Report No. 47985-YE Yemen Mineral Sector Review June 2009 Oil, Gas, Mining Policy Division, Oil, Gas, Mining and Chemicals Department Middle East and North Africa Region Document of the World Bank ACKNOWLEDGEMENTS This report was prepared by a team led by Alexandra Pugachevsky, Operations Officer, (COCPO). The report team comprised Bryan Land, Senior Mining and Petroleum Specialist (COCPO) and three international consultants, John Cole-Baker (Metals Mining Consultant), Marco Cosi (Industrial Mining Consultant) and Henry Thompson (Mining and Oil Social and Environmental Issues Consultant). The task team was ably supported by three local consultants: Safwan Al-Sanabani, Dr. Khaled Mohammed Thabet Al-Selwi and Ibrahim Mahmood Al- Saghiry. Maria Handal, Nagwan Sharhan and Ali Ali Hassan Salamah, all from the World Bank Sana'a office, provided invaluable support to the team while in Sana'a. Dr.Gaber Ali Mohamed Al-Sanabani, Associate Operations Officer, PEP-MENA,based in Sana'a, contributed extensively to this report and deserves a separate mention. The team also benefited greatly from cooperating with the PEP-MENA team and Frank Sader, Principal Strategist, inparticular. Somin Mukherji, Senior Financial Analyst (MNSSD) consulted the team on Yemen's power sector and Jean- Charles Crochet, Senior Transport Economist (MNSSD) provided feedback on transport issues. Amanda Green, Consultant, World Bank, edited the document. We would like to acknowledge and thank the Government o f Yemen - the Ministry o f Oil and Minerals and especially the Geological Survey and Mineral Resources Board (GSMRB) for the courtesies extended to the various missions, prompt response to our requests for information and data and for their participation in developing the analysis and conclusions o f this report. Dr. Ismail Al-Ganad, Chairman, Ashraf Al-Jailani, Project Coordinator, and Amer Assabri, General Manager o f Promotion and Evaluation, all from GSMRB, were indispensable to the formulation o f the report. Inaddition, we are grateful to a number of representatives of the Yemeni miningprivate sector for their active participation in exchanging ideas and discussing various aspects o f the mineral sector with us over a number o f meetings. We look forward to the continuation o f the positive and constructive engagement that has markedthis effort. REPUBLIC OFYEMEN STUDYTOASSESS MINERALSECTOR POTENTIAL 1. Metallic Minerals and Precious Minerals................................................................................. EXECUTIVE SUMMARY................................................................................................. 1 2 Natural Stones .......................................................................................................................... Industrial Minerals.................................................................................................................... 3 2. 3 3. Introduction.......................................................................................................................... Geology ofYemen and Data Availability ........................................................................... 6 8 3.1 3.2 Availability of Data ....................................................................................................... Geology............................................................................................................................ 8 11 3.2.1 Environmental Issues............................................................................................. Geology.................................................................................................................. 11 3.2.2 11 3.2.3 12 Summary and Support Requirements ............................................................................ Reports................................................................................................................... Geophysics............................................................................................................. 3.2.4 12 4.3.3 MineralProspectivity......................................................................................................... 13 14 4.14.1.1 Metallic Minerals andPrecious Metals .......................................................................... 14 15 4.1.2 Lead-Zinc ............................................................................................................ 16 PreciousMetals...................................................................................................... 4.1.3 Copper -Nickel -Cobalt ...................................................................................... 17 4.1.4 Iron, Titanium, Vanadium...................................................................................... 17 4.1.5 Other Metallic Minerals......................................................................................... 18 4.2 IndustrialMinerals......................................................................................................... 18 4.3 Construction Materials / Natural Stones........................................................................ 20 4.3.1 Building Stones...................................................................................................... Dimension Stones .................................................................................................. 22 4.3.2 25 4.3.3 OrnamentaDecorative Stones .............................................................................. 27 4.3.4 5. 4.3.5 Current Mineral Activities and Commercial Opportunities ............................................... Precious Stones...................................................................................................... Landscaping Stones ............................................................................................... 27 27 28 5.1 Geological Survey andMineral ResourcesBoardActivities......................................... 28 5.2 Metallic Minerals........................................................................................................... 34 5.2.1 The Jabali Zinc Deposit ......................................................................................... 34 5.3 IndustrialMinerals ......................................................................................................... 35 5.4 Natural Stones................................................................................................................ 36 5.4.1 38 ProcessingofN S inYemen................................................................................... Quarrying ofN S inYemen.................................................................................... 5.4.2 38 5.4.3 39 6.5.5 Infrastructure...................................................................................................................... Precious Stones.............................................................................................................. Market and Marketing ofN S inYemen................................................................. 39 40 6.1 Power ............................................................................................................................. 40 6.2 Ports............................................................................................................................... Transport........................................................................................................................ 41 6.3 46 6.4 Communications ............................................................................................................ 7.6.5 Social Aspects.................................................................................................................... 49 Water Supply ................................................................................................................. 47 46 7.1 The Social Context......................................................................................................... 49 7.2 50 Implementationof Social ImpactAssessments ............................................................. The Importance ofDirectly AddressingCommunities .................................................. Traditional Governance andCommunities .................................................................... 7.3 51 7.4 52 7.5 The Jabali project.............................................................................................................. 1 8.7.6 Investment Conditions....................................................................................................... Comment and Suggestions............................................................................................. 53 54 8.1 InvestorDecisionMalung.............................................................................................. 54 8.1.1 Political Factors ..................................................................................................... 54 8.1.2 55 DoingBusiness inYemen.............................................................................................. Infrastructure and Services .................................................................................... Legislative and Fiscal Environment....................................................................... 8.1.3 57 8.2 58 8.2.1 RiskAssessment .................................................................................................... 58 59 9. 8.2.2 Projected Mineral Sector Growth and Benefit Streams..................................................... Feedback from Existing Investors ......................................................................... 60 9.1 Projections ofMineral Sector Growth ........................................................................... 60 9.1.1 Projection for 2010 to 2015 ................................................................................... ................................................................. 60 9.29.2.1 The Wider Benefits of MineralSector Growth.............................................................. 9.1.2 Speculative Prospects for 2016 to 2030 62 Artisanal Mining.................................................................................................... 63 63 9.2.2 IndustrialScale Mining.................................................................................................. Small Scale Mining................................................................................................ 65 10. 9.3 Recommended Program of Reform and Support Measures............................................... 66 71 10.1 RegulatoryFrameworkand Capacity Buildingofregulatory institutions..................... 71 10.1.1 Regulationof the Sector ......................................................................................... 72 10.1.2 Promotion of the Sector......................................................................................... 72 10.1.3 73 10.2 Technical Programs to Support Minerals Sector Promotion ......................................... Provision of Services to the Sector........................................................................ 74 10.3 Small-scale MiningSector ............................................................................................ 75 10.3.1 ProjectDevelopment.............................................................................................. Involvement of the LocalPopulation..................................................................... 76 10.3.2 76 10.3.3 10.4 Training.......................................................................................................................... 79 GovernmentlGSMRJ3 Level Support..................................................................... 77 10.4.1 Technical Skills Training....................................................................................... Management, Economic and Financial Skills Training ......................................... 79 10.4.2 79 10.5 The Natural Stone Sector............................................................................................... 80 10.6 Infrastructure.................................................................................................................. 81 REPUBLIC OFYEMEN STUDYTOASSESSMINERALSECTORPOTENTIAL 1. EXECUTIVESUMMARY Dependence on the oil sector as a source of economic growth is no longer sustainable given the rate at which oil reserves are being depleted. Yemen will come to rely on other sectors of the economy,some of which havepotential but remain under-developed. Themineral sector is one of these. The Third Five Year Planfor Development and Poverty Alleviation 2006-2010, identified the mineral sector as one of the key sources of future growthfor the country -along with tourism and agriculture. This study was conducted to assess thepotential contribution of the mineral sector to sustainable growth and poverty alleviation in Yemen and to define the constraints that will need to be overcome if this potential is to be realized. In so doing it helps to define those areas of government action and donor support that will need to be sustained over the medium to long term. Promising Mineral Potential The geology of Yemen is promising for metallic and industrial minerals and there are ample deposits of natural stones in the country. However, with the exception of a relatively artisanal exploitation of natural stones, the country does not have a mining tradition and any development of the sector will require signijkant and sustained eflorts. Thepositive assessment of minerals prospectivity is based on a substantial amount of work that has been done over theyears to map the country's geology, aspart ofprojects funded by external agencies, by the Yemen Geological Survey and Mineral Resources Board (GSMRB) and by private companies. Encouragement is drawn, in particular, from the mineral depositsfound and being developed in neighboring Saudi Arabia and comparison with analogous mineral-bearing geological structures in East Africa. A large amount of data of reasonable quality are available in Yemen on the geology, mineralization, environment and hydrology of the country. Access to these data could be improved and there are a number of specific measures that could be taken by GSMRB that could result in improvements in thepresentation andpromotion of the data. I n terms of prospective minerals, there is ample evidence of gold mineralization and some estimates indicate that the country could host some world-class deposits. A zinc deposit at Jabal Salab is under development and should start production late in 2010 and Cantex of Canada, which has been exploring in Yemenfor many years recently announced that Vale, one of the largest mining companies in the world, has agreed tofund a portion of work tofurther explore thepromising Suwar Nickel-Copper-Cobaltmassive sulphide deposit north west of Sana'a. Other potential minerals receiving attention include titanomagnetite and rare earth elements. The table below presents apotential mining sector growth scenario in the short to medium term. 1 Table 1.Mineral Sector Growth Scenario 2010-2015 Existing or under New investment Annual Annual Annual Annual Tax development Volume SalesValue Export Share Revenues' Start up ofJabali zinc 70,000 t/yr US$56mn 100percent US$1-2mn in in2009 zinc oxide(80 (@$1000/t the earlyyears percentzinc zinc) content) A1 Hariqah gold 200,000 odyr US$180mn 100percent US$S-lOmn developed by end gold (@$9OO/oz o fperiod gold) Productivity nla US$20-30mn 10-20percent US$2-3mn improvement at existingquarries duringthe period One or more new nla US$20-30mn 75 percent US$2-3mn large granite/mable quames for export of dimension stone Iopened during the - period Little growthinthe scale andvariety of nla nla nla nla explorationprograms Yemen also has a range of industrial minerals that could be exploited, principally by small and medium- to large-sized companies. Lhoist Co. (Belgium), one of the largest mining companies in the world in limeproduction, is currently conducting explorationsfor limestones and dolomite in Yemen. However, many of these minerals requirefurther work to understand better the market opportunities and toprovide assurance of the commercialfeasibility of any development. Several raw materials related to cementproduction are already being exploited, as is rock salt. The natural stone industry is already substantial in Yemen and could be made signiJicantly more eficient and economic through aprogramme of raising market awareness, improving quality and installing modern technology. This sector is considered ripe for relatively rapid development, and with German assistance, existing cooperation programs have created an initial platform for this. The strengths, weaknesses, opportunities and threats associated with the three groups into which minerals have been divided in this study are shown below. Metallic Minerals and PreciousMinerals STRENGTHS WEAKNESSES 1. Good geological structure for mineralization, 1. Lackofmining culture particularlygold, zinc andcopper 2. Yemeni geologists are not trained in economic 2. Geologicalmapsofthe whole country geology 3. Reports of previous work done by the GSMRB and 3. Previouswork is not to modem standards predecessorsreadilyavailable 4. Lackof infrastructure(mainlyroadsandpower) OPPORTUNITIES THREATS 1. New mining legislation should provide improved 1. Insurrectioninthe northofYemen givespoor image investmentconditions ofcountryto investors 2. Preciousmetals markets are likely to continue to be 2. Access to resourcesmaybe difficult on tribal lands 2 3. Longtermmetalmarketslikelyto berobust IndustrialMinerals STRENGTHS WEAKNESSES 1. Significant geologicalpotentialinYemen; mainly 1. Lack ofminingculture for: limestones,feldspars, pumice, perlite and scoria, 2. Yemeni geologists are not trained in economic quartz andsilica sand, kaolin, naturalzeolite, etc. geology 2. Many important sites are close to the main Yemeni 3. Lack ofinfrastructure(mainlyroads andpower) ports OPPORTUNITIES THREATS 1. LocaldemandofIMisnot satisfied.Current import 1. Development of quarrying activity may be from abroadcanpresentopportunityfor larger complicated by issues regarding access to tribal domesticproduction. land. 2. The developmentofthe naturalstones (NS) sector, 2. New mining law may not encourage small will alsoprovidestrongbenefitsto the future enterprises productionoflow cost aggregatesandother IM, from waste use ofquarryingandprocessing operations. 