New gold mines in Shire, Wollega, TuluKapi, as illicit trade rises

 (Kaleyesus Bekele – The Reporter)

Three foreign and local mining firms are developing large scale gold mines in different parts of the country which are expected to revive the declining foreign currency earnings from gold minerals export.

The Minister of Mines, Petroleum and Natural gas, Motuma Mekassa, told The Reporter that a giant American gold mining company, Newmont, is developing a large scale gold  mine in [Shire, North-western zone of] Tigray Regional State. “Newmont, one of the leading gold mining firms in the world, is doing a great work in Tigrai,” Motuma said.

A UK company, KEFI Minerals, is also in the process of building a gold mine in South Western part of Ethiopia, in the Oromia Regional State, Western Wollega, TuluKapi locality. KEFI is raising more than 130 million dollars investment capital required to build the gold extraction plant form banks and shareholders.

On the other hand, MIDROC Gold, one of the subsidiary companies of MIDROC Technology Group, owned by the Ethiopian born Saudi Arabian business tycoon, Sheik Mohammed Hussein Al Amoudi, has signed an agreement with the Ministry of Mines, Petroleum and Natural Gas to develop a new gold mine in Metekel Zone, in the Benishangul Gumuz Regional State.

Photo - Panning for gold in Arakwa river, Tigray, Ethiopia
Photo – Panning for gold in Arakwa river, Tigray, Ethiopia

So far, MIDROC Gold is the only company engaged in large scale gold production in the country. The company produces 3.5-4 tons of gold annually.

Several mining projects have been delayed or aborted for various reasons. Motuma was asked why mining projects fail after agreements are signed and publicised by the media. “There are different reasons for that. By its very nature mineral and petroleum exploration projects are capital intensive and complex. It also takes a long time. Companies change their plans due to price fluctuations in the international commodity market or because of their own commercial reasons,” Motuma said.

Motuma noted that investments in the mining sector should be harmonized with the community and environment. “At times relocation of communities and compensations are controversial and that has to be dealt with painstakingly. Mining projects are complicated.”

The minister admitted the ministry’s weakness in undertaking stringent supervision work. “We have a problem in supervising the companies engaged in mineral exploration projects. We have to closely monitor companies engaged in exploration works and those who acquired mining licences. We have to identify the companies that unreasonably delayed projects and those that need assistance to commence production.”

Mineral export is one of Ethiopia’s major foreign currency earners. In the heydays, the country used to earn more than 600 million dollars from minerals export, gold contributing the lions share. A total of 170 companies are engaged in mineral exploration. In 2011-2012 the mining sector earned 618 million dollars from mineral exports—two-third of that coming from artisanal mining. Artisanal miners used to generate 400 million dollars from the export of nine tons of gold annually. There are more than one million artisanal miners in five regional states-Tigray, Oromia, Benishangul, Gambella and Southern Regions.

The minerals export revenue dropped to 340 million dollars in 2013 following the global gold market crash.This has further declined to 230 million dollars last year. The government had planned to garner 800 million dollars from mineral exports yearly in GTPI and a staggering two billion dollars in end of GTPII. In a stark contrast the mineral export is now fetching less than 300 million dollars.

The decline is mainly attributed to falling gold price in the international market. An ounce of gold which was sold for 1700 dollars is now traded at 1200 dollars in the global market. Contraband gold trade has worsened the situation.

MIDROC Gold, the sole large scale gold producer, exports its pure gold and silver to Europe, mainly to Switzerland. While artisanal miners’ cooperatives supply their gold to the central bank, the National Bank of Ethiopia (NBE).

The country trade law instructs artisanal miners and traders to supply gold to NBE. The state bank buys gold from traders and cooperatives adding five percent to the international market price.

However, a large amount of gold produced by artisanal miners is smuggled to neighboring countries through borders. The situation is getting worse in recent years depleting the foreign currency earning which the government needs badly.

Motuma said that the amount of gold funneled to the NBE is dwindling in recent years while the illicit gold trade is burgeoning. There are two main contributing factors for the growing contraband trade. “The first reason is that the difference between the official foreign currency exchange rate and the black market (parallel market) is growing. When the exchange rate at the black market is much higher than the official rate gold producers and traders prefer to sell their products to smugglers to supplying it to the NBE,” Motuma said.

The Minister noted that the NBE used to buy gold considering the highest price of gold in a month in the international market. “The global gold market is very volatile. It fluctuates every day. And the bank takes the highest rate in the month and adds five percent to that to set the buying price. This has incurred loss to the bank and the government decided to abandon that procedure. This has deterred gold producers and traders from supplying gold to the bank,” the minister said.

Motuma stressed the need to work on raising awareness on the adverse implications of contraband trade. “We cannot deploy security forces on the vast boarders and control the illicit trade because gold can be easily carried in pockets of individuals. We have to inform the public of the negative impacts of contraband trade.”

The minister disclosed that the ministry has established a committee that would work on tackling contraband trade. The committee members are drawn from all relevant government bodies. The minister stressed the need to closely work with the NBE. “We have designed the anti-contraband campaign works to be undertaken in 2010 Ethiopian year,” he concluded.

The ministry hopes that the three large scale gold mining projects in the pipeline would help the government to resurrect the deteriorating gold export.

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* Originally published on The Reporter on August 26, 2017, titled ”New gold mines to resurrect deteriorating export”

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Content gathered and compiled from online and offline media by Hornaffairs staff based on relevance and interest to the Horn of Africa.