Algeria plans to increase mineral and metal production

 

As the largest country in Africa, and home to a variety of topographies and geologies, Algeria is rich in substantial mineral reserves. These are currently underutilised, as the sector has attracted little investment in recent decades. According to figures cited in local press, around 60% of the country has not been properly explored. Algeria’s size and the need for infrastructure development to exploit large mineral reserves in remote areas represent another challenge for the sector. However, the government is keen to develop mining as part of wider diversification efforts to counter the lower oil price environment that emerged after mid-2014. Several agreements for large-scale mining and processing operations for minerals, such as phosphate and iron ore, have been signed in recent years, though it remains to be seen if these will go ahead.

Economic Contribution 

Algeria is home to 1370 active mines, according to 2015 data from the Ministry of Industry and Mining (MIM), and there are around 700 quarries in the country, of which around 50% are actively mined. In terms of output, the sector remains small: according to figures from the National Statistics Office (Office Nationale des Statistiques, ONS), sector value added stood at AD28.1bn (€233.1m) in 2016, equivalent to 0.6% of total GDP. Growth levels are also currently low: sector GDP expanded by 0.5% in real terms in 2016, up from a contraction of 1.7% the previous year. In 2017 growth of 0.5% was recorded in the first quarter, though this was followed by a contraction of 1.7% in the second. Mining exports were valued at $103m in 2015, according to figures from the MIM. Due to revitalisation efforts, the government believes that mining output can reach $8bn by 2021.

Public Sector Development

The mining industry has historically been dominated by the public sector. In 1966, four years after independence, the government nationalised the country’s mineral resources, took over the operations of French mining companies, and established a state-owned firm, the National Company for Mineral Exploration and Production (Société Nationale de Recherches et d’ Exploitations Minières, Sonarem) to carry out mining activities. Sonarem was later disbanded and replaced by a range of specialised public companies operating in different segments within the sector. A new mining law issued in 1984 more or less maintained the state’s monopoly over the sector. However, in 2001 the government revised the law to allow private sector participation in the industry. A 2014 law sought to further increase private mining activity.

In 2011 the authorities also handed oversight over the main five public mining firms to the newly created Algerian Mines Company (Manadjim Al Djazaïr, Manal). The companies continue to operate as subsidiaries of Manal. Entreprise d’ Exploitation des Mines d’Or (Enor) is responsible for gold mining; Entreprise Nationale des Produits Miniers Non Ferreux for other non-ferrous metals; Ferphos for iron ore and phosphate; Enamarbre for marble; and Enasel for salt. Two other companies providing support services to the sector – the National Agency for the Transformation and Distribution of Gold and Other Precious Metals and the National Bureau for Geological and Mining Research – were also subsequently integrated into the Manal group.

While authorities are seeking more private sector investment in mining and private firms are now active in a number of segments, the industry currently remains largely dominated by the public sector: AD25.8bn (€214m), or 91.8% of total sector value added, originated from state-owned entities in 2016, according to ONS data. Industry figures show that equipment in existing public-sector mines is often outdated, which both reduces efficiency and adds to costs due to the requirement for spare parts. This can also cause delays, due to administrative problems with importing such spare parts. However, state mining operations are increasingly replacing their equipment with newer material, which should boost production and efficiency over time. Some mines also closed due to various factors such as underinvestment, but the government plans for all of these to have reopened by 2018.

New Law 

In 2014 as part of wider moves to diversify the economy through the development of non-hydrocarbons sectors, the government replaced the country’s 2001 mining law with new legislation aiming to boost private investment through an updated royalty and fee regime and various incentives. However, the law also creates a category of strategic minerals that only government-related enterprises can mine. Incentives for investment in the sector under the legislation include exempting mining firms from value-added tax and import duties on the equipment and services they use in mining activities, as well as from the country’s tax on professional activities (taxe sur l’activité professionnelle).

The new framework sets royalties on mineral products at between 1.5% and 6%, with the maximum amount being applied to semi-precious and precious metals and gemstones. Under the law, miners also pay tax based on the surface area of their concession, and they must retain up to 2% of profits for the rehabilitation of project sites after mining activity comes to an end. In addition, the law saw the establishment of the National Agency for Mining (Agence Nationale des Activités Minières, ANAM), which replaces the previous industry regulator, the National Mineral Resources Agency, and has greater regulatory oversight than the former body.

The new agency includes a mining police force, which supervises administrative and technical aspects of production, and seeks to ensure that mining operations do not cause excessive environmental damage and that former mining sites are properly rehabilitated. The law also introduces increased flexibility to the regulatory framework through measures including permission for companies from any sector to engage in mining activities, the ability of operators to cede or transfer their licences to other companies, and free access to the government’s geological database for the country. As of late 2017 some of the regulations for the law had not been approved, meaning that it is not yet in full effect at the time of publishing.

