investing in the minerals industry of ethiopia

Investing in the minerals industry of Ethiopia

m i n i s t r y o f m i n e s a n d e n e r g y f e d e r a l d e m o c r a t i c r e p u b l i c o f e t h i o p i a

ethiopia_investing.indd 3 02/04/2007 15:26:01

Introduction

Located in the ‘Horn’ of Africa, Ethiopia has a land area of approximately 1.1 million km2 and a population of about 74 million. In 2005 the GDP was US$62.9 billion, with agriculture accounting for more than half of this. The mining sector is under-developed, contributing only 2.5% to the GDP.

The official language of Ethiopia is Amharic, but English is widely spoken. The country produces many graduates each year, both from universities in Ethiopia and overseas. Addis Ababa, the capital, has a population of 3 million and is the main centre for business and industry. The country is served by a network of paved and all-weather roads linking key population centres. The national airline, Ethiopian Airlines, operates an extensive network of domestic and international routes.

The diverse geology of Ethiopia gives rise to extensive resources of a wide range of mineral commodities, including base, precious and rare metals, gemstones, dimension stone, and industrial, construction and energy minerals. Although current mineral production is small, Ethiopia actually has a long history of mining. Gold, for example, has been produced from placer deposits for several thousand years and there is currently a hard-rock mining operation at Lega Dembi which produces about 3.5 tonnes of gold per annum. There is also important production of tantalite from the Kenticha mine in the south of the country.

Small-scale production of a wide range of industrial mineral commodities is distributed throughout the country and there is excellent potential for additional production for domestic markets, particularly in building and construction, glass and ceramics, and fertilisers.

The mineral potential of Ethiopia

Ethiopia is underlain by rocks varying in age from Precambrian to Recent. Proterozoic basement rocks, which outcrop in the far north, west and south of the country, comprise high-grade gneisses and low-grade volcano-sedimentary rocks (greenstone belts) and syn- to post-tectonic intrusions. Mesozoic sediments outcrop over extensive areas chiefly in eastern Ethiopia. Tertiary volcanic rocks, mainly basalts, underlie the Rift Valley and much of Highland Ethiopia, mainly in the south-west, north-west and central parts of the country. Quaternary volcanic and sedimentary rocks are found in the Rift Valley running in a north-east-trending belt across the country.

On account of the varied geology there is excellent potential for economic deposits of a wide range of minerals. Many prospective occurrences of gold, platinum, base metals and rare metals are known in the Proterozoic greenstone belts. There is also potential for metalliferous mineralization in other geological environments including epithermal, porphyry and sedimentary settings. Deposits of industrial and construction minerals are found throughout the country and support many mining operations. These include potash, phosphate, salt, soda ash, silica sand, feldspar, dolomite, marble, quartz, kaolin, limestone, gypsum, bentonite, olivine, graphite and mica.

Ethiopia has excellent potential for geothermal energy resources, with several targets identified in the Rift Valley that merit detailed evaluation. Coal resources, chiefly of lignite and sub-bituminous coal, occur within Cenozoic volcano-


sedimentary sequences. Potentially economic deposits have been identified at Yayu in south-western Ethiopia, at Delbi and Moye near the centre of the country and at Chilga in the north-west. Oil and gas exploration is underway in the Mesozoic and Tertiary sedimentary basins. There is currently no production but substantial gas discoveries have been made at Calub (76 billion m3) and Hilala (42 billion m3) in the Ogaden Basin which occupies an area of about 350 000 km2 in the eastern part of the country.

Previous exploration activity

Previous exploration for metallic minerals by state-owned companies, by the Geological Survey of Ethiopia (GSE) and by foreign companies has been mostly of a reconnaissance nature with little drilling. Extensive areas of ground prospective for both precious and base metals remain unexplored.

Most work to date has focused on the greenstone belts where major bilateral assistance exploration projects identified numerous bedrock occurrences and potentially economic deposits. The Russian-led Adola Gold Exploration Project in

1979 was the first systematic, multi-disciplinary exploration programme in the country. Several gold and rare metal deposits were discovered in the Southern Greenstone Belt, including Lega Dembi and Kenticha. Further investigations in the Southern Greenstone Belt, including a 3000 km2 airborne geophysical survey, were conducted in 1993 by the GSE in collaboration with the United Nations Development Programme (UNDP).

