Bidding for untapped Gabon iron ore reserve, world’s largest, could spark mining sector

By Dr Sarah Tzinieris | Maplecroft

An improving business climate, a government receptive to foreign investment and a relatively secure operating environment offer attractive prospects for mining companies considering entry in Gabon. The sector has also been bolstered by the government’s announcement of a bidding process for stakes in Belinga, believed to be one of the world’s largest untapped reserves of iron ore.

Reaching this stage has taken eight years, however, owing to infrastructure shortfalls, controversy over the environmental impact of Belinga and a protracted dispute with its former permit holder Comibel, a Chinese mining consortium. The opening of talks with potential mining operators provides a fresh start in efforts to exploit the deposit, with the final decision over the investment framework expected in 2016.

Opening up to business

Under its ‘Emerging Gabon’ strategy, the government is actively seeking foreign investment as part of its ambition for the country to become an emerging market economy by 2025. In the mining sector, more exploration and production is being encouraged, as well as the downstream processing of raw minerals (beneficiation). Developing Belinga – located in the remote north-east of the country – will provide an impetus to economic growth, with the deposit estimated to contain more than one billion tonnes of iron ore.

Regulatory reform is also underway in the mining sector. A new mining code, currently under parliamentary discussion, is likely to come into force later in 2014. The code is not expected to introduce any significant changes, although it includes an automatic 10% government stake in projects. Already onerous fiscal requirements are also unlikely to be relaxed.

The government is meanwhile making strides in streamlining business procedures. Reforms to construction permits and taxes resulted in Gabon jumping up six places in the World Bank’s Doing Business report in 2014. Trade will also be made easier by the government’s injection of US$14 billion into national infrastructure between 2013 and 2016.

While mining is set to remain the largest driver of economic growth in the next five years, however, a core tenet of the Emerging Gabon strategy is diversifying the oil-dependent economy. Reflecting the lack of diversification, oil accounted for 75% of export earnings in 2012. Despite the country being endowed with vast mineral reserves – including uranium, niobium, lead, zinc, diamonds, marble and phosphate, as well as iron ore – only manganese is currently mined in industrial quantities.

Economic reliance on oil and manganese makes Gabon highly vulnerable to volatile world commodity prices. Underscoring the structural weaknesses of the economy, Gabon is ranked 12th highest risk globally on Maplecroft’s Dependence on Commodity Exports Index 2014.

More pitfalls to overcome

While the opening of fresh talks on Belinga in May 2014 indicates a new chapter for Gabon’s mining sector, the history of the deposit suggests further obstacles for future operators. Comibel secured the rights to Belinga in 2006 but, due to the development schedule allegedly falling behind, the Chinese mining consortium subsequently lost these in 2011. In December 2013, the government announced it had amicably reached a deal with Comibel to take back the asset.

The environmental impact of an open-pit mine is also controversial. Local residents and environmental NGOs are strongly opposed to the project on the grounds it is located in an area of high biodiversity near Ivindo National Park.

The vast infrastructure challenges in developing Belinga – and high associated costs – have also hindered progress. The deposit is located in the remote north-east, near the border of Republic of Congo and 500km away from Libreville (the capital and only sizeable city in Gabon, other than Port-Gentil). Although the scope of project-linked infrastructure is still being determined, a hydropower dam, deep-water port, railway and extensive linking roads are expected to be part of the deal.

Sharing the benefits

The government is likely to come under sustained pressure to ensure that the exploitation of Belinga brings tangible benefits to Gabonese society. Despite the lack of democratic governance in Gabon, the country’s civil society is one of the most developed in the Central Africa region.

Gabonese NGOs such as Brainforest have expressed vocal concerns that Belinga will be plagued by corruption. They point to the fact that while lucrative oil revenues have led to the World Bank assigning ‘upper middle income’ status to the country, corruption and poor governance have left Gabon largely impoverished. For instance, social development indicators such as health and education are comparable with those of lower-income African countries.

Such pressures underscore the importance of community engagement at Belinga. Indeed, the revision of the mining code is intended to address these concerns, for instance through local content rules on setting aside jobs for Gabonese workers. Beneficiation could also see more revenues staying in Gabon, although the high grade of iron ore at Belinga may mean in-country processing is unnecessary.

At the same time, future operators will be under pressure to develop Belinga fast – particularly in building supporting infrastructure, which will face intense scrutiny. The draft mining code contains sanctions for companies that fall more than three months behind project schedules. A risk is that corners could be cut in order to meet deadlines. Civil society previously raised concerns when the Mining Ministry authorised Belinga’s former owner to begin building a local road without approval from the environment ministry.

Spotlight on mining sector

In view of the size of the deposit, Belinga has the potential to make an important socio-economic contribution in Gabon. In addition to billions of dollars of mining revenues for the public purse, up to 30,000 jobs could be created – though it is unclear at this stage how many will go to locals.

Infrastructure construction also has significant benefits for a range of stakeholders, especially domestic business. Furthermore, a railway could provide an impetus to the mining sector in the wider Central African region if it were to link the Mbalam iron ore project in Cameroon. Rail links might also help to commercialise other untapped iron ore deposits in the region.

The role of the government and mining companies will be crucial in determining the success of the project. However, there will be risks where interests fail to align. In particular, weakening global iron ore prices – currently nearing a two-year low – could see companies come into conflict with the government if they try to slow the pace of Belinga’s schedule. Comibel’s departure has also inadvertently resulted in the loss of China as the largest global market for iron ore.

The overarching economic risk is that growing the mining industry still fails to address the fundamental problem of lack of diversification within Gabon’s economy. Developing the services and manufacturing sectors are essential to achieve sustained future growth. This increases the obligation for project partners to build infrastructure that benefits society and to ensure that community engagement is appropriately targeted.