Afghanistan: The Significance of Mineral Wealth | STRATFOR

Afghanistan: The Significance of Mineral Wealth

Summary

In a June 13 story, The New York Times revived interest in Afghanistan’s potential mineral wealth, which has long been suspected. The country’s mountainous terrain indicates the likelihood of such deposits, and in 2007 the U.S. Geological Survey published a study reporting much of what is being said in the media today. But the challenges of extracting the minerals and bringing them to market in an economical and competitive way remain extraordinarily daunting.

Analysis

The potential for mineral extraction in Afghanistan has generated immense press in the last few days, following a June 13 New York Times story on an estimated $1 trillion in mineral deposits believed to exist in the country and a June 12 statement by U.S. Central Command chief Gen. David Petraeus characterizing Afghanistan (with caveats, of course) as having “stunning potential” economically.

Yet much of what is being discussed dates back to two studies done in 2006-07 by the U.S. Geological Survey in conjunction with the U.S. Agency for International Development and Afghan geologists. The results of these studies were published in 2007 by the U.S. government, and their findings have now reportedly been verified by a small, Pentagon-led team, which will release its report at a conference in Kabul scheduled for July 20, according to a spokesperson for the French Foreign Ministry. There also is increasing talk of lithium deposits in particular, one of the reasons behind the current coverage. Statements regarding Afghanistan’s potential mineral wealth have been made in the recent past, with Afghan President Hamid Karzai using the $1 trillion figure at least as early as February of this year and Petraeus using it when discussing the matter in December 2009.


Afghanistan: The Significance of Mineral Wealth
A map from the 2006 U.S. Geological Survey mission in Afghanistan, including GPS and magnetic base station locations
(click here to enlarge image)

The China Metallurgical Group has already committed $3 billion up front and $400 million thereafter to secure the rights to the Aynak copper mining district in Logar province. Verification drillings were done last year, and a temporary camp is now being prepared, though a massive railway, power plant and smelting facility remain to be built. The Hajigak iron-ore deposit also was examined in an area about 100 kilometers west of Kabul, in Bamyan province, but the Chinese pulled out of the bidding, which was later canceled following a corruption scandal involving the Chinese company and the Afghan Ministry of Mines during the Aynak bidding process. The Chinese experience shows that what little progress is being made in terms of foreign investment in Afghan mining projects is already slowed by problems relating to poor infrastructure, awkward logistics, security threats, and corrupt or opaque negotiations.

The potential presence of large mineral deposits in Afghanistan has never been in doubt — the country’s mountainous terrain indicates the likelihood of such deposits. The challenge is extracting the minerals and bringing them to market in an economical and competitive way, and this challenge remains extraordinarily daunting. Afghanistan is an underdeveloped country with extremely poor infrastructure, including no rail connection to the outside world (though one is under construction to Masar-i-Sharif in the north). Though the nature of a mineral deposit and the economics of its exploitation can vary considerably — even within a single country — pulling ore out of the ground and moving it a great distance is a logistically intensive proposition, even with relatively developed road and rail networks.

Technically, developing sufficient infrastructure in Afghanistan is possible, but the cost of doing so is almost certain to drive the costs of mineral investment, extraction and transportation far above what can be recouped on the global market.

STRATFOR has been focusing and continues to focus on how these reports came about just in the past week. There is clearly a media blitz now under way, and it is important to understand why. Over the next few years there will be little meaningful impact on the ground in Afghanistan in terms of investing in and developing the country’s minerals. The key question at this point is how Washington will play this mineral-wealth story to serve its interests in the region, especially as the United States struggles to break a stalemate in southwestern Afghanistan and force the Taliban to the negotiating table. But local mistrust of U.S. intentions may counter any potential benefit of playing up Afghanistan’s economic potential.

Afghanistan: The Significance of Mineral Wealth | STRATFOR

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