Acceleration of activity strengthens mining's contribution to Cote d'Ivoire's economy

With improved conditions for exploration on the ground and a stronger regulatory environment, Côte d’Ivoire’s mining potential is attracting growing attention from foreign exploration companies. Although the development of the sector still lags behind some of its neighbours, such as Ghana, mining exploration is becoming increasingly important for the Ivorian economy. According to the Chamber of Mines of Côte d’Ivoire (Chambre des Mines de Côte d’Ivoire, CMCI), the sector now accounts for about 2% of GDP, a slight increase from roughly 1% in 2014. President Alassane Dramane Ouattara’s administration has previously stated its ambition of raising the mining sector’s contribution to GDP to 8% by 2030. However, the country’s geographic position in the mineral-rich Birimian Greenstone Belt, a geological formation that links Senegal all the way down to Ghana, is a promise of future development prospects. Although a third of the formation is located within Côte d’Ivoire, the country accounts for a minimal part of the belt’s annual gold output – certainly well behind Ghana, which currently serves as the continent’s second-largest gold producer.

Despite the fall in mineral commodity prices over recent years, the country’s return to peace and high GDP growth in 2015 have led to a visible expansion in extractive activities. According to the Ministry of Industry and Mines (Ministère de l’Industrie et de Mines, MIM), annual potential revenues are estimated at some CFA800bn (€1.2m), as Côte d’Ivoire has sizeable gold deposits, along with estimated reserves of 4bn tonnes of iron ore, 40m tonnes of nickel and 18m tonnes of manganese.

Performance

As a result, the government has sought to tap into those reserves, with some success. Sector revenues have seen steady progress, reaching €730m in 2015, according to figures from the MIM, a 24% increase on 2014, while the sector is due to receive nearly one-sixth of the planned investments for the government’s five-year National Development Plan (see Economy chapter). Over the first half of 2016, mining activity saw a jump of 75% in the country’s Industrial Production Index, according to the IMF. “We are in the beginning of our mining development, with only about 10% of the geological surface of the country having been explored,” Christine Logbo Kossi, executive director at the CMCI, told OBG. MIM statistics indicate that the sector attracted CFA77bn (€115.5m) in 2015, up from CFA74bn (€111m) in 2014, with mining operations accounting for 6600 direct jobs in total – and roughly three times that in indirect jobs.

Gold Is King

Although the country has proven reserves in a handful of mineral resources, such as nickel, bauxite, copper, iron ore and manganese, the majority of recent efforts have focused on gold. Production has been rising slowly from 15.4 tonnes in 2013 to 20 tonnes in 2014. In 2015 gold production expanded a further 17.5% to 23.5 tonnes, according to the CMCI. This is just below the government’s earlier targets, which sought to hit 25 tonnes by 2015, but more than three times the amount produced in 2010, when it was just seven tonnes. Several international mining firms have invested in gold production in the country. “If the current projects for industrial gold production perform as expected, we might reach an annual gold production of 60 tonnes by as soon as 2020,” Logbo Kossi told OBG.

Full Of Potential

In early 2015 London-listed Amara Mining announced the country’s most promising gold explorations in Yaouré, 40 km from Yamassoukro. The Yaouré gold project is expected to host high-quality gold deposits of 6.3m oz. The project is likely to see a larger injection of capital for development after the February 2016 announcement of a merger between Amara Mining and Australia-based Perseus Mining, undertaken to establish a bigger company to focus on mining in West Africa. The new entity will retain the name Perseus, and Amara Mining shareholders were allocated 35% of shares in the new company.

Production at Yaouré is expected to begin in 2017, and the firm has estimated the annual output to reach 325,000 oz. Perseus is already developing another gold mine at Sissingué, for which it recently received a preliminary approval for a $60m loan from Macquarie Bank and PNB Paribas in September 2016. The process was on track to conclude before the end of 2016, and Perseus is expected to produce first gold at Sissingué by December 2017.