The five-year Ethionor programme, a Norwegian-GSE collaboration, undertook multi-disciplinary surveys mainly over the Western Greenstone Belt between 1996 and 2001. Many attractive new bedrock gold targets were identified in this programme.

The GSE continues to undertake a wide range of mapping and mineral surveys in many parts of the country. About 38% of the country has been mapped at a scale of 1:250 000. This work, and associated exploration chiefly for gold, has focussed on the greenstone belts in the south, west and north of the country. Many projects related to industrial and construction minerals have also been carried out. These include investigations on dimension stones, kaolin,

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um

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Lake Abaya

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Dembidollo

Gore

Begi

Tepi Mizan Teferi

Arba Minch

Kebri Dar

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The location and key infrastructure of Ethiopia(information from the Geological Survey of Ethiopia and the Ministry of Mines and Energy)


limestone, gypsum, phosphate, kyanite, talc, graphite and gemstones.

Mining Law

The first comprehensive mining laws and regulations were enacted in 1971 by the Imperial Ethiopia Government which opened the mining sector to domestic and foreign investors. However, the current low level of foreign investment in the Ethiopian minerals sector can be traced back to 1975 when the Socialist Military Government (Derg) modified these laws closing off the minerals sector to foreign investment.

In the early 1990s, following the fall of the military government, there began a fundamental shift in policy. Major economic reform programmes aimed at establishing a market economy and creating the legal, institutional and policy environment to increase private sector involvement were initiated. The role of government is now restricted to regulation and promotion, including the provision of basic geoscience information and reconnaissance exploration data to assist potential investors. Comprehensive new mining laws and regulations were promulgated and the minerals sector was re-opened to private investors. These established a favourable and internationally competitive fiscal regime for investment in the mining sector.

The Mining Law and Mining Income Tax Law were enacted in 1993, followed by new Mining Regulations in 1994. These, and subsequent amendments later in the 1990s, guarantee the rights of the private national and international investor and provide the current regulatory framework for the mining industry in Ethiopia. Since the laws and regulations apply equally to State-owned mining companies, they are now also obliged to obtain licenses. Highlights of the 1993 law include:

provision for inclusion of minerals discovered during exploration that were not specified in the licence application.a guarantee of the licensee’s right to sell minerals domestically or overseas.exemption from duty on equipment, machinery and vehicles required for mineral operations.a guarantee of the operation of a foreign currency bank account in Ethiopia; retention of a portion of foreign currency earning and remittance of profits, dividends, principal and interest on a foreign loan etc. out of Ethiopia.relatively low royalties of 2 to 5% ad valorem on production site.

The Mining Income Tax Proclamation (No.53/1993) also contains some key investment incentives such as:

generous deductions and calculations of expenditureten years’ loss carry forwards.write-off of investment within four consecutive years.

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Recent important amendments to these laws include:

reduction of state free equity from 10% to 2%.income tax reduced from 45% to 35%.

With the support of the World Bank, the Government of Ethiopia is currently reviewing the mining law with the intention of further increasing its attractiveness to foreign investors.

Mineral licences

Three types of licence are presently available to domestic and foreign mineral exploration and mining companies. In addition, the mining law states that Ethiopians do not require a licence to prospect for minerals, but they must also not interfere in the operation of a legitimate licence.

Institutional framework

The Ministry of Mines and Energy is the federal body responsible for development of the country’s mineral sector to the benefit of the national economy. Activities related to the processing of licence applications, to the regulation of the mineral operations and to the promotion of investment in the mineral sector in Ethiopia are carried out chiefly through the Mineral Operations Department of the Ministry. Responsibility for the licencing and administration of small-scale mining, exploration and prospecting operations conducted by local investors has been devolved to the regional governments. A computerised national mining cadastre and registration system is planned. This will deliver improved management of mineral licences and ensure their operation according to local laws and regulations.

