The-Lack-of-Tenure-Security-is-the-Biggest-Problem-in-the-Mining-Sector

“The Lack of Tenure Security is the Biggest Problem in the Mining Sector.”

Ashenafi EndaleJuly 15, 202175

Nejib Ababiya, Founder and Chairman of Rift Geothermal, is currently developing an initial 300 MGW power plant with TMGO and Corbetti in Ethiopia. With his over 30 years of leadership experience especially in the mining and energy sectors, he founded Allana Potash, a company engaged in potash production, which he later sold to Israel Chemical, one of the largest potash and specialty chemical companies in the world. Nejib, born in Jimma, Ethiopia and migrated to Canada in 1979, has also founded other companies engaged in mining and energy. His current project with the company TRI is due to start construction of its gold mine in northern Ethiopia. Ashenafi Endale of EBR spent time with the serial entrepreneur to gain insights.

You are an Ethiopian-Canadian. What route did you take to reside in Canada?

When I was young, I was communist. Then I was capitalist and now conservatist. I was a Marxist-Leninist and fought the Dergue. I was a student at the elite General Wingate high school. When the Dergue’s Red Terror was at its peak, I escaped to be exiled in 1979.

What path has your professional life taken you on thus far?
While studying at Toronto University, one of the biggest challenges I observed in Canada was that immigrants from many countries, including Ethiopia, cannot get proper jobs. So, I set up an employment and training center. I got large funding from the government of Canada.

After graduating from university, I started off as a marketing officer at Toshiba and rose to the vice president level. After Toshiba, I bought a company called Office Solutions, a distributer of computers and technology products and services. I bought this company when it was on the verge of collapse. But I made it lucrative and sold it for considerable profit. I similarly bought other companies on the verge of collapse and made them profitable. After doing this repeatedly, I got bored.

I then joined a merchant and investment bank called Forbes and Manhattan. I was executive vice president. The bank invested in mining and technology. My first mining project was in Mali. We established a company called Avion Gold by investing USD20 million and after some time we sold it for USD240 million. After that I went to Guinea Conakry to establish a gold and bauxite company. Unfortunately, there was political unrest in the country and I left. That is when I focused on South America.

When did you come to Ethiopia?
I came to Ethiopia in 2006. At that time, there were few enterprises engaged in the mining sector. To see this in a vast country like Ethiopia defies logic. After reaching an agreement with the government, I received an exclusive right on the northern greenstone belt. I invested nearly USD12 million to undertake exploration works. In fact, this is the first airborne mining exploration conducted in Ethiopia. The exploration work and data compilation took six and three months, respectively. I gave the compiled data to the government.

What did you do after finishing the exploration work?
The exploration work was similar to a preliminary study, meaning further studies were needed to know exact reserves and commence operations. Out of the total land mass covered in the exploration work, I took only around a 7,000 square kilometer area with gold reserves in the regions of Tigray, Oromia, and Benishangul-Gumuz. Then we started work, under Aberdeen International.

Has Aberdeen International begun gold production?
Aberdeen merged with another company called TRI and does not exist now. That company is nearing gold production in Tigray.
The site’s construction should have started in February 2020 but the pandemic happened and the contractor could not come. Then conflict erupted in Tigray last November. These factors delayed progress. But it will commence as soon as the region becomes peaceful again.

What’s the quantity of TRI’s gold reserves in Tigray?
The estimate is around one million ounces of gold. At current prices, this is worth around USD2 billion.

Barring the recent upsurge, Ethiopia’s revenue from gold exports has nosedived for the last six years because artisan miners preferred selling in the black market. The government has made some successful corrective moves. What are your thoughts on this?
Artisanal miners are business people. They want to maximize their profits. If the informal market pays them better, they will go there whatever the risk.
The government needs to offer artisanal miners better prices to sell their gold in the formal market and to encourage them to produce more. The government must make markets accessible by establishing selling/ buying centers near gold sites.

How did you start your involvement in potash mining?
In 2008, the price of potash skyrocketed in the international market. After confirming the existence of huge potash reserves in Ethiopia, we took out a license under the company named Allana Potash and began work.

