increases legal clarity

While mining activities in Morocco have for the largest part traditionally centred on phosphates, a new mining code adopted by the legislature in February 2015 is expected to develop the country’s resource portfolio. This will in turn revive activity in a number of underdeveloped segments once it has been voted into law. Morocco is host to significant mineral resources, including the largest phosphate deposits in the world, which account for around 77% of global known reserves. Other strategic commodities can also be found, notably barite, fluorspar and cobalt, of which Morocco contributes 6%, 2% and 2%, respectively, of total global output, according to data from the US Geological Survey. Morocco also produces antimony, lead, nickel and silver, with the latter expected to grow significantly in the coming years.

OCP S.A., which has been a joint stock company since 2008 and was formerly the state-owned organisation known as Office Chérifien des Phosphates, is the largest company in the sector, although a number of other firms are present in other segments. Managem, a private company extracting a variety of metals, minerals and sulphates, is another major player, along with its subsidiary Société Métallurgique d’Imiter (SMI), which extracts and processes silver. Compagnie Minière Touissit, a subsidiary of the French mining firm Osead, also operates in Morocco, with more than 90% of its activities focused on the extraction of lead and silver.

Performance

Profits for most of the industry have been adversely affected by a global decline in the value of precious and base metals. Prices, for instance, dropped by 20% for silver, 17% for fluorine and 6% for gold and copper in 2014. The situation was further exacerbated by the slowdown in demand for base metals that was witnessed in China and the eurozone in the second half of 2014.

However, the sector’s fundamentals have remained strong due to the margins accumulated in terms of profits and costs, particularly for Moroccan companies extracting metal ores. This has allowed most operators to maintain a satisfactory level of activity and competitiveness. Revenue declines were also offset by output gains in certain minerals, such as silver.

In 2014 Managem realised a turnover of Dh3.84bn (€417.8m), registering a year-on-year (y-o-y) increase of 2%. This growth can be attributed to rises of 70% in copper output and 11% in zinc production following the launch of its copper project in Oumjrane, as well as enhanced performance at its mines in Jbal Lassal and Draa Sfar. The company is looking to further boost copper output over the coming years to bring annual production from its current 10,000 tonnes to 50,000 tonnes in 2020. Its subsidiary SMI has, however, fared less well, affected by the 20% fall in global silver prices. With extraction carried out solely at its Imiter mine, Africa’s largest silver mine, the company saw its turnover decline 13% y-o-y to Dh972m (€105.8m) in 2014. The continuing rise in the value of the dollar, however, may bode well for the sector’s revenues in the short run.

Framework

The legal framework governing Morocco’s mining sector dates back to 1951, adopted when Morocco was still a French protectorate. Under this 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. Attempts over the years at reforming the code resulted in only minor changes, and the need to overhaul the sector’s obsolete regulatory framework had become a pressing matter particularly in the face of volatile commodity prices.

A new mining code is now in the works to expand production, boost investment and enhance export volumes, particularly for underdeveloped mineral substances. The draft bill was submitted to Parliament in July 2014 and approved by the House of Representatives in February 2015. The next step to becoming law is passage by the House of Councillors.

Excluding phosphates, the plan aims at generating around 30,000 new jobs, up from 15,000 today, and tripling revenues from their current level of Dh5bn (€544m) to more than Dh15bn (€1.63bn) by 2025. The plan also seeks to increase investment in exploration and mining research from its current Dh400m (€43.5m) to Dh4bn (€435.2m).

The Ministry of Energy and Mining, which houses the sector’s regulator, National Office of Hydrocarbons and Mines (Office National des Hydrocarbures et des Mines, ONHYM), plans to set up a Central Directorate of Geology to accelerate the mapping of its territory and assess mining potential, given that only 30% of the country’s land has been surveyed.

The new code will seek to address various constraints on resource development such as limited exploration permits, which were previously granted for the exploration of a single specific substance within an area not exceeding 16 sq km. Under the new mining code, however, mining rights will be granted for the exploration of natural resources over a surface area stretching from 100 sq km to 2400 sq km.

Exploration rights will also be expanded to cover all types of mineral products (save for construction and civil engineering materials) revoking the one-category allowance permitted under the previous code. The list of recognised substance categories – a total of nine under the current code – will also be extended to include new industrial minerals, therefore broadening the scope for exploration.

Mining Authorisations

In addition to extending the surface area allocated to resource exploration and broadening the list of mining substances eligible for extraction, the new code will also introduce separate types of exploration licences. Indeed, the law will draw a clear distinction between three categories of mining licences: exploration authorisations, prospecting permits and mining permits.

Exploration authorisations will be awarded for two years and will be renewable once for one more year. Prospecting permits will be granted for three years and subject to one renewal of four years. Mining permits will be awarded for a 10-year period and will be renewable until the reserves are depleted. Unlike the previous code under which authorisations were delivered by the regional prefects, the new code gives licensing powers to the Ministry of Energy and Mines.

To ensure a smooth transition once the code is enacted, valid mining concessions will remain subject to the previous code until their renewal, at which point the new law will be applied. Holders of prospecting and mining permits will need to renew their permits within the year following the code’s adoption.

In its global survey of mining companies published in 2015, Canadian-based think tank, Fraser Institute, deemed Morocco’s new mining legislation among the top 10 most attractive in Africa. Appearing for the first time in the survey, which evaluated mining legislation in 122 countries in 2015, Morocco ranked fourth in Africa after Namibia, Botswana and Zambia.