3. Largedemandfor some IMinthe regional developingmarkets(mainly Gulf): e.g. the perlite andscoriato make pozzolaniclight cementand lightweightconcreteandblocks. Natural Stones STRENGTHS WEAKNESSES 1. Extensiveand significantgeologicalpotentialin 1. No industrialNS quarries inoperation, using Yemen modemexploitationmethodsandequipment 2. Presenceofthick sequences oflimestones 2. Low availability of modem, well managedNS 3. Presenceoflargemassesoftravertines processingplant 4. Presenceofpromisingoccurrencesof coloured 3. Absence of skillinquarryingandprocessingN S granites with modemindustrialand semi-industrial 5. Large availability of attractivecoloured volcanic internationalstandards stones (ignimbrites,tuff, etc.) 4. No professionaltechnicalsearch andevaluation 6. Oldtradition inNS working andquarrying works andstudies conductedonN S inYemen 7. Old tradition inNS architecture andpaving 5. Lack oflocalNS experts 8. Large availability of local potentialmanpower 6. No particularstudies conductedon optimization 9. Low shippingcoststo regionalArab marketsand anduse ofwaste materialfrom quarryingand most ofother Asianmarkets processingoperations 7. Lack ofmodemandgood infrastructureinYemen: roads, electricityetc. OPPORTUNITIES THREATS 1. High(oftenrising)demandofNSinthe 1. Very largeandstrongcompetitionfromnewNS internationalmarket producingcountries: India,China, Egypt, Turkey 2. Highdemandfor limestonesandtravertinesinthe etc. internationalmarket 2. No particularlegislationfor NS (provisioninthe 3. Relativelygoodpotentialdomesticmarket revised Mining code, currentlyunder review) 4. Goodregionalmarket(e.g. Gulfcountries and 3. Tribal landissue+difficult developmentofthe MiddleEast) quarryingactivity, which isthe source ofthe entire 5. Relativelylow shippingcoststo GulfareaandIndia NS sector andFarEastmarkets 6. New interest inthe NS sector among some internationaldonors 3 Constraints Hurdles to the sustainable development of the mineral sector in Yemen include the needfor: (i) improved infrastructure; (ii) careful management of social aspects, especially regarding access to tribal lands; and (iii) strengthening of government regulatory institutions. Further consolidation of ongoing legal andfiscal reforms will also be needed. The development of a mining industry and of downstream mineral processing, in particular, will depend on adequate infrastructure. Development of the road system is underway, but the topography of western Yemen dictates that road building will be expensive. An ambitious plan for the construction of a railwayfrom Sana'a to the south coastports (BelhaJJShabwaprovince) has been proposed in order to provide transport to external markets. Such a project would undoubtedly assist in the development of other industries in the east and south of the country. However, detailed economic and technical studies will be required before thefeasibility of the proposal can be evaluatedfully. Other limitingfactors include the availability of power and of water. Nevertheless, activities that would in any case be necessary to develop the mining sector could usefully be initiated whether or not the railway proposal is approved. Theseare explored in Chapter 10. The social aspects that require attention include the instability in some parts of northern Yemen and the traditional, tribal nature of life outside the main urban centers. Access to mineral resources is complicated by the existence of tribal land claims. Theseneed to be recognized and managed carefully by authorities at central and district levels. In addition, and most importantly, mining companies must build up good relations with the local population. These social development issues are described in more detail below, and possible approaches are reviewed, drawing on experience in the oil sector. Some of these approaches rely on recognition by mining companies and host tribes that mining development can provide opportunities for job generation and community development. The strengthening of government institutions engaged in promoting and managing the miaing sector is a prerequisitefor sustainable mineral sector growth in Yemen. This implies a higher profile and better resourcingfor the main regulatory agencies.Although core competenciesexist, these agencies have not yet gained experience in supervising large-scale mineral operations, especially in the mine development and production phases. Even in the exploration phase, a limiting factor for the promotion of exploration opportunities has been the limited experience among GSMRB geologists and other agency staff with mineral economics and markets. I n addition to any physical investments, therefore, considerable investment will be required to strengthen sector know-how and skills development. Finally, it will be important for the Government of Yemen to signal its intent and commitment to give to the mineral sector the type of support that will be required over the medium to long term in order to successfully harness the country's mineral potential and bring about wider economic benefits. The draft National Mining Policy, which has been prepared by the government with support from the World Bank Group, provides such a signal. A modern and efficient legal and fiscal framework for mining is in the process of being reviewedfor legislative enactment. These are important steps, which will need to be consolidated through specijic regulatory and institutional measures to ensure efective implementation. Supportfor Mineral Sector Development 4 Realistically, any programme to assist Yemen in developing its mineral sector must take a long- term view of up to ten years, although benefits can be achieved in certain areas well before this timeframe. The objectives of future support to the sector, which arisefrom this study, can be listed asfollows: 0 Build on the work already underway to improve activities in the natural stone sector through improved eflciency, higher quality products and better understanding of stone product markets 0 Build capacity in the government administration to provide support services to local enterprises and to improve regulation of the sector, including, where necessary, sensitisation in social and environmental management 0 Encourage local enterprises to involve local populations in mineral activities and develop a mining culture for mineral commodities amenable to exploitation and marketing by local enterprises 0 Identifi and promote mineral occurrences that require specialized mineral exploration approachesfrom international mining companies A detailed list of activities that can help attain these objectives is included in Chapter 10. These activities are intended to reach all sectors of the economy and social ranks,focussing on capacity building at all levels and the involvement of local communities. I t is implicit in these recommendations that spreading economic development to all sectors of society will enhance Yemen's capacity to achievefuture economic independence and stability and alleviatepoverty. 5 2. INTRODUCTION The oil sector has been the major source o frevenues and foreign exchange for the Government o f Yemen (GOY).Hydrocarbon output (oil and gas) represents about one-third o f GDP, almost three- quarters o f Government revenues, and 90 percent o f exports. ' However, Yemen's oil reserves are rapidly depleting: in the absence o f a new discovery, crude oil output (currently at around 270,000 barrels per day) i s expected to be exhausted inthe next 10-12 years. Oil revenues fell 20 percent in 2007 to US$3.3 billion as output dropped to 42 million barrels from 64 million barrels the year before. With the recent drop inpetroleum prices, the GOYi s facing a budget deficit in 2009. The fisheries sector is the second revenue provider for the GOY. The mining sector in Yemen could be one o f the few viable alternatives to foster growth outside o f the oil sector. The Third Five Year Plan for Development and Poverty Alleviation 2006-2010 identifies the mineral sector as one o f the key sources o f future growth for the country-along withtourism and agriculture. The GOYhas sought assistance from the World Bank to help it evaluate the potential contribution o f the mineral sector to the economy and to identify critical factors that may constrain its growth. An earlier World Bank sponsored program, the Yemen Mineral Sector Project, supported the preparation o f a comprehensive review o f the Geology and Mineral Resources o f Yemen2. This project followed immediately after a program funded by the United Nations Department o f Economic and Social Development3, which had provided much useful prospecting and early- stage explorationdata. , There are several mineral sector reforms underway, driven by the GOYand organised with assistance from the donor community. Since 2006, the GOYhas been working closely with the International Finance Corporation's (IFC) PEP-MENA group on revising the mining law and regulations and updating institutional arrangements in regard to the mining sector. The World Bank Group's Mining, Oil, and Gas Policy division has helped implement two trust funds focused on institutional development and mining sector promotion. Activities have included revisions to the legal and regulatory fkamework, some promotional efforts and digitisation o f geological information. These interventions are positive developments, but need to be scaled up if GOYis to achieve its ambition of turning the mineral sector into a sustainable source of economic growth. This review o f the mineral sector is therefore intended to provide a basis for developing a comprehensive mineral sector strategy, which would be implemented over some five or more years and would serve to help the Yemeni authorities develop the country's mining sector. This would include, inter alia, completion o f legal and regulatory reforms; institutional strengthening for management o f the sector; development o f modern minerals licensing administration; development o f investment promotion programs; investment in geo-data acquisition and interpretation; initiatives to foster infkastructure development; development of an environmental and social management fkamework; arrangements for community development and benefit * 'Hill,Ginny, Yemen: Fear ofFailure, ChathamHouse Briefing Paper, www.chathamhouse.ora.uk, November 2008. McCombe, D.A., Femette G.L., and Alawi A.J. (compilers), The Geology and Mineral Resources of Yemen: Ministry of Oil and Mineral Resources, Geological Survey and Minerals Exploration Board, Yemen Mineral Sector Project, 1994(reprinted2001). Robertson Research Minerals Limited, a series of reports on prospecting and exploration of minerals in Yemen, Republic ofYemen GeologicalandMineral ExplorationBoard, 1993 6 sharing; development o f value-added and downstream activities in mining; and interventions to support sustainable small scale mining. This study analyzes separately the following groups o f minerals: Metallic Minerals and Precious Metals (MPM), IndustrialMinerals (IM)and Natural Stones (NS), because inthe Yemeni context each will require a different set o f approaches if full advantage i s to be taken o f the opportunities that exist. 3. GEOLOGY OFYEMENAND DATA AVAILABILITY 3.1 GEOLOGY A summary of Yemen's geology is provided below; more details can be found in a book published following a previous World Bank p r ~ g r a m . ~ Figure 3.1 GeologicalMap of Yemen Yemen comprises rocks from Precambrian to Pleistocene in age. Precambrian rocks outcrop in two main areas, the Sa'dah block in the northwest and the Al-Bayda-Lawder-Mukulla block in south-central Yemen. They comprise predominantly gneiss, schist and greenstone intruded by numerous late Proterozoic granites. Palaeozoic rocks are uncommon and occur mainly as isolated outcrops o f continental-fluvial or glacio-marine clastic sediments (mainly sandstones and tillite deposits associated with siltstone), unconfonnably overlying basement rocks within northwest Yemen. These lithofacies outcrops are representedby Wajid Sandstone and Akbarah Shale Formations, Mesozoic sediments are widely exposed. Jurassic sediments were deposited as shallow water carbonate facies rocks within two basins: the northwest trending Saba'tayn rift in central Yemen Menzies, M.M.,AI-Kadasi, M.,Al-Kirbash, S., Al-Subbary, A., Baker, J., Blakey, S., Boscence, D., Davison, I., Dar, C., Owen, L., McClay, K., Nichols, G., Yelland, A., and Watchom, F., Geology of the Republic of Yemen, in McCombe, D.A., Femette G.L., and Alawi A.J. (compilers), The Geology and Mineral Resources ofYemen: Ministry of Oil and Mineral Resources, Geological Survey and Minerals Exploration Board, Yemen Mineral Sector Project, 1994(reprinted2001). 8 and the easterly trending Jeza Basin in eastern Yemen. These basins host gas and oil near Marib and Shabwah Provinces. Four main lithostratigraphic units are present: 1. Kuhlan Formation (spelled Kohlan in some references): a non-glaciogenic arenaceous succession, o f Lower-Middle Jurassic age, overlying the basement and underlying the Jurassic carbonates. 2. Amran Group: an Upper Jurassic succession, predominantly carbonate markhale units divisible into a lower shallow marine facies o f the platform and o f pre-rift areas and an upper more pelagic marly-shaly facies with locally an evaporitic development inrestricted basins. 3. Tawilah Group: a continental to fluvial marginal marine lithofacies o f Cretaceous age, composed mainly o f sandstone, often cross-bedded, at times gravely and frequently cut by numerous Tertiary fissures and dykes. Tertiary rocks are predominantlyvolcanic withinthe west o fYemen with marine sediments to the east. The volcanics are related to north-northwest extension and uplift, and are represented by mainly basalt and rhyolitic sequences with shallow granitic plutons. Riftinginthe Red sea and uplifto f western Yemen postdated this magmatism. Volcanic activity renewed in the Quaternary with basaltic fissure eruptions and the formation o f composite shield volcanoes. It is particularly useful to refer to a summary map showing the main geological features o f the Arabian Peninsula in Figure 3.2. This places the geology o f Yemen, as seen inFigure 3.1, inits regional context. Figure 3.2: Geology of the Arabian Peninsula 9 Figure 3.2 demonstrates that the western portion o f Yemeni territory contains a part o f the Arabian Shield Precambrian deposits, which are similar to mineral bearing deposits in northeastern Africa. In addition, the Saudi Geological Survey has published useful data on the work done in their country on such rocks, which can be extrapolated to Yemen. This work i s referredto inparticularin Section 4: Mineral Prospectivity. In addition to the general lithologies and structures shown above, the uplift and geological disturbance that have characterized the area have resulted in significant faulting in the northwest to southeast direction. These disturbances would have acted as conduits for mineralizing fluids and so metallic ores may be expected along these structures forming mineralizationzones. Yemen, in its Precambrian Formations, i s mainly characterized by the presence o f different lithologies (e.g. meta-volcanic rocks: mica-schists, quartzites and gneisses) and structures (NW- SE faults and shear zones) similar to those o f the very well known greenstone belts inAfrica (the Binimian in West Africa), hosting important world-class gold and other metallic minerals ore bodies. Box 3.1 provides a short description o f the main rock formations existing inYemen, described by ages and type o frocks; this i s useful to identify and evaluate Yemen's N S potential. Box 3.I Rock Formations in Yemen Metamoruhic Rocks The Precambrianbasement rocks in Yemen comprise metavolcanic (see above), metasedimentary,gneiss and migmatitebelts produced in arc environments intruded by post tectonic granites and granodiorites. These are found throughout western Yemen from the northwest (Sa'dah - AI Jaw0 and southwest areas (Marib-Al-Bayda), in addition to small outcrops in south of Taiz and west of Mukalla. The oldest known rocks in Yemen occur in the A1 Bayda terrane which contains late Archaean aged (Sm-Nd: 2700-2900 Ma) gneisses, amphibolite dykes and granites Sedimentow Rocks - These comprisethe following: Paleozoic Sediments Ghabar Group (Infra-Cambrian-Earliest Paleozoic):Sandstone, limestone, silt, gypsum. Qinab Group (Infra Cambrian-LowestCambrian):Volcan+sedimentary succession consisting of dolerite, sandstone,silty shale and tuff. Wajid Formation(Permianand older): Quartz sandstone. Akbarah formation (Late Carboniferous-Permian):Tillite (pebbles and boulders of basement rocks), shales, mudstones,sandstones and siltstones. 