Minerals-Related "Game Changer" in Afghanistan? If So Will Extraction Firms be Able to Operate in Midst of Turmoil?

Afghanistan may have upwards of $1 trillion in previously unknown deposits of minerals according to a new U.S. government report. According to a recent story in The New York Times, "U.S. Identifies Vast Mineral Riches in Afghanistan" (June 13, 2010), "...Afghanistan could eventually be transformed into one of the most important mining centers in the world..."

The graphic, from The Times' article, in the left-hand corner of this posting, shows where the minerals are located.

According to the article, Gen. David Patraeus, the Pentagon's lead officer in the region, said, "There is stunning potential here. There are a lot of ifs, of course, but I think potentially it is hugely significant."

Setting aside the enormous problems associated with actually mining the minerals, what could this mean for the country? A recent posting by UCLA Political Science Professor Michael L. Ross on the Foreign Policy blog addresses the political realities of the report's conclusion and considers whether the country will be beset by the "resource curse:"

"Unfortunately, governments that resemble Afghanistan's -- where corruption is high, and the rule of law and government performance are weak -- typically squander a large portion of these [minerals-related] windfalls. Billions have gone missing from the treasuries of Angola, Cameroon, the Congo, Nigeria, and other African countries that have considerable mineral wealth but weak and ineffective governance. Some is lost to corruption, some to political patronage, and some to well-intentioned projects that are poorly planned, poorly built, or poorly maintained."

The minerals include huge deposits of cobalt, copper, gold, and iron.

Currently a firm associated with the Chinese government is developing a copper mine south of Kabal. Having said that, however, no other large projects are currently underway.

This new report raises all types of questions including:

1. What investor-owned firms will be willing to face the political uncertainty and invest in Afghanistan?
2. To what extent will the Chinese government be willing to overlook political uncertainty and invest in any case?
3. What are the strategic consequences for any firm that decides to operate in Afghanistan? Will they have to raise they own militia or security force to protect their interests? Or will NATO forces take that on (if they are still in the country)?
4. If Afghanistan's treasury is filled with mineral-related revenues, will the future course of the country change?

The concept of an extraction company making large investments in a country riddled by on-going war and an unstable government may not be new. But it does raise huge questions about what risks these companies might be willing to take in order to participate in such a huge opportunity. Or will this turn out to be a situation where only companies that are not faced with quarter-to-quarter performance (e.g., Chinese-government related firms) are the only ones who really invest here?

Stay tuned. This could turn out to be an exceptionally fascinating -- if not entirely predictable -- story.

--Don Smith

"Africa Oil & Gas" Special Report Published by the Financial Times

As those of you who read this blog know, I am a huge fan of the Financial Times, the London-based business oriented daily that tracks key stories from across the world. If you are only going to read one world newspaper a day, I would suggest it be the Financial Times.

In any case, the FT recently published a special report "Africa Oil & Gas" on June 17, 2010. To see the special report, please click here.

The special report includes an assortment of stories that are in the "must read" category for anyone interested in oil and gas issues on the continent. Among the stories include coverage of the oil and gas sector in Ghana and China's ambitious plans for developing African oil.

European Union Environmental Law Guest Lecturer Marcus Oscarsson Featured on Sweden's TV4 News Channel

The Sturm College of Law Environmental and Natural Resources Law & Policy Program has benefited greatly over time (and continues to) from the many guest lecturers who speak to DU students. But it seems fair to say that few of these guest lecturers have ever been featured on a European TV channel talking about a royal wedding.

That was until yesterday when Stockholm-based Marcus Oscarsson, a regular guest lecturer about European Union environmental issues, was featured on Sweden's major news channel TV4 where he talked about this past weekend's royal wedding between Sweden's Princess Victoria and Daniel Westling.

Mr. Oscarsson, an official in the Swedish government, writes from time-to-time for the Times of London, one of Europe's major newspapers. In his "reporting" role, Mr. Oscarsson wrote a front-page story about the royal wedding for the Times' Sunday edition. That was followed by a Sunday morning appearance on TV4.