Concessions 

ANAM holds regular bid rounds for site concessions. In 2016 it issued licences for 58 mining sites, for which companies paid a total of just over AD2bn (€16.6m), across four rounds. In May 2017 the agency issued licences for a further 18 new mining sites under the country’s 46th medium and small mining licensing round out of 22 that were under consideration. The licences – which were worth a combined AD263.4m (€2.2m) – were for seven limestone projects: four in Illizi province, two in Tamanrasset, and one in M’Sila. Furthermore, there were licences for seven construction sand sites: two each in Chlef and Mostaganem provinces, and one each in Tébessa, Tiaret and Mascara; two tuff sites, one each in Ouargla and El Oued; and another two granite projects, in Tamanrasset and Illizi.

According to local media reports in May 2017, the agency plans to hold two more such rounds before the end of the year, one covering large projects in gold and other precious metals, and the other for a range of minerals including marble and bauxite.

Local companies investing in new minerals production include agricultural and construction conglomerate the Hasnaoui group, which plans to open a new marble and granite mining and processing operation in the southern province of Tamanrasset in November 2017. The site will have a granite tile production capacity of around 2000 sq metres per day. The firm is also planning to expand an existing marble site in the north-western province of Sidi Bel Abbès, with the aim of reaching output of 10,000 sq metres in 2018, some of which will be exported.

Phosphate Production & Processing 

Algeria has large reserves of phosphate rock, and this is one of the few mineral commodities that the country currently produces on a large scale. It ranked as the 18th-largest global producer of phosphate in 2016, according to data from the US Geological Service (USGS), with production of 1.5m tpa, up from 1.4m tpa the previous year. However, with 2.2bn tonnes of reserves, its potential output is much greater. This makes Algeria home to the world’s third-largest reserves, after only Morocco and China. Authorities have stated that national production of the commodity could easily be increased to 10m tpa. Based on USGS figures, this would make the country the fifth-largest producer in the world, ahead of Jordan, the current fifth-place holder, which had 8.3m tonnes of phosphate output in 2016.

Most production currently takes place at the Djebel Onk phosphate mine in Tébessa province, which has a production capacity of around 1.6m tpa and is operated by Somiphos, a unit of Ferphos. The government has long-standing plans for major development of the sector, including expansion of Djebel Onk, the launch of a major new phosphate mine at Bled El Hedba, and the construction of large-scale phosphate processing facilities at Oued Keberit in neighbouring Soukh Akhras province. The processing sector is ripe for growth, even without expansion of mining activity: currently most phosphate in the country is exported in its raw form, with little processing taking place. Ali Bey Nasri, president of the National Association of Algerian Exporters told media that phosphate imports were costing the country $600m a year, with Algeria exporting phosphate rock for $80 per tonne and importing processed phosphate products for 10 times that amount.

Such projects would require large-scale investment and technological know-how, much of which would likely need to come from abroad. Several provisional major joint venture agreements with international phosphate and fertiliser firms have been announced in recent years. However, it remains to be seen if any of these will pan out.

Production Agreements 

In mid-2016 Manal and state-owned fertiliser firm Asmidal – a unit of national energy firm Sonatrach until 2015, at which point it was placed under the oversight of the MIM – signed agreements worth around $4.5bn with Indonesian firm Indorama for the establishment of three phosphate and fertiliser joint ventures in Algeria. The agreement would see Manal and Indorama jointly develop a 6m-tpa phosphate mine at Bled el Hedba in Tébessa province near the border with Tunisia, bringing it on-line in 2019. The deals also include the construction of a fertiliser plant in Oued El Keberit, with 3m tpa of diammonium phosphate fertiliser production capacity and 1.45m tpa of phosphoric acid capacity, as well as a calcium ammonium nitrate and technical ammonium nitrate (TAN) plant in Hadjar Soud in Skikda province, with production capacities of 800,000 tpa and 200,000 tpa for the respective commodities. Both plants are forecast to begin production in 2019.

However, as of late 2017 there seemed to be little progress towards finalisation of the plans. In February 2017 Manal and Asmidal signed three agreements with Saudi Arabian Radyolla Group for a $15bn phosphate fertiliser project, using phosphate rock from the Djebel Onk mine and natural gas. Due to conflicting reports, it remains unclear whether this agreement supersedes the deal with Indorama.

In May 2017 local media reported that the Saudi firm appeared to be little more than a shell company and that the project was therefore unlikely to go ahead. Radyolla subsequently published a letter in the Algerian press denying the report, stating that financing for the project was in place and asserting that it was awaiting finalisation of negotiations with its Algerian partners ahead of beginning work on technical studies for the projects. In March 2017 press also reported that the National State Holdings Council (Conseil des Participations de l’Etat) would approve an agreement for the creation of a 6m-tpa Chinese-Algerian phosphate processing plant.