8 Mesozoic Sediments Kuhlan Formation(Lower-Middle Jurassic): Sandstones, thin claystone and siltstoneinterbeds. Amran Group (Middle Jurassic-LowerCretaceous):Carbonatemarlishalewith evaporitic succession. Tawilah Group (Cretaceous): Sandstone with siltstone, marl, and shale, often interbedded with sandstone and also forming distinct marlor shaleintervalsand with generallypersistentlimestone-marl clasts. Mahra Group (Cretaceous):Limestone,marl, and shale, often interbeddedwith sandstone. Cenozoic Sediments Hadramawt Group (Paleocene-MiddleEocene): Dolomite, shale, limestone with chalk and dolomite, marl, papery shale, bedded gypsum, and alternating sand stone and claystone. Majzir Formation(Paleocene-LowerEocene): A shallow marine-littoral sandstone succession. Shihr Group (Oligocene-Pliocene):Conglomerate,sandstone, silt, limestoneand gypsum. Tihamah Group (Middle-UpperMiocene): Sandstone, conglomerate,gypsum, rock salt, shell, mudstoneand limestone. Volcanic and Intrusive Rocks A time of Regional uplift occurred in westem Yemen in the Paleocene/Eoceneas evidencedby intermittent volcanic activity commencing in the Early Eocene which culminatedin Oligocene-Miocene times with extensiveextrusive and plateauflood basalt eruptions forming the Yemen Volcanic Group. This comprises an older "trap" series and younger Volcanic Series. These series include the whole spectrumof basaltic lithologies to silicic ignimbrites and tuffs. Sedimentary units, generally occumng as lenses of limited extent and thickness, occur in many parts of the volcanic sequence between flows (Geukens, 1960, 1966). These are generally composed of lacustrine deposits consisting of calcareous sandstone, mudstone and reworked volcanic clasts. Also observed in inter-trapsedimentaryunits are fluvio-aeoliansands and palaeo-soils, generally lateritic, often developing alongplane surfaces but at times locally cutting across different beds. The Yemen Volcanic Group i s intruded by granitoidrocks along much of the edge of the High Plateau of Yemen, which forms the great eastern escarpmentof the Red Sea. Intrusionsalso occur in the Sana'a and Taiz districts. 10 3.2 AVAILABILITY OFDATA The Yemen Geological Survey and Mineral Resources Board (GSMRB), the agency in charge of managing the country's mining sector, has had the benefit of cooperation with a range of internationalinstitutions over the years, includingfor geological mapping. Such cooperation has included German bilateral programs. Germany's Federal Institute for Geosciences and NaturalResources (BGR) worked with the GSMRB to commence the geological mapping of the country at a scale o f 1:100,000 in 1990; this work i s now being continued by the GSMRB, which hasaprogramto updatethe coverageofthe country. The GSMRB holds significant geological, geophysical and report data within its structure. A booklet issued in 2000' provides a good summary of the available data. Other data comprising borehole logs from drill holes for oil exploration or wells are available within the Ministry, although these are not currently accessible within the GSMRB database. Similarly, the Yemeni National Water Resources Authority (NWR4) holds a great deal of data, much of which can be accessed through the ongoing BGR Integrated Water Resources Management (IWRM) assistance programme. The Geo-environmental Information and Monitoring programme team leader has an office inthe GSMRB. Ingeneraltherearesufficientdataavailableinthe country for incominginvestors, althoughmuch of the data and documents are very general incontent. More detailed chemical, mineralogical and miningdata are generally not presented to a standard and format that allows them to be offered directly to potential international mining investors. The GSMRB's goal i s to be able to access all the data and have it available for investors. Examples ofthe available data and their location are providedbelow: 3.2.1 Geology A geology map at a scale of 1:1,000,000 for the entire country is publishedand readily available from the GSMRB. 35 more detailed sheets at 1:250,000 scale are available for the country and further mappingis underway withthe objective ofcoveringthe entirecountry at this scale. To date 33 maps at a scale of 1:100,000 have been completed and a further 200 are inprogress. Discussions at the GSMRB revealed that thefield teams carrying out the mapping are quite competent, but that they would benefit from the assistance of an experienced mapping geologist,particularly for the mapping of basementrocks. 3.2.2 EnvironmentalIssues Thematic maps and images covering a wide range o f topics are also available, including: 0 Topographic maps inscale 1: 250,000 (but only about 10-15 percent are indigitalform) 0 Satellite images from Landsat 0 Hydrological maps (2 sheets at 1:1,000,000 and 35 sheets atl:250.000) 0 Geologicalriskmaps Yemen Geological Survey and Mineral resources Board, Geological and GeophysicalData, 2000 11 The GSMRB has compiled thematic maps on water pollution, oil station locations, quarries and crushers. The BGR IWRM project i s working on thematic maps particularly for water supply (e.g. wells, drainage patterns and pollution) using remote sensing (satellite imagery) and GeologicalInformation System (GIS) techniques. These data are available for specific regions, but are not countrywide. Overall, the data available are not considered to befully sufficient for international investorpurposes and could benefitfrom modernization. 3.2.3 Geophysics A magnetic anomaly map o f Yemen has been prepared from 26 different surveys o f varying specifications carried out between 1976 and 1985. A map showing the surveys and indicating the spacings between survey lines i s available at the GSMRB. This demonstrates that over much o f the eastern two-thirds o f the country the spacing between the survey lines was rather wide for mineral purposes (the closer the spacing and the lower the flight o f the aircraft, the more detail can be obtained for relatively shallow structures likely to be o f interest to mineral investors: the wider spacing and higher flight lines are adequate for deeper and often larger structures pertinent to oil traps.) Inthe west ofthe country a number of aeromagnetic and radiometric surveys were carried out in 1984-1985 using fixed-wing aircraft and a helicopter. These provide better data for this part o f the country. A series o f maps are available at scales o f 1:50,000, 1:100,000 and 1:250,000 showing contours o fkey indicators. In 1990 helicopter magnetic and electromagnetic surveys were carried out over two selected areas: A1 Beyda Mukiras and A1 Hamurah. Both these blocks are o f interest due to iron mineralizationand explorationi s currently being carried out inboth o fthese areas. Airborne geophysical methods and ground follow-up are particularly useful for the identification o f potentially mineralised structures, as well as for oil and water potential. The GSMRB has limited capability for ground geophysics and does not have modem equipment for data acquisition or for interpretation. The understanding o f modem airborne techniques within the GSMRB appears limited (which i s not surprisingas these techniques have developed significantly inthe past decade). However, there are geophysicists withinthe organisation who would benefit from access to and interaction with international expertise. 3.2.4 Reports The GSMRB houses a well-run library facility where many reports dating back decades are located. These reports may be consulted inthe library. The Geological Survey o f Denmark and Greenland (GEUS) i s working with the GSMRB, through the World Bank, to implement a MiningInvestment Promotion project. Inaddition to the preparation o f promotional pamphlets, a database for reports and maps i s being implemented within the GSMRB. This project is underway; the following is a summary o f progress and objectives: Reports: In the library, GSMRB has a PC with CDS/ISIS installed. This database includes titles for about 800 registered reports. GSMRB has scanned more than 160 reports so far and i s continuing to do so. 12 0 Maps: The library contains a Microsoft Access database with metadata for a number o f different types o f maps available at GSMRB, including geological maps, geophysical maps, and mining thematic maps. Many o f these maps have been scanned. The library will continue updating the map database, ensuring that the scanned maps can be linked with the corresponding records inthe map database. 3.3 SUMMARY AND SUPPORT REQUIREMENTS A large amount o f data o f reasonable quality is available in Yemen on the geology, mineralisation, environment and hydrology o f the country. Access to these data could be improved, however. Following i s a list o f areas in which some assistance to the GSMRB could result inimprovements inthe presentation and promotion o f these data: 0 The GSMRB i s continuing to map the country at 1:100,000, but would benefit from support from an experienced mapping geologist, particularly for the mapping o f the basement rocks. The GSMRB would benefit from the advice o f an experienced geo-physicist in order to review the geophysics data already available and to identifypotential targets for a modern airborne geophysical survey, as well as to update the skills and tools o f the organisation's geophysicists. 0 The GSMRB has a database for reports etc., and i s updating this for promotional use. However, the country would benefit from an integrated database in which all the geological, hydrogeological and drill hole data from a variety o f sources (GSMRB, NWRA,Ministryo fOil andMineralsetc.) wouldbe accessible. 0 Support to the GSMRB laboratory, especially to the activities related to the industrial minerals, could be merited. 0 In each of the activities mentioned, some form o f budget support would assist the GSMFU3 to plan andimplementtheir programs and retaintheir competent personnel. 13 4. MINERALPROSPECTMTY Over the years, work by the GSMRB has resulted in the identification o f a number o f mineral prospects for metallic and non-metallic minerals and stones. The GSMRB's priority has been to seek building stone prospects, as it i s in this sector that the Government has identified the major opportunities for creatingjobs and income. However, referring to the maps produced internally by the GSMRB depicting identified occurrences o f metallic minerals and non-metallic minerals in Yemen (see later in this Chapter), mining companies' activities in Yemen in 2008 (see Chapter 5) and also to the information available from the Saudi Geological Survey, the substantial potential for more finds becomes evident. In particular, the Arabian Shield has been shown to be a repository of significant mineral potential in Saudi Arabia. Apart from the Jabali Zinc Project, which i s already in an advanced phase and where miningwill start in 2010, the potential M P M mining targets are presented in a general and superficial way. This is partly due to the fact that some o f these target areas and sites (for iron, copper, uranium, gold) are held under exploration licences by foreign mining companies, and as a result very few new data are publicly available. A number o f IMtarget areas (rather than real projects) have been identifiedby GSMRB, and first sampling and analyses have been made which could be used to address future, more comprehensive and targeted exploration campaigns (see section 4.2). With reference to NS, the detailed information and data available are not directly usable by professional investors. Only general information on target areas exists, and structured and more detailed field geological investigations and site evaluations, carried out by N S experts with technical and marketing know-how and experience, would be required. The prospectivity o f various minerals i s analyzed in the remainder o f this chapter. More details about the work being carried out by the GSMRB and the private sector are provided inChapter 5. 4.1 METALLIC MINERALSPRECIOUSMETALS AND A wide suite o f MPM has been found in Yemen. Some o f the indications found may now be defined as deposits, whereas others appear too small for industrial exploitation, or require further work to define their full potential. The various minerals are considered ingroups, and the relative prospectivity according topresent knowledgei s assessedbelow. Figure 3.1 i s a map showing the locations o f identified occurrences o f metallic minerals in Yemen6. Providedby the PromotionandEvaluationDepartmentof the GSMRB. 14 I- Figure 4.1: Locations of identified occurrences of metallic minerals inYemen Source: GSMRB 4.1.1 Precious Metals Historically, Yemen was the seat o f the Sabayans (best known by reference to the Queen o f Sheba), a nation that was well known for its wealth in gold. Since there appears to be evidence that the west o f Yemen was the source o f much o f this gold' it may seem surprising that in modem times little gold mininghas been recorded. The GSMRE3 publication "Mineral Resources in Yemen"' states that there are over 40 known gold or silver occurrences and records 12 sites o f recognized gold and silver mineralization, a number o f which are the subject o f exploration by international companies. That such a number o f sites should be identifiedi s not a surprise, considering the trend o f gold mines and occurrences in the west of Saudi Arabia and recorded by the Saudi Geological Survey is considered, see Figure 4.2. The Mahd ad Dhahab mine has been known since antiquity and taken together the gold mines in this area provide significant resources and creators o f employment for Saudi Arabia. With reference to Figure 4.1, it may be concluded that the trend evident in Saudi Arabia continues into Yemen. DrNokFrick personalcommunication. The Sabaeanswere known astraders who specialized ingold, some ofwhich will have come from East Africa. Republic o f Yemen, Ministry o f Oil and Minerals, Geological Survey and Mineral Resources Board; Mineral Resources inYemen, 2007. 15 Note to Figure 4.2: The area outlined i s the part of the Arabian Shield directly to the north o f Western Yemen. The clear bend of gold occurrences in the Shield provides confidence that there should be similar occurrences inYemen. Figure 4.2: Operating Gold Mines and Gold Occurrences in the Arabian Shield, Saudi Arabia (Source: Saudi GeologicalSurvey) By inference from the Saudi Arabian experience, the likelihood that there are commercially viable gold deposits in Yemen i s high. The gold is generally found as primary gold in rock formations and not in alluvial or fluvial terraces. The latter are the most easily discovered and mined deposits and therefore the most frequently exploited deposits for artisanal or small-scale mines; this may explain the absence of small-scale gold mininginYemen. It appears clear from a review o f gold occurrences in Yemen which was carried out for this report, that there i s a large number o f occurrences and although some o f these are covered by explorationlicences, there are still areas available for further work. From published infor~nation,~Cantex Mine Development Corporation expects to be able to demonstrate a 2 to 3 million ounce gold deposit in northwestern Yemen (Al-Hariqah deposit); that i s a world-class deposit. Conclusion: There is highprospectivityfor gold mining in Yemen. 