Despite the risks associated with mining in Africa, potash companies are looking to bring big projects into production in a region where hunger is constant.
By James Wellstead — Exclusive to Potash Investing News
It is sadly ironic that Africa is fast becoming a potash powerhouse. In recent years, more and more potash projects have developed on a continent where hunger and malnutrition remain a daily reality for more than a quarter of the population.
Already a hub for mining exploration, Africa’s vast copper, gold, tin, coal, and diamond fields have lured mining giants in search of risky, yet profitable projects to the continent. The most recent exploration interest is potash, with several projects still in their early stages.
Potash companies in Africa
Though potash deposits are widely spread across Africa, the Danakil Depression in Ethiopia and Eritrea has long been identified as an area with abundant and accessible potash reserves.
Since the 1990s, small-scale potash mining at Danakil has uncovered unusually shallow potash reserves, ranging from 50 to 300 meters underground. However, disputes between Ethiopia and its former breakaway territory, Eritrea, made access to the Danakil region dangerous throughout the 1990s and 2000s.
In spite of the challenges of exploring for potash in the Danakil Depression, revised mining laws and political interest have attracted companies like Allana Potash Corp. (TSX:AAA) and Ethiopian Potash Corp. (TSXV:FED) to Ethiopia and Eritrea.
While management mishaps at Ethiopian Potash have muddied the waters for some investors, Allana has encouraged investment in the region in great part due to capital expenditures that sit well below competitors in other countries. Financial backing by China has also done much to propel Allana’s development, with infrastructure financing being exchanged for discounted potash access for China’s growing markets.
Sub-Saharan Africa also offers a number of opportunities for potash exploration. In particular, the Republic of Congo (ROC) has been gaining investment interest as companies engage in exploration for the fertilizer.
Elemental Minerals Ltd. (ASX:ELM), with its Sintoukola project along the ROC’s Atlantic coast, recently announced high-grade sylvinite intersections from its Phase 2 exploration drilling at the Kola potash deposit. Meanwhile, Holle Potash Corp. is progressing with exploration of its two projects, Tchitondi and Manenga, and newcomer African Potash Ltd. (LSE:AFPO) recently acquired 70 percent of Patagonia Capital’s play in the Lake Dinga region, a few hundred kilometers from Elemental’s main project site.
Even though potash mining excursions and developments within African regions are on the rise, investors should be aware of the the political and security risks that mining in some African countries entails.
The prevalence of risk
Potash markets typically do not display the same kinds of risks seen in other resource markets, but political tension between states continues to cause concern for miners in North Africa’s Danakil region.
Though inter-state conflict has diminished since the height of the 1998-2000 war, continued hostilities between Eritrea and Ethiopia are impacting miners within the region. Recent calls for stronger United Nations sanctions on Eritrea’s mining industry from the Ethiopian State Minister of Foreign Affairs, Berhane Gebre Kristos, have not created an environment conducive to investing hundreds of millions in long-term capital projects.
But despite posturing and jingoistic diplomacy, potash development is continuing in Ethiopia and across Africa. Djibouti, the small African country bordering the Red Sea and Ethiopia, has recently invited bids to expand the Doraleh Container Terminal on the prospect of handling increasing potash exports. Talks of financing the project with China and the World Bank, among others, look to double the capacity of the port in coming years.
Risks not a barrier
Further south, just next to Elemental’s Kola project, the Democratic Republic of the Congo has long been a shining example of the corruption, conflict, and risk that plague miners and the countries pursuing mining. A recent report by the Extractive Industries Transparency Initiative’s Congo coordinator, Jeremy Dumba, calculated that US $70 million in mining fees paid to the government last year were left off the books, likely falling into personal coffers.
But despite political corruption miners continue to seek the resources.
“Capital will move in the longer term to where you can get a better deal. Places like Mozambique and Botswana are open for business,” said Michael Blakiston, a Perth-based partner at law firm Gilbert + Tobin, which advises on mining deals.
In the end, mining projects will continue to move forward in countries that possess the resources and seek a means to develop them.
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.