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Licence types

Type Maximum sizeof a licence

Duration

Prospecting 50 km2 1 year, non-renewable

Exploration 20 km2 3 years, twice renewable

Mining, small scale 20 000 m2 for industrial & construction minerals operations

10 years, plus 5 years renewal

Mining, large scale 10 km2 for metallic minerals; 200 000 m2

for industrial minerals

20 years, plus 10 years renewal


The Geological Survey of Ethiopia (GSE) is an autonomous government institution within the Ministry of Mines and Energy. It has nearly 800 employees working at three sites in Addis Ababa. More than 200 GSE staff are qualified to degree level or higher. The GSE is responsible for the collection of basic geoscience information for the whole country and for its dissemination to all stakeholders. The

GSE carries out geological mapping and investigations related to mineral resources, oil and natural gas, hydrogeology and engineering geology. It has well equipped laboratories capable of undertaking geochemical analysis of solid and liquid samples, physical property testing, and petrographic and mineralogical studies.

Key mining operations and mineral deposits in Ethiopia(information from the Geological Survey of Ethiopia and the Ministry of Mines and Energy)

32°0'0"E

32°0'0"E

36°0'0"E

36°0'0"E

40°0'0"E

40°0'0"E

44°0'0"E

44°0'0"E

48°0'0"E

48°0'0"E

6°0'0"N 6°0'0"N

10°0'0"N 10°0'0"N

14°0'0"N 14°0'0"N

Northern Greenstone Belt

Moyale Greenstone BeltSouthern

Greenstone Belt

Western Greenstone

Belt

PREC

AMBR

IAN

PHAN

ERO

ZOIC

Quaternary superficial deposits

Quaternary volcanics with associated sediments

Tertiary sediments

Tertiary volcanics

Mesozoic sediments

Mafic-ultramafic belts

Low-grade volcanosedimentary rocks and associated intrusives (greenstonebelts)

High-grade gneisses & migmatites with associated intrusives

Town / City

Gold

Tantalite

Nickel

Iron

Phosphate

Potash

Bentonite

Coal

Silica sand

Base metals

Graphite

Kyanite

Diatomite

Sodium carbonate

Marble

Clay

Kaolin

Limestone

Platinum

Olivine

Granite

ADDIS ABABA

JIMA

AWASA

GOBA

HARARNEKEMTE

DEBREMARKOS

BAHIRDAR

DIREDAWA

AWASH

DESSIE

GONDER

MEKELE


Investing in the minerals industry of Ethiopia

m i n i s t r y o f m i n e s a n d e n e r g y f e d e r a l d e m o c r a t i c r e p u b l i c o f e t h i o p i a

Key contacts

Plans are in-hand to enhance the capacity of the GSE and the Ministry of Mines and Energy in order to ensure that they meet the highest international standards and provide an efficient and effective service to potential investors, both foreign and domestic.

Sources of information

Many of the reports and data generated by commercial and Government mineral surveys in Ethiopia can be obtained free of charge from the national Geoscience Information Centre at the GSE or direct from the Ministry of Mines and Energy. Some digital geochemical data and a comprehensive digital mineral deposits database are also available.

Geophysical surveys have been flown over most of the greenstone belts. In addition, particularly in the Southern Greenstone Belt, a substantial amount of ground geophysical data is available. Full details of these surveys can be obtained from the Geoscience Information Centre.

Key contacts

The Mineral Operations Department in the Ministry of Mines and Energy is the focal point for the receipt and processing of mineral licence applications, and this should be the first point of call for all interested parties. More detailed information can be obtained from the Ministry web site, http://www.mom.gov.et.

Mineral Operations DepartmentMinistry of Mines and EnergyPO BOX 486Addis Ababa, Ethiopia tel: [251 11] 646 12 14fax: [251 11] 646 34 54email: [email protected]

Geological Survey of EthiopiaMinistry of Mines and EnergyPO BOX 2302Addis Ababa, Ethiopia tel: [251 11] 646 33 25fax: [251 11] 646 33 26email: [email protected]


investing in the minerals industry of ethiopia

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