4.1.2 Lead-Zinc Lead and zinc mineralization occurs in a few sites in Yemen, generally situated in carbonates or volcanogenic massive sulphides. As in Saudi Arabia, many o f the h o r n occurrences appear to www.Cantex.ca 16 be o f limited extent, although the Jabali project (see Section 5) is the exception to date, with a mine indevelopment. Conclusion: The Jabali project has demonstratedthat there ispotential for zinc in Yemen and this should encourageother investors. 4.1.3 Copper-Nickel-Cobalt Copper mineralization, together with associated minerals, i s widespread in the pre-Cambrian rocks o f the Arabian Shield. InSaudi Arabia it i s reported that inpre-Islamic and Abbasid times there was a significant copper miningand smelting activity inthe area and it i s supposed that this could also have been true inYemen. Figure4.3: PrincipalCopper OccurrencesinYemen Note to Figure 4.3: The area outlined i s the part of the Arabian Shield directly to the north o f Western Yemen. The trend o f copper occurrences in the Shield provides confidence that there should be similar occurrences in Yemen and reference to Figure 4.1 would tend to c o n f m that conclusion. The GSMlU3 lists seven occurrences o f Copper - Nickel - Cobalt mineralisation. Exploration licences have been acquired by Cantex and Ansan Wikfs, and a licence area at Shabwah - Taiz has also been acquired for exploration by Stone Resources. Cantex, which has been working in the country for many years, claims to have discovered two potential major nickel resources with conceptual in-ground metal values o fUS$12 to 30 billion." These would be world-class deposits. One o f these i s northwest o f Sana'a and is understood to be in an area where relations with the local tribes are good (see Chapter 5.2). Conclusion: There is every chance that significant developments may occurfor these minerals in the nextfew years. 4.1.4 Iron, Titanium,Vanadium Other metallic minerals occurring in Yemen include iron, titanium and vanadium. These metals are in high demand worldwide and although the tonnages estimated and the grades recorded by lowww.Cantex.ca 17 the GSMRB are in general relatively poor or marginal, further work to indicate additional resources may well be warranted. According to the available information, two companies are exploring for iron ore: Yemen Iron and Steel in the Al-Thanyyah area east o f Marib, and Minerals and Metals Mining Shabbir Companynear A1Baydah. In 1990 helicopter magnetic and electromagnetic surveys were carriedout inthe A1Baydahand A1 Hamurah blocks to complement the earlier series o f fixed-wing surveys carried out by a number o f different companies at different specifications, mainly in the 1970s and 1980s." Further ground-based geophysical surveys have been carried out by the GSMRB, and these have affirmed targets for iron ore exploration." From the published data, the current estimates o f resources in these areas are not world-class in terms o f the quantities available. However, work on these sites i s ongoing, and it i s understood that the companies involved are identifying further zones o fmineralisation. Conclusion: I t is too early to state with confidence that there might be commercial deposits of iron ore in Yemen, but it is hoped that the companies involved will continue to explore the license areas, as the future demand for iron ore is likely to be robust. Any future mine development would, however, be contingent on building or obtaining access to reliable bulk commoditytransport andportfacilities. 4.1.5 Other Metallic Minerals Rare Earth Element mineralization i s also recorded incarbonatites southeast o f Lawdar (southern Yemen) and in pegmatites. These occurrences would appear to warrant further investigation to evaluate their potential. Conclusion: there is evidence of a range of other metallic minerals which could be marketable. 4.2 INDUSTRIAL MINERALS As regards IM, it appears that the local institutions responsible for mining sector development (e.g. GSMRB) and the private miningcommunity, which i s relatively small to date, have not yet completely identifiedthe main targets and priorities for both minerals and areas. As with metallic minerals, the work i s in a phase, typical o f growing non-mining countries, where all minerals occurrences are regarded as possible miningtargets and promoted as a whole, without identifying possible markets. Some concrete IM targets have only been identified inrecent years: Feldspars (K and Na), Silica Sand and Quartz, Magnesite, Limestones (mainly tertiary in Eastern rock- desertic area), Scoria-Perlite-Pumice, and o f course, clays, sand and aggregates. These areas have been the subject o fpreliminary evaluations by GSMRB, although not yet usingdetailed analytical methods and commerciallogic. The main targets identifiedto date are illustratedinFigure 4.4. Geological and Geophysical Data, Yemen Geological Survey and MineralResources Board, 2000 DrFaisal SaeedAl-Huzaimand MohamedShamsadin, personalcommunication. 18 Figure 4.4 Locations of identified occurrences of non-metallic minerals in Yemen Source: GSMRB Figure 4.4: Locations of Identified Occurrences of Non-metallic Minerals in Yemen (Source:GSWB) Some areas taken by international companies in Yemen (e.g Lhoist - Limestone; 3s Minerals - Limestone; and Arabian MiningCompany- Magnesite) are undergoing more detailed evaluation, and some o f them may be close to a pre-industrial phase. These private projects are contributing to the development of an improved understanding of IMpotential inYemen. The only current IM mining (exploitation) operations are for sand and aggregate (limestone, granite and basalt), gypsum and salt quarries, often carried out by local companies inan artisanal, non-industrial manner and, apparently, often outside the control of the local mining authorities. Gemstones are being exploited in a destructive way. Improved commercial opportunities would result from improvedminingmethods and marketingknowledge. The GSMRB prepared four summaries of exploration work it has carried out on IM for the Mining Investment Promotion project with GEUS (Magnesite, Zeolite, Perlite and Pumice, Scoria, Gypsum and rock salt). These summaries are more comprehensive than the metallic mineral summaries, reflectingthe priorities within the GSMRB and the GOYoverall. Inaddition, the GSMRB has preparedbriefinformation files on other IM: Celestine (clays used invarious processesas fuller's earth, foundry clay and rinsingclay, preparation of dnlling mud, carriers and material absorption, filter material and inpaper fabrication) Gypsum(used as a retardant incement manufacture and for the manufacture of building plaster and plasterboard); extensive deposits occur in the Sana'a and Hodeidah regions and current miningappears to produce only low quality materials for decorative purposes Perlite and Pumice (used inthe production of lightweightconcreteblocks; perlite can also beused as a soil additive and for cat litter) Rocksalt, which has been exploited for hundreds o f years, occurs in the centre o f the country in Shabwah and thick deposits have been found inthe Marib-Al-Jawf basin inoil wells'3 Scoria (used in pozzolan Portland cement production and aggregates for lightweight construction concretes) Zeolite (for uses in ion exchange, filtering, odour removal, chemical sieve and gas absorption tasks; as an additive to animal feeds can remove toxins and i s used in water softeners) ''Geology and MineralResources ofYemen, GSMRB,2001 19 Limestone for the production of Lime exists in Hadramawt and in several other places on the Southern coast. If the two main quarry operations run by foreign mining companies (e.g. 3s Minerals) are excluded, both in the start up phase, current exploitation i s artisanal and could be improved to providebetter commercial opportunities for the inhabitants. Furtherwork willneedto bedoneto identifypossible markets andonthe economics ofthe minerals inorder to place the potentialincontext. However, many of these minerals arebeing, or couldbe, exploitedby small and mediumenterprises (SMEs).14 4.3 CONSTRUCTIONMATERIALS / NATURAL STONES The construction material sector (CMS), also known as the N S Sector, i s a very particular mining sub-sector with its own rules, features and consequent methods o f evaluation. This is true worldwide, not only inYemen. More than the other mining sectors, the N S sector affects not only geo-mining activities but also the local society and community and its traditions. These impacts are related to exploitation as well as to the use of stones (architecture, housing etc.). For these reasons it i s often difficult to implement change and improvements over a short time frame. "Softer", medium- to long-term approaches are often required, supporting technical, training and social development activities. On the other hand, in many developing countries, the N S sector-possibly more than any other mining sub-sector-represents long-term benefits through income and job opportunities for the local community. InYemen inparticular, due to the ancient stone tradition, the wide diffusion of these activities and the strong existing domestic market, the improvement and development of this sub-sector would be a priority for all the local institutions and authorities that work on social and economic development on a stable long-termbasis. Because o f the sub-sector's high potential, this report addresses it separately. Local and international institutions that intend to support it may also wish to distinguish this sector from other industrial mining. Within the N S Sector alone, at least four or five different sub-groups are identified, eachwith its specific features and method of evaluation and support: Dimension Stones: Any granite, marble, limestone and travertine or other stone that can in principle be quarriedproduced in large blocks more than 2-3 m3in volume (using particular handmade as well as more sophisticated methods) and processed in large slabs (semi-finished products) and tiles or cut-to-size products (finishedproducts). Building Stones: Any "soft" stone (e.g. limestone, "marble", sedimentary, tuff and other sedimentary and volcanic rock), that can be quarried and finished by hand or using simple but I4Referencesused: Introduction The Geologyand Mineral Resources of Yemen, MINERAL EXPLORATION BOARD, 1990. Building and Ornamentalrocks of Yemen (inArabic), preparedby:- Amer Al-Sabri, and Dr.Ismail Al-Ganad, GSMRBREPORT, 2003.Rocks andmineralsof Yemen, preparedby:- Dr.MohamedAli Mattash, FANAL-TIBA'A (PRINT AR), 2006. Introductionto artificial uses ofindustrialrocks of Yemen (inArabic), preparedby Said Gq'es AI-Taie, reviewedby Amer AI-Sabri and Dr.Ismail AI-Ganad, GSMRB REPORT, 2003. Geological survey and Mineral ResourcesBoardMinistry of Oil and Mineral ResourcesRepublic of Yemen, GSMRB REPORT,2001. MineralResources inYemen, preparedby:- Amer AI-Sabri, Ali AbdullahAl-Sofi, NabilAI-Raziihi, GSMRB REPORT, 2007. MineralsinYemen, author:Ahmad Barakat, (Arabic)Afif Foundation, 1996. NaturalZeolite inYemen, (inArabic) Preparedby: Amer AI-Sabri, GSMRB REPORT, 2001. Fromwebsite:- www.Yemenstone.com 20 effective mechanical equipment, to obtain final stone products for housing and building: small buildingblocks andthick cladding stones. OmamentaUDecorative Stones: Any coloured stone that can be worked to produce small decorative elements for interior design (inYemen: tuff, ignimbrite, sandstone, limestone, etc.) Landscaping/Paving Stones: Any hard and resistant stone that can be utilised (in thick tiles or cubes) for road paving works. Like buildingstones, they can be producedby hand and by simple mechanical equipment Asregates and Sand-for Building and Road Construction Yemen appears to have significant stone potential, but this fact should not result automatically in "instant" positive conclusions and expectations regarding export potential and foreign currency income. An in-depth analysis o f the various stones available and o f currently operating or potential mining sites i s needed, to identify attractive stones and those suitable inprinciple to be exported to both regional markets (Gulf area, Oman and Middle East) and overseas international markets (EU, USA, Far East, etc.). InanalyzingNS, inadditionto the divisioninto the sub-groups listedabove, other constraints and features shouldbe considered, such as: - type and quality o f stone - - distance from the mainports and markets, transport and access know-how inquarrying and processing - -- level o ftechnology type o f market approach social structure and related security inthe quarry Figure 4.5: Main Operating and Potential NaturalStones Sites inYemen (Source: GSMRB) 21 4.3.1 DimensionStones The Yemeni Dimensions Stones (DS) sector has significant potential, w h c h i s not yet or only partially evaluated. This sector should thus be the subject o f careful exploration and evaluation. Not all the current DS quarries and identified sites are good for industrial and semi-industrial business, although some that are currently exploited using artisanal methods, if properly reorganised and supported, could provide very good products for the local markets. These include some standard granite quarries (medium-coarse grained grey and rose granites or migmatites) and many tertiary limestone quarry sites. Onthe other hand, several new potential stones andor sites could be o f significant interest for domestic use and future export, such as travertine, some high quality limestones, certain coloured "granites" (gneisses, migmatites, labradorites, etc.), and perhaps some hardthick coloured bedded volcanic rocks. The latter often do not represent a good source for DS, as they tend to be altered and weathered. Detailed studies and tests will needto be carried out on the volcanic stones inYemen that could represent a significant potential source of N S for any market, providedthat some key geological and mechanical features can be confirmed. Tertiary limestones, quaternary travertines and some pre-Cambrian migmatitic "granites", coloured granites and marbles can be considered o f first priority, provided that the geological and miningfeatures o fthe identifiedsites fit well withinternational market standards: 0 ability to extract consistently large regular blocks attractive colour and texture 0 good mechanical characteristics 0 consistent quality In general, the main characteristics mentioned above must be homogeneous and consistent over large volumes o f stone that will allow a medium-longterm life o f the quarry. Figure 4.6: Carbonates Rocks -Dolomite, Limestone, and Travertine Locations inYemen ~ o ~ - ~ l t e , U a r a s c O n e , d T ~ r tbatimlnYemen,fmn6SMRB i a e Figure 4.6: Carbonate Rocks - Dolomite, Limestone and Travertine Locations inYemen (Source: GSMRB) Limestones in Yemen are widespread and contained in sedimentary sequences ranging in age from Jurassic to Pleistocene. They are distributed within five geological groups: Amran, Mahrah, 22 Hadramawt, Shihr, and Tihama. Deposits at Hadramawt, Wadi La'ah, Wadi Medhab, Abyan, Lahj and Khamir between Sana'a and Sadah have low silica and alumina contents and are located near pavedhighways. Yemen limestones are generally compact and fine-grained, and the colour ranges from yellow to creamheige (for example Hasheedand Arhab), to whitishto gray and dark gray. Other limestone occurrences that have receivedat least limited study are Am Qawz, Wadi Marek, Batys, Jebal Salafiyah and Al-Maharah. Most o f them are already quarried using artisanal and "traditional" methods involving poor technology with no mechanisation. Based on visits to a few processing companies and deposits in Sana'a and Aden, carried out during the present project, it i s clear that most o f them (as seen inthe deposits and currently processed) have limited potential for overseas markets. A few, however, ifproperly selectedand quarried (with competitiveprices), have the right characteristics to be introduced into regional and international markets. Mainuses o f limestone inYemen are as DS, mostly incement manufacturing. Dolomite stones and marbles can also be included inthis group. InYemen there exist a few sites for dolomitic limestones and marbles located inthe southern part o f the country: Mukalla, Brum, Al-Jawf, Mareb and in Jabal Aokebah in Hodeidah Province. In this area real crystalline metamorphic marble outcrops as lenses and bands within the old pre-Cambrian basement. Some pure white and banded crystalline marbles, with interesting D S features, have been seen in the deposit, and some attractive samples have been shown during the workshop held at the GSMRB in Sana'a on November 9, 2008. It i s important to verify on-site how representative these samples are, because metamorphic marbles are very often irregular andhighly fractured and it i s very difficult to organise proper successful quanying operations. Travertine: Two main siteddeposits are known as potential sources o f DS. Quaternary travertine exists in large masses all around natural hot springs, in Hammam Damt, near A1Dhali, south o f Dhamar and Nihm area, West o f Marib, northwest o f Sana'a. Though the existing travertine quarries in Yemen are not properly developed and the rocks do not have an attractive light color, they would appear to have good enough characteristics to be successful inthe export market. The characteristics o f the travertine are: light brown-cream to brownish color, high mechanical strength, large volume, and availability o f large blocks. Several other travertine occurrences exist, which are still to be evaluated and tested for DS. Due to the high and consistent demand for travertine in the international market, an evaluationprogrammefor this rock is strongly recommended. Granites: Two major types o f "granite" and granitoid rocks exist in Yemen: tertiary granite, post-collisional intrusions and Precambrian meta-granites, gneisses and migmatites. Tertiary Graniterocks generally have a medium grainedtexture andgray colour. Precambrian Granite rocks, located in the old metamorphic basement, outcropping from the northern Arab Peninsula to Southern Yemen, were all formed during the pre-Cambrian geotectonic multi metamorphic-structural cycle. They are o f various structures and colours "opposite o f tertiary granite", according to their emplacement as compared to the orogenic phases and mineralogical composition. 