Developing Afghanistan's Mineral Resources: A High-Risk Venture

Afghanistan army commandosNew headlines regarding vast, valuable but still-untapped mineral deposits in Afghanistan are old news for much of the international mining community. Many companies, armed with geologic surveys completed during the Soviet occupation three decades ago, have long contemplated how to successfully operate in Afghanistan.

"I've seen these maps that the Russians produced," says Robert Schafer, executive vice president for Hunter Dickinson, a Vancouver-based exploration and mining company. More recently he's seen "a U.S. Geological Survey publication on the mineral resource assessment that was published in 2007."

While sizable mineral exports could make Afghanistan a future player in the global economy, the significance of its deposits is "not that it's big enough to dramatically impact the world -- it's because it's big enough to make that country viable in a way that it never has been before," says Schafer. These minerals could become the financial foundation of a new Afghanistan "that would be for the first time based on [a] nonconflict, non-drug-related economy. So that's why it's key. "

Don't Confuse Potential With Destiny

Most corporations are waiting for Afghanistan to become relatively peaceful and politically stable before attempting any large-scale, long-term projects there. In the meantime, they're considering what investments and resources are needed to make their investments eventually pay off. "It's important not to confuse potential with destiny," says Rod Eggert, director of the Division of Economics and Business at the Colorado School of Mines. "What is actually reported is potential for mining. It will take a number of things for the potential to be converted to profitable mining."

Navigating the Afghan culture is another challenge awaiting international mining interests. Along with a traditional suspicion of outsiders and long-standing internal rivalries, the Afghan government is considered one of the most corrupt in the world.

Several years ago, Hunter Dickinson was one of several companies competing for a contract with the Afghan government (in conjunction with the World Bank) to develop huge copper deposits in the Aynak Valley. Robert Schafer participated in the bidding negotiations, and came up against demands for "baksheesh," or bribes. "A relative of one of the government officials said they could guarantee we would win the bid process for a 'facilitation fee' of so-many million dollars," he says. "We told him to go away."

Schafer remembers the negotiations as well-managed, but that access to the proposed project was very limited. "When you're putting together a bid that's in the excess of a billion dollars, you like to know it pretty intimately before you start making proposals," he says.

"I also learned through a different Afghan government official that, although bids were supposed to be secret to a small committee of people for evaluation, some bidders' information got spread to other groups, who were then allowed to modify their bids to improve the quality."

Chinese Unskilled Labor Replaces Afghan Labor?

China Metallurgical Group, or MCC, was awarded the Aynak project. "The concept was they were supposed to train the less-skilled Afghan people to do the labor-type work," says Schafer, "and yet I've been told they've brought in a lot of their own low-skilled laborers to do the work that the Afghans should be doing, which is kind of contrary to what the original plan was."

Recent reports, meanwhile, claim a top Afghan official took tens of millions of dollars from MCC for the Aynak contract.

"From the perspective of private investors, [Afghanistan is] a country that's been relatively unexplored with modern methods, for understandable reasons." says Dr. Eggert. "It would be a risky venture to undertake exploration there, but with the potential for significant rewards. High risk, but potentially high return."
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