The plans mooted recently follow on the heels of several previous phosphate projects that did not ultimately come to fruition. These include a 2007 agreement for Sonatrach and Ferphos to partner with Pakistani firm Engro for a $1bn phosphate-based fertiliser complex, with total fertiliser production capacity of approximately 2m tpa.

In 2013 Qatar and Algeria signed memoranda of understanding for the creation of two phosphate and fertiliser joint ventures in the country involving either Qatar Petroleum International or Qatari fertiliser firm Qatar Fertiliser Company (QAFCO). These were a 5m-tpa phosphate processing project at Oued el Keberit with Manal and Asmidal, and a fertiliser plant in Hadjar Soud with the National Office of Explosive Substances and Asmidal. Norwegian firm Yara International, which owns a 25% stake in QAFCO, had also reportedly been involved in the plans, though it did not confirm this at the time.

In 2015 the MIM announced that the projects remained under consideration, but QPI withdrew from the plans later the same year, citing internal restructuring and a change in strategy.

While the outlook for these international joint venture projects remains unclear, the country has other projects in the pipeline that are not directly dependent on international investors. Asmidal, for instance, has plans for two wholly-owned fertiliser plants: a TAN plant in Bouïra and a solid fertiliser bulk blending plant in Oran province, both of which will have production capacities of 240,000 tpa.

Iron 

Iron ore is also currently produced in large volumes. The main known deposits are located in north-eastern Algeria, near the border with Tunisia – which is also the location of most phosphate production – and the south-west, near the borders with Mauritania and Morocco. There are currently six active iron ore mines, which, according to MIM data, had combined production of 900,000 tonnes in 2014, down from 1.07m tonnes the year before. The main active mines in the country are the Ouenza and Bou Khadra sites in Tébessa province in the northeast, which have combined deposits for around 60m tonnes and annual production capacity of 1.2m tpa and 525,000 tpa, respectively. Both are operated by ArcelorMittal Tébessa, a subsidiary of Imetal.

The government is also moving to develop a major iron ore deposit in the south-west of the country known as Ghar Djebelit, which has estimated reserves in excess of 1.5bn tonnes. Following a number of previous initiatives to begin exploiting the deposit since its discovery in the 1950s – none of which came to fruition – in 2014 the government established a new state-owned joint-venture firm to oversee the iron mining project, known as Feraal.

In February 2016 the MIM announced that it was in negotiations with Chinese companies to establish a joint venture to operate a mine at the site, as well as for the construction of a new railway line to ship its output north. In May 2016 ANAM agreed to provide Feraal with AD3bn (€24.9m) to fund pre-feasibility studies for the project, and in March 2017 Feraal signed an agreement with Chinese firm Sinosteel to conduct studies for the exploitation of both Gara Djebelit and the nearby Mecheri deposit, which is believed to hold reserves of around 700m tonnes. Authorities hope to begin production at the site between 2020 and 2022, and that it could produce up to 12m tpa of iron ore by 2025.

Precious Metals

The MIM believes that Algeria holds recoverable reserves of around 121 tonnes of gold. Enor is currently the only producer of the precious metal, at its Amesmessa mine in the southern province of Tamanrasset. The company previously also operated a gold mine at Tirek, also in Tamanrasset Province, but this facility has since closed. Output at Amesmessa has been falling rapidly in recent years as the grade of gold falls: total production was 85 kg in 2014 according to data from the MIM, down from 140 kg the previous year and 1000 kg in 2009. Silver production, which also occurs at just one mine, has also been decreasing in recent years as well, with 16 kg mined in 2014, down from 21 kg in 2013.

While Enor is the only firm currently producing gold, Canadian firm Cancor Mines – a wholly owned subsidiary of Yorbeau Resources – has four prospecting permits for the metal in the country: in Tirek North, In Ouazzal North, Tan Chaffao West and Tan Chaffao East, all of which are located in Tamanrasset province in the south. The firm identified polymetallic mineralisation at Tan Chaffao East, and says there is excellent potential to discover similar mineralisation at Tan Chaffao West, and to find vein-type gold mineralisation similar to deposits at Amesmessa and Tirek at In Ouazzal North and Tirek North.

Southern regions have seen an uptick in informal gold prospecting, with 774 people arrested for illegal prospecting in 2015. Many of those involved come from neighbouring countries such as Mali. In January 2017 media, citing sources in the MIM, reported that the government had called on Enor to identify gold veins in the Bordj Badji Mokhtar and In Guezzam areas of Tamanrasset, in order to be better able to pre-empt such prospecting activity. According to media reports in August 2017, Tamanrasset and Ilizi saw another surge in prospecting activity after locals found small pieces of gold around the border between the two provinces.

Outlook 

The new mining law should attract investment in the sector, especially after all its regulations are in place. However, it remains to be seen if recently announced large joint-venture projects in the phosphate mining, phosphate-based fertilisers and iron ore segments will continue and, if not, how the country can attract investment to boost output.

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