23 Figure4.7: DimensionStoneGraniteSitesinYemen Some old meta-granites and gneissic-migmatitic bodies show specific ornamental qualities that enhance their potential as DS. In particular, the light rose migmatite-gneiss-similar to the Indian Colombo and Juparana granites, which are well known in the market-may have good export potential (at least as regards their stone quality). In general, some granite sites in Yemen have the right mining characteristics for possible industrial quarry operations (e.g. good large volumes of homogeneous rock in terms of colour, grain and texture, low fracturing, availability o f large blocks, relatively good access, etc.). The mostpromisinglocations of "granite" inYemen are: - Tertiary Granite: Taiz, Bajil, Sana`a, and Al-Mahweet - Precambrian Granite: Al-Bayda, Taiz, Hajjah, Al-Jawf, Sadah, Mareb, Abyan, and Hadramowtprovinces. (see tables for more information). The main uses of granite rocks in Yemen are as DS, for facing walls o f dams, as ornamental decorative stone and as cobble stones for paving. Other possible targets to evaluate are: labradorites and other rare ultrabasics (microgabbros), late orogenic-syenites and other particular metamorphic rocks of the old basement. Yemen has a small number of large masses or dykes of ultrabasic rocks such as: labradorites, gabbros and norites, belonging to the Precambrian (Archean) Basement. There i s currently a strong demand for these rocks, known as "Black Granites" inthe internationalD S market. Some occurrences o f potential ultrabasic formations outcrop in northwest region within the northeast portion ofthe Precambrian basementoutcropping area, 100kmeast of Sa'dah. Tertiaw volcanics (tuffs, ignimbritesand some lava) are, inprinciple, the most readily available D S in Yemen. They are frequently used for construction; however, due to their high susceptibility to weathering, they do not usually represent a gooduse as DS, even ifexploitable in large blocks with marketable colors. Some of them, however, particularly if hard, fresh, 24 unaltered, and with attractive colors, may be utilised for very specific DS product lines (mainly unpolished products). See Section 3.3.2 below for more information onYemen's volcanic stones. 4.3.2 BuildingStones Yemen, due to its complex geology (a mixture of old basement rocks and relatively newer volcanic and sedimentary formations), has a highgeological-miningpotential as regards Building Stones (BS). This i s also demonstrated by the historical tradition of using BS in the local architecture and by the numerous small artisanal quames of BS located in many areas of the country. The main BS inYemen are: tuffs, ignimbrites,basalt, sandstone (rare), granites and limestones. BS production exists in Yemen, although it is largely artisanal. As a result, production data are often not easily usable because they generally include both building stone and aggregate figures, and at times also include dimension stones andlimestone. Production i s stated to have increased recently by an average of 20-30 percent annually. Tables 4.1 and4.2 provide the officialproduction figures for 2001 and 2007, respectively. Table 4.1 Table 4.2: BuildingStone ProductioninYemen 2007 Annual Productionand Annual Price of Crushing Stones, Building and Ornamental Stones including Aggregates intones 311117 AnnualProduction(T) a1 price of production in 25 Box 4.1 MainBuilding StonesExtractedinYemen Tuff andIgnimbrite Tuff is thegeneraltermfor rock formedofpyroclasticmaterial.Ignimbriteis identicalto tuffinformation, but is specificallyrock formedby widespreaddepositionandconsolidationof volcanic ashflows. The principal chemicalcompositionofTuff andIgnimbrite inYemen is SiOz,which comprises60-70percent of the stone. This rock is especiallypreferredfor building stonedue to its variety of bright coloursand ease ofprocessing. The coloursavailable are yellow, green, red, brown, and grey; on the whole, pale colorsdominate. The occurrencesof tuff are concentratedinthe westernhighlandsofYemen, in Sana'a, Dhamar andTaiz and Ibb governorates, where tertiaryvolcanics outcrop. The reserves inTaiz, are the most abundant andvariedin color. The commonuse oftuffdimension stone inTaiz makes the buildingstheremore diverseincolor, makingthe city adistinctivetourist attraction. Other significantextractionandpotentialareadregionsfor Tuffs andIgnimbritesare: Haddah, Al-Rafsah, BaietAl-Shuryhie,JabalAl-Taweel, JabalQameer, Jabal Rahabie,Jabal Al-Maslama, DarAl-Tabaqie, JabalAl-Sharekha, JabalAl-Qaherah, JabalQanvan, Ai-Shahik, Al- Sheraf, Tawalb, Jabal Kenan, A1Mekraf, Al-Robo'a, A1Yadoom. BasalticRocks Basaltic rocks are basic volcanic rocks of fine crystallization similar to gabbros in mineral composition. Basalt is one of the most widely distributedbasic rocks forming lavaplateaus, volcanic cones and sills and dikes. Basalticrocks are developed as dykes crossing basement rocks, Jurassic and Cretaceous sedimentary rocks and as interstratified flows in Ignimbrite and Tuff rocks, in alternances o f lavas (basalt) and pyroclastics. The basaltrocks tend to be black in colour; they are used as decorative andbuilding stones, roadandrailway pavement,cement barriers, corrosive-resistantpipesandinthe rock wool industry. Quaternarybasaltic rocks, the most significant, appear as flows and volcanic cones. The basalticrockshave a large thickness showing cooling fissures which give them a special property, namely to detach in fissural columns of 0.3 - 4 m, allowing basalt to be mined easily and used as building stone and aggregates after crushing. The main outcroppingandmining areas inYemen for Basalts are: Sana'aregion, Banie Qaydas region, Jabal AI-Samam region, WadeAI-Rowan region, Jabal AI-Lowz region, Jehana region Most of theselocations representfuture target areas to be evaluatedin detailfor further industrial development of this "key industry" in Yemen. Some semi-industrial quarrying operations together with well organizedand structured artisanal mining ones, should beplanned, organizedand supported 26 4.3.3 OrnamentaVDecorativeStones This particular sub-sector, still at a very early stage o f development in Yemen, has significant potential due to the high geological potential in the country. The main source rocks (mainly colored), are the same as for BS, as described above. 4.3.4 LandscapingStones Although several old towns inYemen are paved with stones, this sub-sector i s currently generally undeveloped. Its development will depend, much more than other sub-sectors described above, on a wide promotion and market test effort, to be carried out initially inthe domestic market and inthe export marketthereafter. Geological potential for paving stones i s relatively promising in Yemen, and several field analyses are needed to evaluate some potential formations. A historical study on stones utilised inoldpavingprojects will certainly facilitate this geological evaluation. The geological rocks with the most potential for this type o f product are Precambrian quartzites and slates, somejointed granites, Paleozoic sandstones and slates, tertiary bedded limestones, bedded volcanics. 4.3.5 Precious Stones Though no targeted in-depth studies have been done to determine Yemen's precious stones potential, there are some indications that a thorough evaluation o f the gemstones sector i s merited. The southern part o f Yemen, around Aden, i s thought to be especially promising. GEUS, as part o f their project, evaluated rubies, beryls (aquamarine and heliodor), tourmaline, cordierite and garnet and found all o f the stones it examined to be o f very high quality. 27 5. c NT Mineral activities in Yemen are documented in an annual publication issued by the Statistics Technical Committee of the Ministry of Oil and Minerals. The majority o f the publication i s dedicated to the petroleum sector. Though relatively small, the minerals section provides useful data on activities inthe sector year-on-year. The information publishedinthe past two year^'^,'^ and additional updates providedby the GSMRE3 have been used to provide a snapshot of current activities. Another useful publication, "Mineral Resources of Yemen", i s published by the GSMRB.17 This section of the report is notmeant to provide a comprehensive database: that maybe found in the referenced publications. A summary o f the activities undertaken by the GSMRB i s followed byinformation onthe operations ofprivate sector companiesactive inthe country. 5.1 GEOLOGICAL SURVEYAND MINERALRESOURCES OARDACTIVITIES The structure and activities of the GSMRB have been described by CMA Limited" and they will not be repeated here. However, the organizational chart of the GSMRB is presented below as a usefulreference. Figure 5.1: GSMRB Organizational Chart Republic of Yemen, Mmistry of Oil and Minerals, Statistics Technical committee: Oil, Gas and Minerals Statistics 2006. Republic of Yemen, Ministry of Oil and Minerals, Statistics Technical committee: Oil, Gas and Minerals Statistics 2007. " Republicof Yemen, Ministry af Oil andMinerals, GeologicalSurvey and Mineral Resources Board; Mineral ResourcesinYemen, 2007. '*THE REPUBLIC OFYEMEN, IFC PrivateEnterprisePartnershipMiddle East andNorth Africa (IFC PEP-MENA) World Bank Group, MINING POLICY REFORMINYEMEN, FINAL REPORT Review of the Yemen Geological Survey andMineral ResourcesBoard, CMA LimitedTunbndgeWells, UK,July 2007 28 Activities that are directly relevant to the discovery o f mineral occurrences are carried out by the General Department of Mineral Exploration and Industrial Rocks, which comprises the Mineral Exploration `Department (responsible for metallic minerals) and the Industrial and Construction Materials Department (responsible for non-metallic minerals). The General Department identifies priorities and prepares aprogramme of work, which i s submitted to the Ministryof Finance. The budget for the year is on the order ofUS$20,000 andthe programme tends to follow a strategy set by the Board. It is thus understood that its current field programme involves follow-up work on gold and base metals, and on dolomite, talc, cement raw materials and aggregates. The stated priority i s on the building stone market and does not appear to be influenced by an overall understandingofthe worldmarket for mineralcommodities. The General Department's reports, which are somewhat academic in content, are sent to the Department o f Evaluation and Promotion for release to investors or the wider public inthe form of brochures or fact sheets. The Department of Evaluation (in the Promotion and Evaluation Department) i s also responsible for any follow-up bulk sampling, analysis and test work on a mineral prospect. With these limitations on its activities, it is not surprising that progress in further identifying important mineral occurrences i s slow. The General Department of Mineral Exploration and Industrial Rocks was charged with the preparation of summary reports to be used in the Mining Investment Promotion Consultancy project being carried out by GEUS under a World Bank- executedtrust fund. These summary reports are of uneven quality, but have provided useful insights into the work being performed by the GSMRB and also into GSMRB's level of understanding of the information required by investors. Yemen benefited from GEUS assistance to attend the Prospectors and Developers Association of Canada (PDAC) Conference inMarch2009.'' The Department of Promotion and Evaluation also prepares documents relating to ongoing activities in Yemen and has publisheda document entitled "The Project of Development of the MiningIndustryinthe Republic ofYemen" in2008. This latter has the objective of encouraging the following: 1. Investment in the mineral resources discovered in Yemen and therefore accelerating development. The first stage emphasises developments in Al-Jawf, Malrib and Shabwa governorates, which form one connected geographical sector. 2. Creation ofjob opportunities to decrease unemployment and poverty. 3. Diversification of the sources o f national income, widening o f the production base, and decreasing dependenceupon oil production as a main source ofnational income. 4. Activation of other economic sectors inthe same geographic region through the follow- on benefits of the infrastructure necessary to the project. The proposal to develop Yemen's mineral resources recognises the need for infrastructure to facilitate transport of commodities. One of its core pillars is the construction of a railway line from Sana'a, passing through Al-Jawf, Matriband Shabwa and ending inBelhaf port on the coast of the Arabian Sea, to transport mineralresources from these regions to the internationalmarkets. This is proposal is discussed further inSection 5.2. l9Annual Prospectors and Developers Association of Canada (PDAC) event, which takes place in Toronto. www.pdac.ca 29 The following sections provide a brief overview o f the current activities o f private sector companies engaged in the mineral industry in Yemen. The map in Figure 4.3 provides a summary o f the license holders o f November 2008, as provided by the Department o f Promotion and Evaluation. There are currently 17 companies registered as having licences and it i s worth noting that some companies that appeared on earlier lists have had their licences withdrawn because they hadnot carried out work inthe licence areas. 30 Figure 5.2: Mineral deposit locations in Yemen i '1 i 31 U I Figure 5.3: MiningCompaniesHolding Licensesin Yemen Source: GSMRB; Department of Promotion and Evalzcation Somedetails ofthe activeminingcompaniesare providedinTable 5.1. 