Growing Production

Canada-based Endeavour Mining is also strengthening its presence in the country. In January 2014 it started production at its Agbaou gold mine, 200 km north of Abidjan. Development of the site allowed it to reach output of 181,365 oz of gold in 2015, according to figures from Endeavour, up 23% on 2014. By mid-2016 the firm estimated the mine would produce 180,000-195,000 oz. The Agbaou site is 85% owned by Endeavour Mining, with 10% held by the Ivorian state and 5% by Société pour le Développement Minier de la Côte d’Ivoire (SODEMI). By December 2015, the mine had paid $14m in royalties to the Ivorian government. Endeavour Mining also operates the smaller Ity gold mine, 480 km north-west of Abidjan, with an annual production capacity of 250,000 oz.

South African firm Randgold has also been developing operations at its mine in Tongon since 2010, announcing in July 2016 it would likely finish the year with a production volume of between 260,000 and 280,000 oz. Although this represents an improvement of 2015 figures of 243,000 oz, the estimate also represented a slight reduction on initial predictions of 290,000 oz. In November 2016 Randgold and Newcrest signed a heads of agreement to establish a joint venture for the exploration, development and mining of mineral resources in an area of interest in the south-east of Côte d’Ivoire.

Manganese

Price reductions in international markets have affected production of other minerals more acutely. In 2014 government-owned SODEMI announced that the country’s manganese output was expected to grow four-fold over the following three years to reach 1m tonnes. An agreement between SODEMI and the China National Geological and Mining Corporation allowed the Ivorian firm to channel investment into the reopening of the Lauzoua manganese mine, 180 km west of Abidjan. However, by March 2016 manganese production saw a considerable reduction, falling from 350,000 tonnes in 2014 to 263,178 tonnes in 2015, according to the CMCI. The government attributed the lower production level to the steep reduction in the price of manganese in international markets (see below).

Although current prices make it less attractive, manganese production is expected to continue to represent an important part of Côte d’Ivoire’s mining sector. Besides the Lauzoua mine, Boundokou, located on the country’s border with Ghana and operated by Indian company Dharni Sampda, has total proven reserves of 3.2m tonnes and averages around 250,000 tonnes worth of production. The firm has also confirmed the existence of 3.3m tonnes of manganese reserves and additional probable reserves of 3m tonnes at Ziemougoula, although exploitation of the site has still not started.

Bauxite & Diamonds

For some of the country’s other mineral resources, development is still in its initial steps. Ivorian miner Lagune Exploration Afrique announced the start of production at its bauxite mine in Bongouanou, in central Côte d’Ivoire, in May 2016. The project, which involved investment of $20m, is the country’s first active bauxite operation and is scheduled to reach an output of 315,000 tonnes in the first year of operation. Diamond production has also seen an upsurge, thanks to the lifting of a UN ban on diamond exports from Côte d’Ivoire in mid-2014. This led to the export of 14,000 carats in 2015, according to government figures. Diamond production is increasingly seen as a diversification option for the sector.

Licence To Search

These conditions are helping to pull foreign exploration capacity into the country’s mining resources. According to a March 2016 presentation by the MIM, the government awarded 45 new exploration licences in 2015, taking the total figure of active exploration licences as of December 2015 to 171. Of these, 136 permits were for gold exploration and production. In early 2016 Canadian mining company Sama Resources was awarded an exploration licence for an 80-sq-km area where it believes nickel and copper deposits might be located. The area under exploration is located near the Samapleu concession area, where Sama Resources is already conducting exploration.

Regulatory Revamp

Much of the current developments taking place in the sector can be traced back to the 2014 mining code. This has helped to position Côte d’Ivoire in a region where competition to attract mining investment is considerable. Michel Sodjiedo Mian, chairman and CEO of TD Continental, told OBG, “The new mining code provides more security to projects and investors. The operator now needs to put down at least 10% of the project’s capital and the concession agreement can now easily be extended. However, penalties for the non-compliance with regulations have become harsher.”

The new regulations have also extended the duration of exploration licences from seven to 10 years, including the possibility to extend exploration efforts for two additional 12-month periods. Ivorian authorities also limited the size of maximum exploration areas from 1000 sq km to 400 sq km in a bid to raise the number of exploration ventures. The new code also put in place new obligations for mining companies, such as the requirement that Ivorian subcontractors and human resources be prioritised in mining projects when their conditions of quality and price match those of the market.

