Original URL: http://www.theregister.co.uk/2010/06/18/afghanistan_mineral_report/

Tech resource woes won't be solved with Afghan minerals

Taleban not sitting on an enormous laptop battery

By Tim Worstall

Posted in Government, 18th June 2010 12:02 GMT

Wondrous news don't you think? Afghanistan is stuffed to the brim with $1 trillion worth of valuable metals. We can just flog off a few mineral concessions and the country is rich, rich beyond the dreams of avarice while kittens gambol happily in the Kabul sunshine.

Sadly, no, not really: there's a few minor little problems with this happy picture. The first and most obvious of these is what economists call the resource curse. Imagine that you were an ambitious lad in some bombed out 13th century economy. We'll peg the annual value of that economy at, say, $12bn, like Afghanistan's. We then find that there's some natural resource worth, as the Yanks currently estimate, 80 or so times that annual economy. Whoever occupies the office of the Minister of Mines is rapidly going to become the richest person in the country, aren't they? So you, our ambitious little lad, are going to strive mightily to become the Minister for Mines: an attempt that is unlikely to involve swotting up on minerals management and an appeal to the best long-term interests of the country. AK 47s and a gallows for your predecessor in office seem more likely.

More warlords vying for greater power isn't exactly what we want for Afghanistan: the most recent Minister for Mines has been suspended for allegedly (and stoutly denied) taking $30m off a Chinese company for access to a copper deposit.

It isn't as if this unusual out there in the 'Stans. When based in Moscow 15 years ago we could roughly trace the progress of one of the factional control fights by who phoned us up from an aluminium plant in, I think, the Fergana Valley. If it was a new bloke offering us high-purity aluminium for $500 a kilogram then some new group now had control of the stockroom. Much of the fighting was to gain control of that stockroom so as to be able to finance the battle further: it didn't matter how often we told people that this high-purity stuff was worth $10 a kilogram, the fighting still went on for control.

Even if this particular local custom is suppressed there's still Dutch Disease to contend with: the huge investments pouring into a country and the massive exports of such resources, push up the exchange rate and thus strangle every other form of economic activity.

That's the basic economics - then there's the economics of mining to think about. The report on all these riches is not exactly detailed. It's some old Soviet maps and a recent aerial survey - to mining companies this is the sort of evidence you use to work out where to send the teams of men with drills and hammers. There's another five years of work on each and every outcrop of interesting rock before anyone can say that there's any economic value at all, let along value worth sending in a digger or two for.

For what the report actually does is value all those metals in the dirt - dirt at the end of a two-goat highway - at their full current market value. Full current market value without including the costs of digging them up, processing them or transporting them. The top three minerals they claim to have found are iron ore, copper and niobium.

The iron ore has a supposed value of $420bn. This entirely ignores the fact that iron ore is a low-value, bulky commodity. So low-value and bulky in fact that it is normally transported by sea. Yes, I did check and no, Afghanistan is not notably well supplied with either ports or sea access. The only alternative is a railway to China, but there's the odd mountain in the way there.

The second is copper concentrate at $240bn. Such concentrates have the same problem as iron ore, although you can refine it to copper cathode which is easier (and as a percentage of value, of course much cheaper) to transport. But this requires lots and lots of electricity. More electricity than an economy worth $12bn has. We're rather getting to thinking that Afghanistan must be a developed economy to exploit this resource, rather than this being a resource to exploit to develop Afghanistan.

The third is niobium at $80bn. You'd think that US-based boosters would at least check with their own experts on niobium at the USGS. There they would find out that this is some 600 years' supply for the US. Try bringing that sort of volume to market and of course prices are going to plunge.

No, the basic problem with this “analysis”, this $1 trillion number, is that it's measuring what everything would be worth as metal, outside Afghanistan, rather missing the point that it's currently not metal and is inside Afghanistan.

As one column in the Times pointed out, the North Sea has $240bn worth of gold in it (yes, there is gold in seawater). That doesn't make the North Sea worth $240bn, as you'd have to spend some $2.4 trillion in getting the gold out. (Yes, it does cost about ten times more to get gold out of seawater than the gold you get out of seawater is worth.)

