Cutting Through The BS Of The Afghanistan Resource “Bonanza”

Louis James
Casey’s International Speculator
Friday, June 18th, 2010

Geological anomalies are like opinions: Everybody has one

There’s a great deal of chatter in the press and online about the tremendous US$1-trillion-dollar mineral “discovery” in Afghanistan headlined by The New York Times recently. Most of the discussion seems to centre on whether or not this is really news and whether or not the NYT was played by the powers that be for purposes of their own. Few, if any, people seem to be questioning the value of the so-called discovery itself. The US$1-trillion-dollar figure, at best, cannot be anything more than the wildest of hopeful guesses.

One does not have to be a geologist or an engineer to understand why. When geologists find outcropping mineralization, or other signs that an economic deposit of minerals may be present, that is not called a discovery. Even if the signs come from the latest scientific equipment flown over the country, as the U.S. government appears to have used, the result is still just an anomaly: a hopeful indication of where to look. And anomalies are like opinions: Everybody has one.

Once an anomaly is identified, it takes extensive and very expensive field work to determine the best locations for drilling holes in the ground, which you have to do to calculate a volume of mineralized rock, from which you can estimate the metal contained. It usually takes at least a year, and often several, to identify targets for drilling. And drilling off a deposit of any significant size takes several more years, usually after many false starts and setbacks, because you can’t see through rock to know where the goods are.

But even after you drill off a deposit, and know how big it is, how deep it is, and roughly what’s in it, you still don’t know what it’s worth. For that, you have to conduct extensive testing on the mineralized material, not just to quantify the metals or other desirable minerals within but also to see if there are contaminants, or other elements present that can complicate, or even make impossible the economic recovery of the valuable mineral.

In short, until you know how much it would cost to mine and process any sort of mineralized material into a saleable product, like gold bars, copper concentrate, etc., you cannot say what it’s worth. Even a huge deposit of gold may be completely worthless if the grade is low and there’s lots of carbon that would mess up the gold recovery.

Now, back to Afghanistan. A “small team of Pentagon officials and American geologists” cannot possibly have drilled off these deposits, let alone done the engineering required to value them. At very best, they’ve spotted some outcrops and taken some samples. This is not a discovery — no serious exploration geologist would call anything a discovery until enough holes have been drilled into it to outline a significant volume of potentially economic material.

What we have here is a regional survey that may or may not lead to significant discoveries.

Where do they get the trillion-dollar figure? We can only guess but given their own description, they cannot have done the work necessary to generate any reasonable estimate. It’s worth pointing out that the vast majority of mineral outcroppings and other anomalies never lead to economic discoveries, much less mines. Even a very rich vein sticking right out on surface can turn out to be the last dregs of a system that has been eroded away, leaving nothing but a tease behind. For gold, the odds of an anomaly leading to an economic discovery are often cited as being on the order of 300 to one, against.

No responsible geologist would circulate a valuation figure at this stage of the process in Afghanistan. In fact, if a public company put out a press release like this story in the NYT, the exchange would likely reprimand it severely and require a retraction.

Now, the soldier quoted admits that “There are a lot of ifs,” but that does not excuse putting out the US$1-trillion figure, a number that cannot be reasonably supported at this point.

Note that this doesn’t mean the minerals are not there — Afghanistan has, for obvious reasons, not seen any modern exploration, or even antiquated exploration, for decades. It is, in all likelihood, a terrific place to look for minerals. But the government’s story sounds like the sort of PR stunt put out by Pink Sheet scammers.

It will take time for any real discoveries to be made, especially given the time required to draft a workable mining law and for physical security to be established in the country. It would be a great benefit to the people of Afghanistan, and of the world, if this would happen.

 

Afghan mineral deposits worth up to $3 trillion

KABUL: Initial discoveries of untapped mineral deposits in poverty-stricken Afghanistan are "worth up to three trillion dollars", the country’s mines minister said Thursday.
The government tally came three days after US officials put their estimate of the value of the country’s reserves of iron, copper, cobalt and gold at at least one trillion dollars.
Mines Minister Wahidullah Shahrani said the US value of the Afghan resource wealth was a "very conservative estimate" and the Afghan evaluation was substantially more than that.
"Although it has not been confirmed yet and is subject to more exploration and drilling, the idea is that it could be up to three trillion (dollars)," Shahrani said.
"The scientists always use a very conservative approach to make sure that information will not be biased," he said.
Shahrani said it had been known for decades that the country has vast mineral wealth but the details of the deposits were only revealed in a survey recently conducted by the US Geological Survey.
"Our key mineral deposits are huge," he said, adding that there are vast reserves of the metal lithium, used to make batteries for electronics and produce medicines.
Some of the minerals are located in areas where the Taliban have a strong presence, a factor that could make the mines less attractive to foreign investors.
The mineral discoveries are also seen as potentially stoking the insurgency rather than bringing peace because the Taliban could fight more fiercely to regain control of the country and its newfound wealth.
The minister admitted that "still there are some challenges in terms of security in certain parts of the country" but expressed confidence that it was a short-term threat.
More than 120,000 foreign troops have been deployed in Afghanistan to battle an insurgency waged by the Taliban, which was ousted in a US-led invasion in late 2001.
Economic analysts said that with the country’s current poor infrastructure, it would need years to develop its mining industry while also worrying that the newfound wealth could be lost to graft as Afghanistan is ranked among the two most corrupt states in the world.
"Our focus will be mainly to enhance our capacities to make sure that we will get the maximum economic benefit from this opportunity in the most efficient and transparent manner," Shahrani insisted.
He said he hoped his country would attract foreign investment at a road show that his ministry would organise June 25 in London, to which more than 200 global organisations were invited.

Advertisements