Algeria's Potentially Vast Mining Operations Under Pressure (Source: Resource Investor)

By Sven Ridley-Wordich
15 Feb 2008 at 01:18 PM GMT-05:00

AMSTERDAM ( -- Even though current operations in the Algerian mining sector are showing increasing promise, especially after GMA Resources [LSE:GMA] through its 52%-owned Algerian subsidiary Entreprise d'Exploitation des Mines d'Or (Enor) cast the first gold bullion at its Amesmessa mine in southern Algeria, foreign investors are unsatisfied with the government’s mine licensing scheme.

The Algerian government, under leadership of the Ministry of Mining and Energy, presented its new mining strategy at the end of 2007. Minister of Energy and Mines Chakib Khelil spoke about the possibilities of Algerian mining, and operators and investors were urged to give their recommendations on how to improve the plans.

In December 2007, the country presented its first international mining conference, Cirma-Algerie, largely to show prospective investors and operators the opportunities available in the still largely under-developed mining sector. The success of the conference was impressive, as more than 20 countries and 50 international operators have shown their faces.

The Algerian mining sector has been open since 2001, after a new mining law was presented. Khelil reiterated that all interested parties have the same legal position and opportunity to participate in new projects. The country’s second international licensing round entailed a broad spectrum of prospects, including base metals, gold, diamonds and other minerals. The total for the round included 4 prospecting licenses and 16 exploration licenses.

However, positive statements made by the government in the last few weeks have not been met well by investors. Operators have been disappointed by the prospects offered, introduced in a non-competitive way. At present, the bidding rounds are modelled on those used in the hydrocarbons industry, but by doing so the government is deterring the same firms it is trying to attract. Analysts have urged the Algerian government to change the licensing scheme dramatically.

The mistake made in Algeria, as mining specialists have indicated, is that Khelil’s ministry has held the opinion that it needs to attract the larger mining companies, after that the smaller ones will follow, as is normally the case in the oil and gas upstream rounds. In mining, the opposite is the case; risks are normally being taken by smaller companies, while large operators are moving in when vast discoveries have been reported.

Some analysts have repeated claims that a mining bid round is not functional. Junior miners will not be attracted to attend such a licensing conference, as it is tailored only to address major companies. Mining companies are also not willing to present a high bid for a possible prospect. The success rate is still not high enough in general to support a bid system such as is the case with oil and gas.

Not only have the financial and legal issues surrounding the bid round system been criticized, the quality of the presented acreage has also received criticism. According to most analysts, the Algerian prospects are characterized by small acreage and very dispersed throughout the country. At the same time, most prospects are too confined to specific targets. The need for larger acreage is obvious, but companies have alsos tated that they want to have a say in what prospects are of interest to them.

GMA Resources, which was present at the December 2007 Cirma-Algerie conference, said that Algeria should understand it needs to attract first the smaller (junior) mining companies. The success reported by these juniors will bring the large mining conglomerates flocking to Algeria as a result.

Since December 2007, the London-based company has shown that its gold mining operations are indeed raising eyebrows. The company started leaching operations at the mine at the end of last year. Officials have indicated that it expects to start commercial production within five months.

GMA’s mine is part of the Tirek-Amesmessa mine complex in Algeria’s Tamanrasset province. The potential of the mine is commercially very interesting, as it is slated to contain high-grade gold deposits, with proven and probable reserves estimated to total 748,000 tonnes of ore. This would produce an estimated 294,000 ounces of gold.

The first steps are being taken by Algeria to open up its vast mining reserve base to international operators. The potential of Algeria as a mining arena is not in doubt, as it is the second-largest country in Africa and largely unexplored. GMA is the only foreign partner that has so far had a successful mining project under the new law.

In the coming years, Algeria will not only be a main hotspot for oil and gas, but an attractive arena for mining companies. Chinese operators have already shown their interest, but until now have not been able to get a foot on the ground. Western mining companies are still seen as most attractive by Algeria, keen to reap the rewards of the current rapid growth of the Chinese economy and its immense demand for minerals.

However, Algeria needs to reassess its current strategy towards mining operations. To reap the rewards of liberalization and investment in the mining sector, the country needs to reshape its legal system and provide larger and more attractive acreage. If this is done, Algeria will be a country to be watched.