So why issue the report at all? What's the point?

The point is probably that last year they tried to have an auction for some of that iron ore and no one turned up. They'd like to try this again and so would like to get a little bit of interest. Leaking a “report” to the New York Times might help, although anyone actually in the mining business will know all of the above already.

The second possible point is, as long as I'm not being too complicated about this (or crediting them with too much intelligence), to fire a shot across the bows of Evo Morales, the President of Bolivia. The press release (which is perhaps what we really ought to call this report) contains several references to large deposits of lithium. Some reports have claimed that Afghanistan can become the “Saudi Arabia” of lithium as we all ramp up for battery driven cars - each battery requiring a decent lump of said metal, lithium. The current major supplier is Chile from some dried up lakes (you can get table salt from sea water if you dry it out, you can get magnesium from some others like the Dead Sea if you dry it out, some already dried out lakes, looking a little like the Bonneville salt flats, are full of lithium) but the biggest known reserves are over the border in Bolivia. And Morales has been saying that he's not going to just sell off the minerals, oh no. The processing into products has to happen in Bolivia as well. There have been mutterings that the cars themselves, not just the batteries or metal, should be produced up there at 12,000 feet above sea level.

Claiming that there's a new Saudi Arabia of lithium is just the thing needed to put the lippy bloke in control of the last Saudi Arabia of lithium back into his box. I almost wish that I had sufficient confidence in the intelligence of the US Intelligence Services to actually believe that to be true.

So, all in all, it seems unlikely that Afghanistan is going to become a mining camp real soon. Even if it did there's nothing up there worth $1 trillion, or anywhere near.

Zooming in from the other end of the stupidity spectrum though (this is the spectrum of possible stupidities, not the spectrum that moves from ignorance to knowledge) we have a report from the European Union. Rather than being about having found lots of lovely metals it's about where EU based companies can get hold of lots of lovely metals.

The first and most obvious thing that should alarm us is that the writers of the report really do believe that it's part of statecraft to make sure that manufacturers are able to get their raw materials. This is a very 19th century conception and very much the one that led to all those colonies. Got to take control of those places full of little brown buggers, eh? Where else would we get our rubber from, what? We've thankfully spent the last half-century abandoning that odd idea and concentrated rather on offering the natives lots of money instead. It's not only fairer but works out cheaper too. But let's not say that the EU cannot do things the traditional way when they put their minds to it.

Perhaps more alarmingly, they seem not to know the basics of the metals they are talking about. Tantalum is important for mobile phones, yes, but it simply isn't true that the majority comes from the Congo. Brazil, Australia and Canada provide the vast majority and if we're going to be predicating our policies on the idea that these places aren't going to supply us then we really are planning for some insane form of Fortress Europe.

Rare earths are indeed mostly produced in China, but as I've pointed out here before they're not actually rare (or earths). The rarity is in plant capable of processing and separating them, a problem we can solve with a bit of cash and a few hundred thousand tonnes of acids. Worrying about antimony seems very strange: the major source is from recycling lead car batteries and the technology has changed recently. We put calcium in new ones, not antimony, meaning that as we process through the old ones from the fleet we're building a store of antimony.

Similarly they complain that most gallium comes from China. So? It's extracted from the wastes of the Bayer process (bauxite to alumina) and we can bolt a capture circuit onto any of the 30 of western world ones of those and be getting gallium by Thursday teatime.

Their worries over germanium seem similarly odd. Johnson Matthey used to have a plant in Cheshire (back in the 50s) which extracted both gallium and germanium from coal fumes. More recent pollution worries have meant that we're doing much the same at each and every coal fired plant these days. We precipitate out the metals content from the smoke and end up with tens of millions of tonnes a year of flue dust. This would make a very fine ore if anyone actually wanted more germanium. (I know of one mine, admittedly in Vorkuta, beyond the Arctic Circle, where there is 1kg of germanium in each tonne of coal. It's worth more possibly as germanium ore than it is as coal.)

As with the first report this second one seems to have been written by people who simply don't know what they're talking about. At least with the first one we can see why they're touting it about. The reason for the second is more difficult to ascertain.

Perhaps it really is just true that we're ruled by the ignorant? ®