Afghanistan's Motherlode

I suppose I must comment on the recent piece of propaganda out of Afghanistan on its wonderful mining potential.  Do not believe a word of it.  The metal is there all right.  What is missing is a viable business model for mining there.

The first problem is the blind expectations of the government and its cronies.  In oil, where there is surge production it is possible to carve up some front end money.  In the mineral business, we make a huge capital investment which is recovered slowly over years.  The real benefit comes from direct local expenditure that continues through the life of the mine itself.  Front end money is paltry in comparison to the ultimate value.

The second problem is the idea of royalties.  This is a direct tax on gross sales.  When margins are narrow which is quite common, the mine must shut down when it is unprofitable.  A mere two or three percent royally can turn a two month shutdown into a six month shutdown and all the loss of related wages and supplies.

Canada takes no particular royalties from its mining industry although there is usually a minor royalty for the discoverer which typically has an end buyout price.  This has served the country very well.  It receives all its money indirectly in the form of taxation in all its forms.  That ends up been huge.

The infrastructure benefits are also huge.  Everyone needs to visit Lynn Lake in Manitoba.  Several mines provide  a few hundred paychecks that support a town of over two thousand and a fully integrated economy.

Afghanistan sitting on a motherlode

BY Randy Rieland 15 JUN 2010 9:02 AM

Nothing like the revelation of precious metals in a far off land to get the hyperbole flowing -- and stir up the cynics. And so it goes in the wake of James Risen's New York Times report that the U.S. has identified nearly a trillion dollars in mineral deposits throughout Afghanistan:

The previously unknown deposits -- including huge veins of iron, copper, cobalt, gold, and critical industrial metals like lithium -- are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe.

Risen also quoted a Pentagon memo suggesting that politically unstable, economically-bleak, peace-challenged Afghanistan could one day become the "Saudi Arabia of lithium."

Now that's a metaphor to chew on.

Recharge the batteries:  Visions of a lithium mother lode charged up business writers like Fast Company's Kit Eaton, who called the discovery "fabulous" and went on to explain why lithium is a metal we've learned to love. Charles Cooper, writing for CBS News, chimed in that the world's electronics manufacturers were particularly juiced by the news

Hyperbole aside, there's a reason for that kind of optimism: In a world where smartphones and mobile computing devices increasingly are the norm, lithium is an indispensable battery technology. Future technology obviously may shift, but right now batteries based on lithium technology are the most popular rechargeable batteries around.

That's so last spring: It's probably worth noting at this point that it was barely three months ago (in March), that Lawrence Wright, in his New Yorker article titled "Lithium Dreams," noted that Bolivia has started calling itself the "Saudi Arabia of lithium." 

And that's so 1985: Not everyone is titillated. Marc Ambinder, writing for The Atlantic, points out that Afghanistan being pockmarked with mineral deposits is old news -- the Soviets knew as far back as 1985 --and suspects that the Pentagon's revelation has more to do with trying to shed a little sunshine on a country where things aren't going so well at the momentWrites Ambinder
What better way to remind people about the country's potential bright future -- and by people I mean the Chinese, the Russians, the Pakistanis, and the Americans -- than by publicizing or re-publicizing valid (but already public) information about the region's potential wealth?

Dream on:  Then there are the skeptics who think that Afghanistan becoming Lithium Land is the longest of long shots. Writing for the Los Angeles Times Paul Richter and Julian Barnes quote a particularly dubious mining official:

"Sudan will host the Winter Olympics before these guys get a trillion dollars out of the ground," said Luke Popovich of the National Mining Assn., which represents U.S. mining companies.

Ac-cen-tu-ate the negative: And here an especially dyspeptic take from The Economist's "Democracy in America" blog

Unfortunately, rather than a highly educated, secular, demographically homogenous monolingual society, Afghanistan is a mostly illiterate, fanatically religious society composed of rival ethnicities. Plus, it's ruled by a government, or a collection of governing cliques, that already may be the most corrupt on Earth -- and that was before they found out there's a trillion dollars waiting for whoever gets the keys to the Ministry of Mines.

Oh no, not the curse! Haley Cohen, writing for Vanity Fair, raises the specter of the dreaded "resource curse" that has plagued mineral-rich countries such as Nigeria and the Congo. He quotes Michael Klare, author of Resource Wars and Blood and Oil.

When you're talking about poor countries and you suddenly discover a source of great wealth -- could be oil or gold or diamonds -- everybody is going to want to get control over that wealth, so immediately there's a potential for civil conflict. The hope is that the whole country will benefit, but what usually happens is that some gang, or political party, or clique, will monopolize control over that source of wealth and use force to maintain its monopoly at the expense of everyone else.

Thus wrote the rabble:  For their part, readers of Risen's original New York Times storytended to line up with the skeptics.  Here's a sampling of their comments

"What Afghanistan needs now is a good Minerals Management Service like we have. Something tells me that we aren't going to be leaving Afghanistan for a long, long time."-Jake Linco, Media, Pa.

 "God help them. It's never good for a country to have raw materials the USA wants."-SKV, New York.

"Yeah, check out the Congo, Nigeria and other 'resource-rich' countries to find out what the future holds for a country with negligible social structure."-Cristo, Berkeley.

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