Just when we were about to start production, prices declined. The company’s value also fell. I then negotiated with a fertilizer heavyweight, Israel Chemical Ltd. (ICL), to takeover. After initially buying around 26Pct of the company, ICL bought all of the outstanding shares of Allana Potash and took over the company’s liabilities and assets. They were very eager to get started in Ethiopia because potash reserves in Israel were depleting at the time. In fact, ICL was planning to invest USD1.5 billion in Ethiopia.

Why did ICL leave Ethiopia?
Tax authorities told ICL managers that their office will be closed and they will be imprisoned if they don’t pay ETB155 million. After hearing this, the board of ICL decided to withdraw from Ethiopia immediately.

After conducting exploratory work, many foreign mining companies leave the country before becoming operational. What is the reason?
Since I came to Ethiopia 14 years ago, seven ministers in charge of the mining sector have been appointed. This shows there is discontinuity. But investors need continuity. Good governance and knowledgeable contract administration are also critical. Mining is a partnership between the investor and government. Companies engaged in the mining sector cannot do anything without governmental support. These are the reasons why many companies come and then leave Ethiopia before starting production.

For instance, ICL was planning to invest USD1.5 billion in Ethiopia. But the company left because it faced such undue problems. The UK-based Stratex International, which struck gold deposits in Afar, also left Ethiopia for similar reasons.

But the major problem is Ethiopia’s legal system that provides very little tenure security. The tenure security is not attractive for big foreign investors because the government can revoke miner’s license if the investor does not meet initial understandings.

Mining is a risky business especially in countries like Ethiopia where there is a lack of infrastructure. In other countries, the government does not snatch a license, but rather imposes additional license rent dues, fees, and penalties. After a certain period, the investor has the right to renew the license.

Do you see improvements in terms of governmental support after Prime Minister Abiy Ahmed (PhD) took office?
Now I see a lot of support. Our geothermal project, Tulu Moye Geothermal Operations (TMGO) and Corbetti, have been stuck for years due to minor issues related to tariffs. The problem was solved when Prime Minister Abiy assumed power. He understood the benefits of our geothermal projects. In 2020, the prime minister ordered his officials to sign the agreement. If it was not for him, we would have left Ethiopia.

But the lack of tenure security is still the biggest problem that has to be addressed.

Did you start a similar business after you sold Allana?
After selling Allana, I established another potash company in Ethiopia, called Circum. Currently, we are revising the feasibility study and we should be done by July. Outside of Ethiopia, I have established Lithium, a company engaged in potash and gold production.

When will Circum start production?
In less than a year we will raise the finance. Our initial plan was to produce around 2.7 million tons of potash annually. But after calculating the cost of logistics and warehouses, which is huge, we reduced the production capacity to 400,000 tons annually for the preliminary years. We will then scale up. The investment capital for the revised plan is USD1.6 billion.

What are your sources of finance?
I rely a lot on private equity. I also raise money from friends and family. If the prospect is good, you pump more money. If the prospect is very good, you list the project on the stock exchange, as a junior company. Otherwise, you merge the mining project with other strong mining firms willing to invest in your company. The big company gives you shares and takes control. For instance, I sold Allana Potash when the project reached this level to ICL, which is one of the biggest companies in the sector with USD12 billion annual revenue. This is how you operate in the mining sector.

How do you see the prospect of a stock market in Ethiopia?
A stock market is the best source for funding. But very transparent regulation is needed. In countries like Ethiopia where there is no culture of transparency, stock markets might bring devastating effect.

What are the main factors investors consider while deciding to invest in developing economies like Ethiopia?
Capital goes where it gets good return. If you have so much bureaucracy, investors will not come. Investors also prefer stability. Of course, they also go to unstable areas, provided the return is much higher than the usual. For instance, despite the instability observed in Ethiopia we are investing in the Tulu Moye and Corbetti geothermal projects.

While Tulu Moye is progressing, Corbeti is lagging behind. Why?
Regarding Corbetti, it has been long since we finalized pre-project works. But signing an agreement with the government is facing delays. EBR


9th Year • Jun 16 – July 15 2021 • No. 99

Ashenafi Endale


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