In his "day job," Mr. Oscarsson is involved with Sweden's governmental issues. From July 1, 2009 to December 31, 2009, he was also a member of the Swedish Prime Minister's communications team where he helped with the government's role as president of the European Union. Most recently he was a guest speaker (via video conference) in the "Comparative Environmental Law" course in April 2010 where he spoke to students and responded to questions about the EU's environmental policy. In July he will moderate a discussion board in the "European Union Environmental Law & Policy" course.

Click here to watch the program. But be forewarned that Mr. Oscarsson's comments are all in Swedish. Fortunately for DU students, he also speaks and writes fluently in English!

Ecuadorean Natural Resources Lawyer and DU LLM Graduate Alvaro Ordoñez Quoted in Leading Latin American Legal Publication

Alvaro Ordoñez, an attorney in Quito, Ecuador, was recently quoted in one of Latin America's leading legal publications about proposed changes to Ecuador's water law.

In LatinLawyer ("Ecuadorean Water Law Will Complicate Investment, Say Lawyers," May 17, 2010) Mr. Ordoñez said, "There is no doubt that obtaining water permits will become more complicated with the new water law, which will most likely be modified again." Commenting about the proposed law's requirement for consultation with indigenous groups Mr. Ordoñez made the following observation: "On the other hand, these consultations with indigenous communities are non-binding, so the future of the law is still uncertain."

Mr. Ordoñez, a May 2008 graduate of the Sturm College of Law Environmental and Natural Resources Law & Policy Graduate Program, is an associate attorney with the firm of Tobar and Bustamante. His main areas of practice are mining law, environmental law, and sustainability. Currently his firm is working on a large-scale mining project in Ecuador for Kinross Gold Company.

National Public Radio Reports on "Conflict Minerals;" A New Challenge for Corporate Supply Chains?

National Public Radio recently broadcast a report on the mining of "conflict minerals," minerals that are extracted in worn-torn countries often under the watchful eye of war lords. "Monitoring Conflict Minerals: Who's Accountable?" (June 15, 2010) is well worth listening to.

As the price of minerals such as gold and tin increase and the need for war lords to restock their financial cupboards continues to exist, this sort of practice is likely to receive greater public scrutiny. One group that seems sure to receive increased attention in terms of where their minerals are coming from is the high tech industry. It should surprise no one when shareholders begin to ask corporate executives whether they fully understand their own supply chains.

Mining Investment Risk Rising in Australia: "Resource Super Profits Tax" Debate Heats Up

The political debate in Australia over the government's proposed "resources super profits tax" is now well underway.

As characterized recently in the Financial Times ("Australian super tax increases investment risk," June 3, 2010), "The proposition...is for mining companies to take on 100 percent of the costs and risks associated with their investments but pay more than 50 percent of the gain to the government." Anyone interested in the intersection of nation state tax and resource policy with mining company investment decisions should read the article.

Australian Prime Minister Kevin Rudd has argued that such a tax would be fairer to the Australian people. On the other hand, the major mining companies operating in the country are uniformly against it.

Does this portend a more difficult investment environment for mining companies? One way to look at it is that if Australia can do this, then anyone can (and may).

"The Environment & Intellectual Property:" Financial Times Publishes Special Report Explaining the Linkages

As reported by the Financial Times, "Green technologies are often heavily dependent on intellectual property." As a result, those interested in green technologies are well advised to me familiar with the trends involving intellectual property.

An FT special report "The Environment & Intellectual Property" was published June 4, 2010. Among the key stories:

• "Protecting ideas is crucial for eco-technology to succeed"
• "Green issues are still a concern for food buyers"
• "Moral good, financial gain"

Everyone interested in resources issues -- be they green energy, mining, or oil and gas -- should be reading the Financial Times on a daily basis. There is simply no better global coverage to be found anywhere of these issues.