32 en Company Licenses Nntes Project is at development stage and should (Yemen) Ltd. - 1 enter production in 2009. (JV between ZincOx Resourcesplc andAnsan Wikfs) Cantex carried out an extensive Development Suwar (Ni,Cu, Co) geochemicalprograminthe north of Corporation W. Qutabah (Ni, Cu, Co, PGE) Yemen and has now spent some US$17 A1Masna'a (Ni, PGE) million on exploration. Option Agreement A1Fayad(Au) was signed with Vale inNovember 2008, on the Suwar, Wadi Qutabahnickel, copper, cobalt andPGE projects. Thani DubaiMining Exploration of gold and associated minerals at the Exploration and drilling. Wadi Maddan area in Hadramawt Governorate and Wadi Sharis area inHajjah Governorate Ansan Wikfs i) AworkinginterestinJabalizincmineproject, Exploration underway on the exploration (Hadramawt) Ltd. ii) Exploration permits inthree areas for gold, permits. copper and nickel and tantalum and associated metals Yemen Iron Steel Exploration licenseto carry out explorationfor Iron Mapping, sampling and drilling. Limited Ore and associated minerals at the Al-Thanyyah area (Marib Governorate). MashreqMiningCo. Exploration license in the area of Juban in A1 Exploration. Dhali' Governoratefor iron ore. Stone Resources Exploration license for Cu-Ni and associated Exploration (Yemen) Limited minerals: Al-Hamurah blocks inTa'iz governorate Volrock Mining Prospecting for gold and associated Minerals at Prospecting Limited Ahim-Washah, and Wadi Hard-Jabal Balan areas, Hajjah Governorate, and at Haydan-Saqayn area, Sadah Governorate CC Mining S.A. Prospecting for gold in three license areas within Prospecting Company Yemen Volcanic Group Minerals andMetal Exploitation contract to exploit iron oxides in Al- Mining Shabbir Ltd. Bayda; exploration license to carry out exploration for ironore inthe adjacent areas ofAl-Bayda Triton Resources Exploration license to carry out exploration for metallic minerals at Jabal Al-Sa'di area of Sana'a governorate 3s MineralLimited Exploitation of Limestone at Yathmoon and Al- Ma'abir areas inHadramawt Governorate Naine Minerals Exploration for industrialminerals Resources Arabian Limestone Exploration of limestone inthe area of Ras Darajah and Dolomite Co. Directorate ofQishn inAl-MahrahGovernorate. (Lhoist Group). Arab Mining Exploration for Magnesite and dolomite minerals at Company (ARMICO) theAl-Thanyah areaofMarib Governorate Nagarjuna Exploration for Magnesite and dolomite minerals in Corporation Ltd. Marib 33 5.2 METALLIC MINERALS A number of companies have licenses to explore or develop metallic mineral deposits inYemen. Table 4.1 above provides a summary o fthese and where applicable, the work carried out to date. The major project of interest is the development of the Jabali zinc project by Jabal Salab Company (Yemen) Ltd., a joint venture between ZincOx Resources plc and Ansan Wikfs (Hadramawt) Limited. This is moving towards development with a projected start of mining in 2009. The history and activities related to this pro-jectare described in Section 5.2.1. This is of importance since the best promotion for a sector is a successful project and this one requiredthe raising of some US$200 million infinancing. In addition, Cantex Mine Development Corporation (Cantex) has been drilling at its Suwar Nickel-Copper-Cobalt massive sulphide deposit northwest of Sana'a, and it is understoodthat the results are likely to be very positive. On November 20, 2008, Cantex announced that Vale International SA ("Vale"), a wholly owned subsidiary of Companhia Vale do Rio Doce (NYSE: RIO, Vale), has signed a letter agreementto earn into this project.20This is further good news for Yemen, as Vale i s the world's largest producer of iron ore and iron ore pellets, the world's second-largestproducer of nickel and one of the world's largest producers o f manganeseore and ferroalloys. Other active companies are the Yemeni firms Ansan Wikfs and Yemen Iron Steel. Ansan Wikfs is a multi-disciplinary investor, which also has exploration licences in Sudan. The company is actively exploringon its licences and has acquiredthe services of a senior geologist from Ethiopia to increase their know-how. Yemen Iron and Steel is a company owned by a prominent Yemeni national from the area in which their licence i s located. AI Thani Company o f Dubai is also an active participant inthe country's miningsector and has retained the services of an internationally known geologist, further indicatinga growing interest inthe metal minerals industry. 5.2.1 The Jabali Zinc Deposiql The Jabali zinc deposit is located 110 km northeast of Sana'a. It contains a geological resource, calculated in accordance with the JORC code, of 12.6 million tonnes of oxide ore, grading 8.9 percent zinc, 1.2 percent lead and 68g/t silver. The mineral rights to the deposit are currently heldthrough a mininglicence owned by ajoint venture, Jabal Salab Company (Yemen) Ltd., comprising ZincOx (52 percent), and Ansan Wikfs (Investments) Ltd. (48 percent). The contract granting the mineral rights was issued by the Parliament o f Yemen and ratified by the President in August 2007. ' OCantex announces OptionAgreementwith Vale: hti~:V\\t~~.CTLitrX.LS,2(10R-i1-20 odT, 20 November2008. "SeetheZincOxResourcesplcwebsite:\ru~\.7incOxconi. 34 SUMMARY OF THE HISTORY OF THE JABALI PROJECT Artisanal workings at Jabali date back about 2500 years. These workings exploited the relatively soft oxidised ore which was locally silver-rich. Mining was performed by both underground and open cast methods. It has been estimated that 30 galleries extending between 10 and 150m are present underground. A large number of open pits, some up to 25m deep are found within in the area. 300,000 - 400,000t of ore is believed to have been mined historically,totalling 7,000-10,000t of containedPb and30-50tof containedAg. The deposit was rediscoveredduring ajoint explorationprojectbetweenBureaude Recherches Geologique et Minikres (BRGM) and the Yemen GeologicalSurvey and Mineral Resources Board (YGSMRB) in 1980. During 1981- 1986 they performed geological mapping, rock geochemistry, geophysics and drilled 57 holes totalling 7,974m. Two resourceswere estimated- one for open cut extractionbeing 3.OMt at 15.2 percent Zn and the other of 1.24Mt at 13 percentZn quotedfor undergroundextraction.Bothwere calculatedusinga 7 percentZn cut-off. InNovember 1990 Watts, Griffis and McOuat of Canada carried out a World Bank funded evaluationof the deposit, drilling afurther 12holestotalling 1050mto assess the mineralogicalcontinuity. Inadditionto the drilling, 16trenches were excavated and further mappingwas conducted. Following explorationa pre-feasibilityreport was completed in 1993. This report stated a "geological reserve" of 3.6Mt at 16.37percentZn at an 8 percent cut-off. In 1996 Minorco, now Anglo American (Anglo) and Ansan Wikfs (Hadramawt) Ltd (Ansan) entered into a joint venture agreement. They were primarily interestedinany potentialsulphide material below the identified oxide mineralisationinthe area. The drill programwas abandonedquickly as mineralisationwas seen to terminate within the oxidezone. ZincOx Resources Plc (ZincOx) entered into ajoint venture agreement with Anglo and Ansan in 1998, with ZincOx providing expertise at extractingandprocessingmore metallurgicallycomplex oxide ores. ZincOx becamethe manager and operator of development for the deposit. In 1999 a new pre-feasibility study was completed. ZincOx under took further drilling in 2000 and 2002, and 49 holes were drilled to improve confidence in the mineralresource.This work, along with data from the earlier work, formed the basis for the Feasibility Study completed in 2005 for ZincOx by MDM.InMarch2005, ZincOx announcedthe resultsofthis feasibility study for the development ofthe Jabali deposit at the rate of 800,000 tonnes per annum of ore, with a grade of 9.2 percent zinc, over a mine life of 12 years. The potential to increase the mine life by exploration success is considered good, as the deposit is open on two sides. A small amount of lead is recoveredand sold but generally the lead is not of an economic grade. The silver, however, passesto thetailings anda separatestudy indue course may look at recovery of the silver. An updateto the Feasibilitywas completedinearly 2007 andnew design, engineeringand cost estimatescompletedby SNC Lavalin Europe, MDMEngineeringand ZincOx. An audit of the updatedstudy was carriedout by Saint Barbara Consulting Services in London, on behalfof Exotix Limited, an investment bankingboutiquespecialisingin emerging markets, which was mandatedby the project company to assist in the provision of finance for the project. The updated study concluded that the total funding requirement to finance the capital cost of plant and equipment, including contingencies and all financing costs needed to construct the mine and associated facilities, and working capital sufficient to finance operations until such time as positive cash flow is forecast to be generated in the last quarter of 2009, was estimatedto be $186 million. Financingof the project was announcedin January 2008, and constructionof the mine andplanthas commencedinthe first quarter of 2008, with first productiondue inthe last quarter of2009. The financingincludesa loanof $120 million to ZincOx's 52 percent owned subsidiary Company, Jabal Salab. The Facility was arrangedby Exotix Limited. Mining will be from an open pit, with a 2:l ratio of waste to ore. The ore will be treated by means of a proprietary hydrometallurgical process, test work on which has indicateda 77 percent zinc recovery. The process flow sheet was designedby ZincOx and tested in a pilot plant operated by CTP, an independentBelgianmetallurgical laboratory.The plant is designed to produce approximately70,000 tonnes per year of high quality zinc oxide, containing 80 percent zinc. Marketing studies and test work carried out by ZincOx indicate that the final product should be of a quality suitable for direct marketingto zinc oxide consumers inEurope, the Far East andAmerica. This materialwill command a higher price for the contained zinc than that offeredby zinc smelters, which typically only pay about 55 percent-65 percent of the value of the metal contained. Scott Wilson Mining carried out an EnvironmentalImpact Assessment (EIA) as part of the feasibility study, in accordance with World Bank guidelines and input from the Yemen Environmental Protection Authority (EPA). The study states that overall the project is considered to provide a net beneficialimpact. The effect of the projectwith respectto employment and infrastructuredevelopment will have a long termpositive impactbeyondthe life ofthe projectandthe areaofthe mine. 5.3 INDUSTRIAL MINERALS Table 5.1 shows that a few companies are looking at the potential of the country's industrial minerals. These include 3S Mineral Limited, Naine Minerals Resources, and Nagarjuna CorporationLimitedand Trimex. 35 It was noted in Section 4.2 that there is a wide range of minerals that could be exploited for industrial uses and examples were provided inthat section. Inmany cases these could be open to Yemeni SMEs. Since industrial minerals usually have a relatively small margin, they tend to be most useful to local or regional enterprises and so understanding of the markets is of great importance. The GSMRB has assembled significant information on these minerals, butfurther marketing studies are neededin order to evaluate the commercialviabilityof the minerals. The work being carried out by the private sector companies could provide these studies for the licenses concerned. However, some assistancewill be requiredto encourage local enterprises inother areas. 5.4 NATURAL STONES The N S sector in Yemen is one of the most important mining sub-sectors, with significant potential as regardsminingresources, market and manual labour availability. However, although it i s a traditional sector known for several centuries, N S (mainly quarrying and processing) is neither well-developed nor well-organised and the marketing organisation and structure i s poor. Sub-sector Structureand Current Production-Supply Chain The production supply chain follows ancient rules and is simply structured. It consists of quarry production using artisanal methods; the sale of irregular blocks to truck owners; transport of blocks to main towns inparticular "market" areas, or directly to main processing companies; sale by truck owners to small factories/workshops or to the main processing companies; simple processing in small workshops to produce building stones or other simple stone products for the construction industry; or more mechanised processing by the main stone companies, as described inthe following paragraphs.No modernbusiness-oriented marketingstructuresexist inthe sector. Three main production-market "areas" can be identified inthe N S sector inYemen: a) DimensionStones Ouarrv Producers: afew large quarry owners (e.g. Al-Thanyah for Marble & Granite, Ayan Marble Co., Yemen Stones) and many small artisanal companies and groups of individuals, both operating ina simple, un-mechanised manner. Larae Processing and Trading Companies: (e.g. A1 Rahiby for Granite and Marble Co., Al-Rawhani Marble & Granite Factory, Nagi Engineering Establishment, in Sana'a and Faisal Co., in Aden) mainly operating inthe local market with relatively few spot exports of finished products. Some companies (e.g. Al-Rawhani), import DS blocks and slabs from overseas, to be processedand sold inthe domestic market. These large companies, of which there are not more than five or six in the country, usually run relatively large processing equipment (mainly Italian), both modern and old, and provide the complete line of production: large blocks (direct contacts with quarry producers), slabs, tiles, and also buildingstones. 36 Small Processing (cutting) companies and individuals: Hundreds of small workshops, generally equippedonly with a small circular saw (diamond disk), operate in Sana'a and inall other larger towns. They cut the small irregular stone blockspurchased inthe open market areas into small building blocks that are generally cut only on the visible sides (two or three). These buildingblocks are sold directly in the town market to private and construction companies. b) BuildingStones This particular segment of the N S sector in Yemen is certainly the oldest, the most traditional and the largest as regards material, quarries, workshops and workers involved. Itis probablythe least developed interms ofmechanization, organization and skill. It comprises small artisanal quarry producers, often located inremote desert areas, which extract small stone blocks by using very simple methods (mainly explosives). Irregular blocks are transported to town by truck and sold "in the market" to the small "one diamond disk" workshops mentioned above, to produce tuff-ignimbrite, basalt and limestone buildingblocks. 3 1 c) Aggregates Some large aggregateplants exist inYemen, often located close to main towns producing stone aggregate, mainly from basalt and ignimbrite. Current methods of production generate a great deal o f waste in the form of crushed stones (such as from the artisanal basalt quarries in Subahah area and in many other areas o f central Yemen). A better- structured and organised BS sub-sector will be neededto address this problem. 5.4.1 Quarrying of NS in Yemen BS and most of the DS deposits in Yemen are run and managed in an artisanal manner, with underdeveloped mining methods and equipment. Most exploitation is accomplished through drilling and splitting by explosives, and in many cases exclusively by using explosives in the joints with no drilling at all. Whereas this simple method does not adversely affect the exploitation of small blocks for BS, it does adversely affect the quarrying of large D S blocks by causing cracking in the rock mass and not allowing extraction of large regular blocks. This happens mainly in limestone and travertine quarries and in some granite ones. Some of the granite quarries produce relatively regular blocks using the drilling and splitting (by plugs and feathers) method, with very low or no use of explosives. Quarry structure and management skills are very limited; buildingthis capacity would require a long-termtraining program. The present situation in the Yemeni D S quarries does not enable consistent and high quality production and is estimated to cause a loss of approximately 60 to 80 percent of exploitable and marketable (medium-large size blocks) rock by volume. Average block sizes of limestones and travertines probably range between 1to 3 m3,and most of them are irregular in shape. Average granite block size is slightly larger, reaching up to 4-5 m3insome quarries. The conditions described above can easily be observed by visiting the block deposits o f the leading DS companies inYemen. 5.4.2 Processing of N S inYemen As mentioned above, processing o fN S in Yemen is at a very low level o f sophistication, due to a lack of skills and of highstandards inthe domestic market. 38 BS are mainly producedby very small "one diamonddisk" units/workshopsthat cut small blocks from limestone, tuff and ignimbrite and basalt artisanal quarries. Some large processing companieshave their own simple BS production lines. DS are mainly processedin large and medium size companies (not more than 12 inthe country). They process large and medium size limestone, travertine and granite blocks using relatively modernequipment,which is often poorly maintained. In general, processing plants in Yemen need major restructuring and reorganisation as regards equipment layout, management and operatingskills. 5.4.3 Market and Marketingof N S inYemen InYemen, most ofthe N S operators operate inthe domesticmarketandthe very few spot exports (not more than 1-2 percent of total production) are mainly to the result of one-to-one friendly marketingagreements, concludedin SaudiArabia, Jordanand Gulfcountries. Most finished products are sold in the domestic market directly to private owners and to constructioncompanies, as tiles, cut-to-size products and building stones. Three large companies didhave significant business inthe lastthree years, supplyingthe largeMosqueProjectin Sana'a. Selling transactions are generally made one-to-one between producer and client, without any intermediary. To date, only two or three companies in Yemen have some knowledge of the export market and contacts with international suppliers and customers (mainly in Italy and India). The same companies also have professionalshowroomsand shops intown. 