Government suggestions of windfall taxes were dropped in the final stages of the process, while the government set up a scaled ad valorem tax aimed at capturing a more significant portion of revenue as it increases according to commodity price variations during production. Meanwhile, the authorities also introduced a series of tax and Customs incentives for exploration, as well as production, which provide operators in Côte d’Ivoire with a comparative advantage to those in other countries in West Africa. The royalty system is currently based on the size of land used, as well as turnover of mining projects. Additionally, the new legislation reinforced rules regarding community development and the industry’s participation in training and capacity building in Côte d’Ivoire, and created mandatory funds dedicated to these factors.

New rules for transparency and environmental protection have also been included. The text stipulates that any civil servant with access to specific types of data and information related to the mining sector is prohibited from taking a direct or indirect interest in mining and mining services for up to five years following the conclusion of their appointment. The country has already benefited from compliance with the guidelines of the Extractive Industries Transparency Initiative since 2014, and in April of that year the UN Security Council voted to lift the export ban on Ivorian diamonds due to progress made on the implementation of the Kimberley Process Certification Scheme – a vote of confidence in the governance of the sector.

Price Environment

Côte d’Ivoire’s efforts come at a challenging time for the mining sector, which, along with commodities like oil, is seeing a general softening of prices in global markets. Gold in particular has dropped from its peak a few years ago. With the price of gold undergoing a decrease since 2011, mining developers betting on Côte d’Ivoire have certainly felt the pressure of lower margins. Between September 2011 and September 2016 the price of gold fell from a historical peak of nearly $1900 per oz to $1335 per oz. By January 2017 it had fallen further to around $1200 per oz, and while expectations are for a modest rebound in the coming year, this has impacted the revenues from gold extraction for both miners and the state. Manganese has also suffered, falling from $1075 per tonne in mid-2014 to $650 per tonne by March 2016.

Infrastructure

One of the key constraints on the development of mining activity cited by investors is the country’s infrastructure, which has suffered from underinvestment during the years of civil unrest from 2002 to 2004. However, over the past five years, the Ivorian government has made improving rail and energy networks – crucial for the high volume, power-intensive mining sector – a priority, with several projects currently under way.

Among the new projects is a planned overhaul of existing rail links with Burkina Faso, including a $900m renovation that will eventually link a planned – although currently subject to arbitration – manganese mine in Tambao, in the far north of Burkina Faso, with Abidjan’s port. Also in the works is a $1bn, 500-km railway in the west of the country that will stretch between the Port of San Pédro and Man in the north-west, linking up with nickel and iron deposits, as well as iron ore mines, in Guinea.

Prospects

The passage of the new mining code is a significant step in the country’s wider ambition to develop a globally competitive and diversified mining industry. Consultation with the private sector is a noteworthy factor in its positive reception by mining companies, but if such optimism is to be maintained, similar practices must continue.

In the longer run, aside from regulatory reform, successful mineral diversification will require additional transport networks in Côte d’Ivoire and improvements in mining finance markets and global commodities prices. Plans for the development of a more robust regional rail connection linking Côte d’Ivoire with Burkina Faso and Benin are promising signs, and the mining sector should also benefit from additional infrastructure from the creation of new power plants and the extension of the Abidjan port, or the construction a dedicated mineral terminal.

However, the country has made serious improvements in terms of its competitiveness, particularly when compared against its regional counterparts. A July 2016 statement by the Ghana Chamber of Mines noted that Côte d’Ivoire has seen a larger number of greenfield mining projects than the more established country, for example. The country has also managed to avoid any major disputes, unlike some of its counterparts. Burkina Faso’s flagship manganese project at Tambao, which was estimated at 100m tonnes worth of reserves, has been indefinitely postponed, awaiting the outcome of a case brought before the International Court of Arbitration in Paris.

 

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The Report: Côte d'Ivoire 2017

Industry & Mining chapter from The Report: Côte d'Ivoire 2017