Egypt: Meeting the demands of the mining sector

Ghada Raafat , Sunday 9 Dec 2018

Industry experts are eagerly awaiting amendments to Egypt’s 2014 mining law

Sukkari gold mine
Egypt's al-Sukkari gold mine (Photo: Ahram)

The government took steps to amend Egypt’s 2014 mining law some weeks ago by sending an amended version of the law to parliament for approval in answer to calls that had long been made by investors in the sector.

The legislative measures are being taken to adopt amendments aimed at increasing mining revenues and achieving a balance between the state and investors, Tarek Al-Molla, minister of petroleum and mineral resources, said during an industry conference in November.

The mining law of 2014, which replaced an earlier 1956 law, has failed to attract investment into the sector as the government had intended, Centamin Egypt manager Youssef Al-Rajhi told Al-Ahram Weekly.

The company’s subsidiary Pharos Gold Mines (PGM) has the right to explore, develop, mine and export gold at the Sukkari gold mine in Egypt.

The 2014 law was based on making money, not encouraging investors, Al-Rajhi added.

Former minister of petroleum and mineral resources Osama Kamal told the Weekly that the ministry had been wrong to treat mining companies like petroleum companies.

Since the 1980s, the state has been implementing an oil-and-gas-style production-sharing agreement in the mining sector under which mining companies enter into joint ventures with the state.

Kamal said that this system was not used in the rest of the world and that the fundamentals of the mining industry differed from those of the petroleum sector.

In the mining sector, initial investments cannot necessarily be recouped by operating companies, especially if the minerals and ores discovered cannot be economically extracted and exploited.

Mining projects need expertise to explore soil formations bearing metals. Millions could need to be injected to find out if there was a project in a certain area or not, Al-Rajhi said.

He said that PGM’s initial expenditures had amounted to $80 million to determine if there was sufficient gold in the Sukkari mine to justify further mining.

Kamal said companies should be allowed to acquire the rights to land without first obtaining exploration licences. They should be able to pay royalties on its use of the land regardless of the metals and minerals discovered.

They should also pay taxes on the quantity of metals or minerals produced regardless of the prices at which their produce is sold.

The royalties and taxes should be spelled out in the executive regulations of the law and not in the law itself so they could be adjusted easily, Kamal said.

A change in the law would take time, whereas executive regulations can be modified more easily by the cabinet.

Mohamed Hanafi, head of the Metallurgical Industries Chamber at the Egyptian Federation of Industries, said that the Mineral Resources Authority should be a technical authority and not one that shares the ownership of companies and profits with investors.

The authority’s main responsibilities should be to provide investors with metallurgical maps, follow up on the way mines are exploited and managed, and ensure that minerals are not being over extracted or depleted.

The current law allows two companies to work in the same mine, with each extracting a different kind of metal. However, Hanafi said this was a major hurdle that caused problems for investors.

He said that the fact that the state enters into joint ventures with companies in projects allows for the Central Auditing Agency to interfere in the activities of the mine, affecting management efficiency.

Hanafi supported the suggestion that investors should pay high fees to the state after the recovery of their investment, but he said that investments were not injected in one batch, making it very difficult to prove their size.

Another solution was that investors should pay 30 per cent of their profits to the Ministry of Finance, as other mines do around the globe.

Sami Al-Rajhi, the founder of Centamin Corporation, said that any mining project was based on long years of accumulated experience in different parts of the world. Some ideas were the secrets of the profession, which was why other countries give investors the right to the land chosen.

In Egypt, it could take a month before the notification of acceptance, opening the door to corruption, Al-Rajhi lamented.

He said that in other countries there was no limit to the areas that investors could obtain, and there were no limitations on the period in which mining could take place as long as the investors fulfilled their legal obligations.

Kamal believes the whole sector needs an upgrade and not just the law. He said that since the Geological Survey Authority had become affiliated to the Mineral Resources Authority its role as a research and technical body that works on drawing up maps and outlining Egyptian metal and mineral wealth had diminished, leading to information scarcity regarding the mining potential of the country.

He suggested that the GSA be reinstated as an independent research body and encouraged the establishment of value-added industries around extracted minerals.

There should be an integrated master plan for the mining industries for 20 years, Kamal added, with this allowing Egypt’s mineral needs to be estimated and whether they needed to be produced locally or procured from abroad.

For example, he said, instead of exporting crude phosphates at prices ranging from $80 to $120 per ton, Egypt could purify and wash them, adding 25 per cent to the price.

Kamal said there should be a vision to develop the sector and to complete geological studies and modern maps of Egypt’s metallurgical and mineral wealth. The Egyptian deserts should be studied geo-physically and geo-chemically, he said, and the results of such studies fed into databases and made available to investors.

*A version of this article appears in print in the 6 December, 2018 edition of Al-Ahram Weekly under the headline: Mining demands 

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