5.5 PRECIOUSSTONES The market for gemstones is traditionally very strong inYemen. Most ofthe preciousstones sold inYemen are importedandthe ones that are thought to be locally producedare cut andpolished to meet internationalstandards. Locally produced gemstones of good quality would likely have enough local demand to justify small- to medium-sizedproduction. Identification of gem potential would be required inthe form of detailed mapping followed by sampling. Furthermore, for Yemen to fully benefit from exploitation of the gemstone sector, it will be important to set up cutting and polishing facilities andtraining programs. 39 6. INFRASTRUCTURE 6.1 POWER Miningoperations require access to reliable supplies of power at varying levels throughout the mining cycle and will use these criteria when deciding whether to invest in a country. Many mining firms, however, will build their own power supply for the mine to ensure reliability. Downstream value-added plants, such as smelters, not only have a high demand for electricity, but also needto be assuredthat there is continuity of supply. A smelter cannot be allowed to go through cycles of heating and cooling depending on electricity availability. An open-pit mining operation which produces concentrate for export might be competitive even if it has to install its own generators, but the viability of extensive underground mines (which requireaccess by shafts and continuous ventilation) and smelters or refineries will depend on the cost o f energy, which is often a substantial proportion o fthe operating costs. Budgeting for power generation is quite normal among mining investors, especially for those operating in remote locations. A number o f examples from Africa are pertinent. For example, the remote mines inMali (e.g Sadiola, Morila) have installed dedicated generatorsto supply their needs. The Selebi Phikwe copper-nickel mine inBotswana i s supplied by the national grid and, as ithas alarge smelter to operate, the continuity ofpower is ofgreat importance. Potential investors in Yemen's mining sector are sure to assess the country's power sector. Yemenhasthe lowest accessto electricity inthe MiddleEastregion, with little over 40 percent of the total havingaccess, compared to aregionalaverageofabout 90 percent. During2009, Yemen's interconnected installed generation capacity was 910MW of which 732 M W was available. In addition, rental capacity available to the interconnected system was 210 MW. Total installed isolated capacity was 357 M W of which 242 MW was available. In addition, rentalcapacity available to the isolated system was 63 MW. Total available capacity in Yemen was, therefore, 1,247 MW. The Government has embarked on a number of reforms in the power sector, aiming to increase the available capacity and to bridge the gap with the ever-rising demand. Further expansion and diversification i s expected to take place in the domestic gas market, namely in the electricity sector by substituting heavy fuel oil (HFO) and diesel to natural gas. Eventually, this would reduce the needfor diesel imports, and lower the cost of power generation, also reducing the need for government subsidies to existingand new electricity consumers. The GOY has allocated 5.2 tcf of natural gas to meet the demand ofthe power sector over the next 25 years. A number of the existing power plants, such as Mocha, Hiswa and Al-Hodeidah that produce most of the power generation in the country, are old and in need of rehabilitation. The state- owned Public Electricity Corporation (PEC) owns and manages generation plants that are inneed of an overhaul. During FY05-07, PEC's losses increased significantly from YR4.5 billion (US$22.5 million) to YR17.6 billion (US$88.5 million) and hence it i s not ina position to finance these major overhauls through its internal resources. PEC has therefore undertaken a number of 40 corrective measures, such as reducing losses, increasing electricity tariffs for certain consumer categories etc.22 The short-term priorities for the country's power sector are: increase in generation capacity through the installation of small diesel plants, major overhaul of several power stations; and continued reduction of transmission and distribution losses. Inthe medium-term, the government will be generating additional power using natural gas - a 739 MW gas-fired generation i s expected to be commissioned in two phases. The first phase, with installed capacity of 339MW, will be ready by 2010 and the second phase, with installed capacity of 400MW, is expected at a later point intime.23 Insummary, despite the reforms and concertedefforts to improve the availability of electricity, at present the electricity generating capacity and grid are inadequate and most large-scale mining investors will have to budget for independent generators. This will increase costs and limit the possibilities of downstream value added, which in the mineral industry usually requires substantial power inputs. 6.2 TRANSPORT Yemen currently claims some 71,300 kmof roads, o fwhich only 6,200 kmare paved. A highway is planned between Sana'a and Aden, but its state o f planning needs to be confirmed. Figure 6.1 is a map provided by the GSMRB which shows the road network, including roads under construction and under study. 22Aide Memoire,December2008 mission, World BankPower SectorProject, January21,2009. 23ProjectAppraisalDocument-RepublicofYemenPower SectorProject-2006, World Bank Group. 41 * Figure6.1: Map ShowingActual and ProposedRoad Network 42 One of the major routes, the road Safir / Maribto Saiyoun, via HisnA1 Abr and A1Qatn is recent and it continues all the way to Oman by way of Thamoud. There i s also a tarred road runningall the way upthe south coast from Aden to the Oman border andother tarredroadsthat linkthe two. Yemen's cities and main population centers are linked by sealed, twin-lane highways that trace the topography. There are no bridge constructions or tunnels to straighten the traffic arteries. Goods-carrying trucks travel at average speeds o f 30-50km/h (less in mountain regions). Lorries in Yemen have an average load capacity of 15-20tons, with no trailer and a single driver. 40ft containers are transported on articulated lorries; 20ft containers are usually transported by dump truck as a load. Mobile cranes are available everywhere. Containers tend to be loaded and unloaded on site. Freight rates are heavily dependent on day-to-day business, and thus on prevailing levels of demand; rates also vary according to the direction of travel and the volume of cargo. For example, the Aden to Sana'a route has a different price to the same route in reverse. In 2005, Yemeni firms reported minimumrates of between $400 and $600, depending on the route. Trips from the port towns ofAden and Hodaidahto Sana'a are expensive. Despitethe long distance, the Sana'a-Marib-Saiyoun route is relatively inexpensive. A shipment of stone by 204011 dump truck from a mine in Marib province to Sana'a costs around US$l50. External enquiries often attract higher freight costs. There is no countrywide alternative to lorry transport at present. It is notable that the majority o f licenses taken out by mining companies (Figure. 5.2) are relatively close to roads. The Jabali project is close to a major sealed road that will enable its production to travel to the Red Sea ports. However, should Yemen Iron Steel find a commercial deposit at its license east of Marib, or should the Cu - Ni deposit at Suwar being exploited by Cantex, transport will be a major concern. Similarly, the cost o f transport from any potential stone quarries located away from a main roadmightwell penalize the project and preventits development. The organizational potential for resolving transport problems is evident throughout Yemen. The fishingindustry, for example, managesto distribute fresh fish across the country daily. During the GSMRB's workshop, held in Sana'a on November 9, 2008, many quarry owners complained about the poor access to their properties and the subsequent costs oftransporting their materials to market. Other industrieshave similar concerns about access, and the Social Fundfor Development (SFD)24is supporting the construction of feeder roads to rural and poor urban areas in order to encourage economic growth. Nonetheless, the mountainous terrain encountered in particular in the west o f Yemen will continue to pose difficulties and even if good quality roads are provided, the costs oftransport will be highdue to the gradients that the traffic will encounter. Also, fuel is heavily subsidized compared to world prices. It is unclear whether this will continue to be possible inthe future. Box 6.1 provides a useful illustration of what can be achieved in cooperation with the local population. Lessons can be drawn from this experience when considering projects to ameliorate access for small- to medium-sized miningprojects. 24Social Fundfor Development, Annual Report 2007 and wwwsfd-vemen.org 43 Figure 6.2 illustrates what can be done by mobilizing local communities and using labor intensive methods to improve road surfaces. Incidentally, it also illustrates a good use of local stone for paving the road. This application of paving stones could also be extensively used for town roads and could represent a "key" stone product to optimize the problem of waste in dimension stone and buildingstones quarries. Figure 6.2 Rural Road, Aljabeen, Raymah Source: Social Fundfor Development,Annual Report 2007 44 Box 6.1: Bani-Araf rural road-a pathway to relief and livelihood In the past, residents of Bani-Araf Mountain (Bani-Araf sub-district, Sa'afan district, Sana'a governorate) faced considerable hardship due to the rugged and harsh road leading to and from the area. Many parts of the road were extremelysteep andnarrow, with rockyprotrusions. Community membersbitterly recalledthis difficult situation.They saidthat they would exit their cars until they passed the most "terrifying" partsof the road, and only then would they get back in.Moreover, car driversoftenrehsed to use the road, particularly during rainy seasons. These conditions made life difficult for many villagers, especially if someone hadto be rushedto the nearbyhealthclinic. A villager also notedthat, "If we wanted to leave the village to fetch something nearby during the day, we could not return to our homes that same day. Instead, we were forced to spend the night outside the village and returnthe next day. It was almost impossibleto find a vehicle whose driver or owner would agree to take you home inthe same day. And if you could find one, then either the driver would not risk mountingthe road or the cost would be exorbitant." Othersrecalledhowthey oftenhadto resort to primitive meansoftransport, such as donkeys. In2005 an SFDteamvisitedthe areaandverified the community's roadneeds.The SFD decidedto rebuildpartsofthe road, expandand improve/ rehabilitateother parts, and rehabilitateand protectthe rest. Benefiting about 9,000 people, works extendedover the 6.5 kilometerroadandcost nearlyUS$64,000. After the project was completed, villagers expressed their satisfactionwith its outcome. Abdurahman Mas'oud and MuhammadAl-Qaderi, bothcar drivers, summarizedthe differencethe areawitnessedafter the SFD intervention."The road became safer, and the number of vehicles entering and leaving the village rose from two to eight per day." Muhammad Saleh, a farmer, added that he could now transport up to 200 kilograms in one trip, with the cost not exceeding2,000 Yemeni rials (previously 50 kilograms or less at a cost of up to 8,000 rials). Other villagers indicated that transport fees per passenger hadfallen from 500 to 150 rials. Moreover, they pointedout, ascendingor descending the road now takes half an hour, compared with one to two hours before. "As a result, we can leave our village and returninthe same day without the needto stay overnightaway from our wives andchildren," said some ofthem. Benefits from the project go beyond the far easier transportation and transfer of people and their goods and the relatively lower cost o f basic commodities. Some villagers-who oversaw collections of community contributions during implementation of the project-gained knowledge and experience in contracting and executing community development projects. Consequently, they found opportunities for new livelihoods for them and their families. As a result, they haveparticipatedinthe contractingandimplementationof other projectsinthe areaandbeyond. For instance, some participated in the rainwater harvesting project in Bani-Araf, implemented through community contracting, by participating in partial biddings on the project. Others worked with the contractor during implementation of the A'al-Taliyan rural access road (Mareb governorate). Many are sharing in biddings and implementationof community contracting projects such as the Bait-Al-Zawahi rural road (Sa'afan, Sana'a), Gabal- Ikbari rural road and Bani-Khataband Masrarainwater harvestingcistern (both in Manakha, Sana'a). Such ambitious, hard-working villagers, now successful contractors, include Abdulrahman Ali Mas'oud, Muhammad Muhammad Hasan Al-Qaderi and Faisal Abdullah Ali Mas'oud. In addition, more than 30 skilled mason builders and laborers emergedfrom the Bani-Araf roadproject, and are currently working on various SFD-supportedprojects. Among them are AbdulghaniMas'oud, Ali Qa'yed HamoudandAhmad GhalebMajalli. Source: Social Fund for Develoument, Annual Reuort 2007 45 The Government of Yemen is interested in seekingways to link infrastructure development with the diversification of economic activities, including mineral resources development. One possibility that has been proposed by the GSMRl3 is to build a rail link to the eastern part of the western highlands, runningsouth to north from the Gulf o f Aden. This route would traverse an areathat already has some active quarry operations and a number of mineral prospects, as well as potential for some other types of industrial activity. It i s understood that discussions might have already taken place at government level to obtain support from China. The viability of such a rail link would need to satisfy a number of important economic tests. In modern times, rail transport of minerals has worked successfully in the few cases in which there i s a constant flow of bulk mineral deliveries from an anchor supplier to an export facility at a port, typically over twenty or more years. Examples of such successful uses of rail transport include shipment of iron ore in Mauritania, phosphates in Morocco and iron ore in Western Australia. The economic threshold at which rail-based transport solutions become viable increases as a function of logistical complexity (e.g. several geographically dispersed suppliers each requiring spur rail lines and facilities for consolidationon the main line) and unstable/short-lived supplies. It would be important to conduct some pre-feasibility evaluations to determine roughly what economic thresholds would apply inthe Yemeni case and find out how these might compare with truck-haulage basedalternatives. A railway is also planned to connect Saudi Arabia in the northwest and Oman in the east. The proposed route is along the coast. These projects are for the medium to long term and, unless they are confirmed and a firm programme of development published, investors will probably discount them. There are airports inAden, Ataq, Elgaydah, Hodeidah, Sana'a, Saiyoun, Riyan, Socotra and Taiz. International flights operate from Sana'a and are fairly frequent, in particular to Dubai. Plans have been drawn up to expand and modernise the airports at Sana'a, Saiyoun and Aden in the near future; these airports will then be able to handle international connections, partlyvia existing linksinneighbouring countries. 6.3 PORTS The main international seaports are A1 Hodaydah on the Red Sea and Aden at the southwestern end of the Gulf coast. The other ports (including Salif, Ras Isa, Mokha, Mukalla, Moalla and Ash Shihr) basically serve localneeds. Aden can be considered the country's most important port. A large-scale expansion is underway, which will incorporate large areas o f the region into a free zone. Given the current political and economic conditions, this region could becomethe main focus for business activity inYemen. Rates for sea freight vary and depend on the supplier. In 2005, prices from A1 Hodaydah for a 20ft container of around 10-15 tons stood in the region of US$900 to Italy and US$1200 to Hamburg. 