Artisanal Mining

In a further move to diversify its mineral base and attract new investment, part of the authorities’ overarching strategy will focus on restructuring artisanal mining in the Tafilalet and Figuig region. Covering a surface area of more than 60,000 sq km, the region is largely dominated by artisanal miners mainly extracting lead, zinc and barite. The fragmented nature of activities carried out in the region has impeded development, limiting annual turnover to around Dh400m (€43.5m).

To harness the development potential offered by the region, Moroccan authorities are looking to restructure mining projects in this area by allowing access for larger corporate investors to develop exploration and extraction activities, raising the profile for existing mineral resources and fostering the development of untapped reserves.

To that end, authorities have called for consolidation within the area by encouraging miners to form partnerships with potential investors to improve working conditions. This will help ensure the sustainable development of the area in line with the environmental impact studies to which projects will subjected under the new mining code. Indeed, according to local media reports, these plans could see revenues from regional mining activities increase to some Dh1bn (€108.8m), as well as the creation of up to 3000 jobs.

Phosphates

The phosphates segment makes up 90% of mining activity in Morocco and contributes around 10% of GDP. OCP S.A. holds exclusive rights for phosphate extraction and processing, employing around 23,000 people and generating a turnover of $5.5bn in 2013. The company is currently carrying out a major programme to expand and modernise production through 2020 for a total planned investment of Dh130bn (€14.14bn).

The inauguration in 2014 of the Khouribga-Jorf Lasfar slurry pipeline, which will transport phosphates from the Khouribga mines to the commercial port of Jorf Lasfar, is one such measure. As opposed to train transport, the new 235-km pipeline will eliminate the need to wash and dry phosphates prior to being moved, therefore reducing logistics costs by up to 90% and saving up to 3m cu metres of water.

Other plans to expand OCP S.A.’s production capacity include a new washing plant in Merah and three new mines in Khouribga to bring on-site production from its current 18m tonnes to 38m tonnes by 2020.

South-South Expansion

Expanding across the African continent is part of the company’s strategy to broaden its market shares. To that end, in March 2014, OCP S.A. entered an agreement with the Government of Gabon and Gabon Mining (Société Equatoriale des Mines, SEM) to develop a new project whose aim is to integrate the natural resources in both nations – phosphates in Morocco and gas in Gabon – to produce phosphate fertilisers. The agreement is expected to lead to the establishment of several production units in both countries, with a combined production capacity of 2m tonnes of fertilisers for a total investment of approximately $2bn. Indeed, upon completion, the project is expected to meet up to 30% of the entire continent’s needs in fertilisers.

Growing interest in reaching out to Africa has followed rising demand for fertilisers as a growing number of African countries have sought to reform their agricultural policies and develop the sector as a key contributor to GDP (see Agriculture chapter). Between September 2013 and September 2014, OCP S.A. saw its phosphate fertiliser exports to Africa double.

As part of its bid to harness potential, the company is also looking to consolidate its presence in Latin America. To this end, the firm concluded an agreement with Brazilian Fertilisantes Heringer in early 2015 to acquire around 10% of the company’s shares for $64.9m. This comes as part of the company’s strategy to position itself in countries offering high growth potential for fertiliser consumption. In Brazil, for instance, OCP S.A. has seen its fertiliser exports rise four-fold between 2009 and 2013 due to the country’s ambition to boost its agricultural output. The partnership between the two firms is expected to secure part of Morocco’s exports destined for the Brazilian market, help develop products in line with the needs of the region’s agriculture and provide a base from where to expand and commercialise OCP S.A.’s products across the rest of South America.

Silver

Global silver prices declined by 20% in 2014, although the impact on the industry’s total revenues was partially mitigated by higher volumes of silver output. Morocco’s Imiter deposit, which is operated by SMI, is the largest in Africa with an annual production capacity of around 7.7m oz. Although SMI saw its turnover decline by 13% in 2014, the company’s output registered a 6% increase, in line with a commitment made by the firm in 2013 to bring annual production to 300 tonnes of silver.

Another company active in silver extraction is Canadian Maya Gold & Silver. A newcomer to the sector, the company has operated in the Zgounder mine in Askaoun, north-east of Agadir, since August 2014. The company invested an estimated €20m to rehabilitate the mine which was exploited for around 20 years by Compagnie Minière de Touissit and the ONHYM – the government agency responsible for the development of the country’s resources – and was abandoned in 2002 following the decline in silver prices.

The firm currently employs around 200 people and aims at producing 20 tonnes of silver annually to begin with, eventually increasing production to 32 tonnes a year. However, adverse weather conditions at the end of 2014 hampered on-site activities, which returned 3.5 tonnes of silver by the end of the year.

Outlook

The measures outlined in the new mining code are designed to infuse new life into the sector once implemented, unlocking the potential of Morocco’s mineral deposits. Moreover, the code is expected to play a significant role in attracting investment, which will contribute to the government’s goals of broadening the country’s resource base. Alongside this, it will help to modernise production as well as restructure artisanal mining. State programmes to expand infrastructure and improve connectivity also bode well for the sector’s development, with a wide range of initiatives to build new ports and highways currently under way (see Construction chapter).

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The Report: Morocco 2015

Industry & Mining chapter from The Report: Morocco 2015

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