Afghanistan Pulls Major Iron Ore Mining Tender Following Complaints of Irregularities

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Back in November we wrote about a major copper project called Aynak being undertaken 30kms south of Kabul in Afghanistan by China Metallurgical Group, estimated to cost over $3.5bn to bring to fruition. Afghanistan is rich in mineral deposits and copper is only one of them as we detailed in the earlier article. After the success of finding a project partner for Aynak the Afghan government had hoped outside investors would be willing to participate in further projects, the largest being an iron ore deposit known as Hajigak 80 miles to the west of Kabul. Companies were invited to tender for development of the 1.8bn ton high grade iron ore project but after a flurry of interest from major names such as Vedanta Resources, Essar Minerals Ltd,¨ China’s MCC, Ispat Industries, India’s JSW Steel Ltd, Rashtriya Ispat Nigam Limited¨ and Tuwairqi Steel Mills one after another has pulled out complaining of bidding irregularities according to an article in Businessweek. However it also transpires the only company willing to visit the site, known for Taliban insurgency problems (isn’t most of Afghanistan?) was Tuwairqi Steel Mills Ltd., a Pakistani unit of Saudi Arabia’s Al-Tuwairqi Group.

Rumors of corruption are rife in the administration of President Harmid Karzai. Former Mines Minister Mohammad Ibrahim Adel has denied reports by the Washington Post and Associated Press that he took a bribe of at least $20 million to award the Aynak license to the Metallurgical Corp. of China Ltd., or MCC. Nothing was proved but Mr Adel was replaced as minister last month.

The ore body is said to be the largest unmined iron deposit in Asia — both in terms of quantity and quality according to a Reuters article. There are known to be at least 16 ore bodies, extending for as much as 5 km (3 miles) and to depths of over 550 meters (1,800 ft).

International interest could also be tempered by the authorities desire for a fully integrated iron ore to steel mill project, something foreign investors may be reluctant to contend with at this stage. Afghanistan’s domestic steel demand is limited although it could increase if peace is ever achieved and serious reconstruction takes place but for now the iron ore is of more interest to investors if it can be transported to steel mills in China, India or Pakistan. It is not clear if thermal and coking coal of sufficient quality is available for an integrated steel plant anyway. No associated coal deposits are reported close to the ore body but the USGS reports coal deposits of varying quality and extent to the north west of Kabul, some 50 miles north of Hajigak that may provide thermal and coking coal with further evaluation. Afghanistan certainly has natural gas, over 4.5 trillion cubic ft according to a USGS report but as with so much in Afghanistan whether it ever reaches commercial realization depends on stability and peace.

–Stuart Burns

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