6.4 COMMUNICATIONS The Ministry o f Telecommunications and Information Technology (MTIT) regulates the country's telecommunications market and collects the operators' license fees. The Government of Yemen also fully owns and directly oversees the operations of the monopoly fixed line operator, Public Telecommunications Corporation (PTC), and owns a controlling stake in the CDMA cellular operator, Yemen Mobile, through the PTC. 46 The fixed lines are predominantly available in urban areas, although the PTC intends to provide improved fixed line services inthe rural areas of Yemen. A recent report from the Arab Advisors projects Yemen's mainlines to reach 1.432 million lines by end of 2012 with a penetration rate of 5.76 percent. This correspondsto an annual growth rate of 7.1 percent between 2008 and 2012. There arenow four cellular operators inYemen, ofwhich all but Yemen Mobileare GSM: 0 Yemen Mobile, 0 Sabafon, MTNYemen, and 0 Hitsunitel. The Arab Advisors Group's report projects Yemen's cellular coverageto grow substantially at an annualized rate of 15.7 percent from 2008 to 2012, reaching 10.537 million subscribers (a cellular penetrationrate of 42.4 percent) up from 4.437 million by end of 2007. Other details relatedto communications are2! Telephones o Domestic: the national network consists of microwave radio relay, cable, tropospheric scatter, and GSMcellular mobile telephone systems o International: country code - 967; satellite earth stations - 3 Intelsat (2 Indian Ocean and 1 Atlantic Ocean), 1 Intersputnik (Atlantic Ocean region), and 2 Arabsat; microwave radio relay to Saudi Arabia and Djibouti Radio broadcast stations: AM 6, FM 1, shortwave 2 (1998) 0 Television broadcast stations: 7 (plus severalrepeaters) (1997) 0 Internet country code: .ye Internethosts5 (2007) Internet users: 270,000 (2006) The GSMnetworks cover most o fthe inhabited areas-some 80 percent of the country. Even out inthe middleofthe Ramlata1Sabata'yn, a signal is usually available from the top ofa sand dune. Inthe central mountains, coverage is patchy. However, the networks are there; the local people know where they are and walk uphill or over to a particular spot to connect. Mining investors can thus be reassured that contact is usually available across most of the country, and other options, such as satellite communications, need only be budgeted for as backup. 6.5 WATERSUPPLY Yemen has no permanent surface water. Water is in short supply, with most water extracted from deep wells. In areas used for agriculture, seasonal rainwater is preserved by means of small (possibly temporary) retainingwalls; these enable it to be usedfor irrigation purposes over longer periods. The quantities of water currently being extracted are rapidly depleting the supply of ground water, with utilization at approximately 135 percent of resources. Agriculture accounts for 25 Yemen Communications Projections Report, Arab Advisors Group Strategic Research Service, July 2008 (see httu://www.arabadvisors.com) (this report was not analysed indetail by the Consultants). 26CIA World Factbook 41 90 percent of the available water used. In areas with the highest population density, centralized state suppliesof water are erratic. Water is normally supplied from tanks filled on a regular basis by water transporter vehicles, most of which are privately operated. In comparison with Europe, the cost of water is disproportionatelyhigh. Withjust 30 percent of the population having regular access to drinking water, international development and technical cooperationagencies have launcheda number of ambitious projects designedto alleviatethe water crisis. Within the Yemeni natural stone industry, all large companies visited had implemented reasonablyeffective water recycling systems. 48 7. SOCIALASPECTS Dueto the history ofthe Republic of Yemen andthe nature ofthe local social networks, it will be important for any investor in the country to take into full consideration the environmental and social impacts of working inthe country. This chapter delves into a number of social issues that affect mining sector development in Yemen. Because large-scale miningi s nascent, in a number of instancesthis section draws on information from the oil sector to give examples of what may happen inthe mining sector, once it develops further. 7.1 THESOCIAL CONTEXT The significance of Yemen's tribal populations for the future development of the country's mineral industry should not be underestimated. While mining and oil and gas companies are focused on what lies underground, the people they operate around make their living from the land, which itself defines their history, their livelihoods and their future. 70-75 percent o f Yemenis live in rural areas and derive their primary living from farming. For this majority, therefore, land ownership is of major significance. 90 percent of Yemen's land is owned by tribal individuals. For the tribe or extended family, the function of the land is to maintain tribal cohesion and order. The tribal name i s synonymous with the place-the land over which they predominate. The part ofthe Yemeni populationorganized along tribal lines currently makes up three dominant tribes: the Bakiel, the Hasched and the Mathhadj. Tribes are hierarchical, headedby a chieftain. Giventhat the sphere of influence ofthese tribes mostly extends to areas outside ofthe cities and population centers, it i s reasonable to assume that tribal law must be taken into account across broad swathes of rural Yemen. Despite a generally stable social environment, Yemen i s changing fast. The key elements of change, listed below, could have a considerable impact on the country's complex social fabric. 0 Yemen's government derives 85-90 percent of its income from the oil and gas sector, while oil production i s declining by between 14-18 percent a year. 0 Inflationruns between 8 to 18 percent and i s affected largely by fluctuations in imported food prices. 0 Three-quarters of Yemen's population lives in rural areas, and about half of these rural residents are poor-living on less than US$1.50 per day per person. 0 Despite one of the world's highest infant mortality rates, Yemen's population continues to rise by about 3-3.6 percent annually. Changes in the management of finite land assets are determinedby subsidized diesel, which has afforded a shift from extensive rainfedfarming to intensive irrigated farming. Yemen now runs a water deficit of between 700 and 900 million cubic meters of water per year, with a consequent drop ingroundwater levels and water quality. Around 80-85 percent of water usage i s for agricultural irrigation and of this amount, around 40 percent i s used on Qat Catha edulis, a plant whose leaves are chewed as a stimulant with mild narcotic properties. Qat production is profitable for growers but presents a significant loss to the economy. Irrigation itself is very inefficient: most studies show that improved irrigation scheduling and monitoring alone could reduce irrigation water consumption by around 40 percent. Inefficient irrigation results from very low prices for diesel fuel. This situation equates 49 to the wastage of a `free' resource, while the benefits of the diesel subsidy are captured by those who use the most. The subsidythus exacerbates incomedisparities. 1975 1,285 37 73 120 1,515 1990 685 310 25 101 1,121 1995 579 369 20 100 1,068 2000 515 457 46 126 1,144 2005 609 393 34 137 1,173 Coupledwith populationgrowth, the fragmentationof land under Islamic inheritancelaws has led mostyoung men inrural communitiesto have difficulties finding the means to get married. Land stress i s by far the most common source of disputes, which usually occur within an extended family. 7.2 TRADITIONALGOVERNANCE COMMUNITIES AND By design, the extension of government into the countryside is the same throughout Yemen; in practice, however, government powers are exercised very differently in different parts of the country. The majority of remoteruralcommunities are governedby their sheikhs or aqils. Inthe plateau areas of Hadramawt and Shabwa, in particular, the divisions between tribes are more readily recognisedthan lines drawn by government. Traditional leaders governtheir communities by consent, but in accordance with their interpretationof the Quran, the Islamic Sharia law, and their traditional or tribal laws known as `Erj'. These laws or customs, which often include significant rules regarding environmental and land use, tend to regulate rural life to a much greater extentthan centralgovernment legislation. Under the formal set of ethical values known as `Qabylie', strong tribal laws are maintainedthat both pre-date and challenge the laws of Islam. For tribal people, land is inherited, and although the Quran is clear that daughters shall inherit land ifthey are marriedto men from another tribe, in many cases women are given cash andlor preventedfrom inheriting land in order to maintain the land's original tribal ownership and the homogeneity of land ownership in the area. In addition, there is a Qabylie law, the Juwara law, which prevents tribal people from selling landto other tribes. This law is more flexible than it once was, since the size of landholdingsper farmer has decreased as the population has doubled in the last two decades and real incomes and opportunitieshave fallen dramatically. Landholdings are composed around inheritance, and inherited assets denote the class of the owner. Yemen has complex but changing class structure. The broadest division is betweentribal and non-tribal. To a limited extent, these class divisions are breakingdown. The divisions over labor are different today than they were ten years ago, when tribal men from landowning families 27 A1 Ulaqi, N A [2008] Issues of Decentralised Water DemandManagementin Yemen, In Proceedingsof Workshop on the Political Economy of Water Demand Management in the MENA Region July 2008, Water and Environment Centre, Universityof Sana'a. 50 would not work the land or engage in manual labor. More recently, the labor market has forced mento take most of the work that is available, though tribal men still will not work in kitchens, toilets or laundries. The major socio-economic division throughout much of rural Yemen is between those families that receive remittances from family membersliving and working inthe Gulf Countries and Saudi Arabia, and those families that do not have this support. The neighbouring states themselves make a strong distinction between tribal and non-tribal people. As a result, there are very few, if any, Abid families from Yemen with membersworking overseas. The importance of land cannot therefore be underestimated. As mining companies are granted exploration or exploitation licenses by the central government, they need to be aware of potential complications that may happen "on the ground". 7.3 THEIMPORTANCE OFDIRECTLYADDRESSING COMMUNITIES Companies strive to achieve the lowest possible operating costs. The fiduciary duties of the Board of any publicly-quoted company include returning a profit to shareholders on a fully competitive basis. Ifthe company's shareholdersdecide that the Board failed to do this, they may have grounds for legal action against the Board. On the other side, any mine-affected community in Yemen will seek the highest possible level of compensation, priority access to jobs and contracts, and whatever other benefits can be gained from the company's operation in that area. Furthermore, once established, a mine cannot be moved to another location easily. Developinga positive working relationship with the surrounding community is therefore crucial. The preferences of the two entities are neither parallel nor reconcilable without mediation by a strong thirdparty. Ina developed political economy, that thirdparty i s government; however, for a multitude of reasons, in Yemen government agencies cannot play this role in a way that provides adequate security for the private sector investor. The quality ofthe government's relationship with local communities is also critical. The District Chairman is predominantly appointed by the Provincial Governor, himself appointed by the President. In most cases, the District Chairman will represent the tribal majority, and i s frequently someone of some independent wealth. Selection is not merit-based, however, and accountability to constituents i s not complete. Under and around the formal government structures, tribal systems and structures provide both support and oppositionto government. The lack of uniformly credible, accountable and effective local government across much o f Yemen indicates that private companies need to work with two sets of entities-community structures and government structures-and navigate any tensions that may lie between the many stakeholders in each group. The onus thus falls on private sector investors to take on two roles: that of investor, and that of support agent to both government and the stakeholder communities in developing robust civil society structures that function to mutual benefit. The rural communities are typically very poor, highly underemployed, and well armed. Given the entranceof a company into their territory, their primary concerns will be: Employment:How many ofthe local people can be hiredto work inthe company? Contracts:How can the local businessmedtriballeaders gain contracts with the company to supply services and goods? 0 Compensation:What will the company pay the community in compensation for loss of land, destruction oftrees, and damage to infrastructure? 5 1 These concerns may not seem onerous, but in some cases communities can feel that they have the right to deliver services to any outside interest in their territory at a price they believe is justifiable, without the needto ensure competition or quality. The imperative of working with communities in a complex role challenges traditional Western corporate structures, which have to create and integrate an important new function. The task for companies: 0 i s not simple and never static; 0 requires skills that are not present inthe `normal' makeup of a miningoperation; 0 is expensive interms of time and management; should be a planned-in cost; and 0 should be recognized and supervisedat the highest level of in-country management. These issues are crucial for consideration by any foreign company that plansto operate inYemen. 7.4 IMPLEMENTATION OF SOCIAL IMPACT ASSESSMENTS It is not yet common inYemen for formal social impact studies to be incorporated into company environmental assessments when projects are being developed, although there are some exceptions. Oilsearch, for example, has worked proactively and in advance of work inthe field as an integral part of its normal planning process. More usually, where SIAs have been performed, these have been retrospective, i.e. performed in reaction to community pressure and on the realization that the company needs a clearer understanding o f community structures or in order to meet safeguard standards (e.g. Equator Principles) establishedby financiers. In the case of mining, the EL4 performed in 2004-2005 by Scott Wilson Mining for ZincOx resources at Jabali concentrated on local people and livelihoods and comprised a number of local workshops. The final report contains a qualitative section that describes local livelihoods in the context of a brief analysis of regional data. The report goes on to draw up a checklist of mitigating actions that the mine can develop into processesto address social impacts. Box 5.2: Delays to the Jabali Project EXCERPT FROMZINCOXRESOURCES PLC HALF-YEARLY REPORT 2008 The Jabali project, inYemen, is progressingsteadily andover the past four months, inspite o f avery tight employment market, we have begunto secure key personnelfor the productionoperations.Most of the major processingequipmenthas beenordered, the miningfleet is beingcommissionedandmining operationswill commence beforethe endofthis year. However, we havebeenfrustrated by adisputebetweenone ofthe tribes that own landthrough which our access roadpassesandthe roadbuilding contractor. This resulted inasuspension o f road constructionwork. The Yemen governmenthave beenworking to assist inthe resolutionofthis, andinadditionwe haverecentlyengaged anegotiator experiencedin tribal mattersandwe are hopefulthat the issues will be settledin the near future. Inthe meantimeroadbuilding activitieshaveresumed. The completionofthe accessroadis an importantmilestone for projectdevelopment andas aresult of the disruption to its constructionwe nowbelievethe final completionofthe projectmay slip into the first quarter of2010, although our projectteam continuesto make effortsto mitigatethis disruption. The completionofthe access roadis an importantmilestone for projectdevelopment andas aresult of the disruption to its constructionwe now believethe final completiono fthe projectmay slip into the first quarter of2010, although our projectteam continuesto make effortsto mitigatethis disruption. Source: Excerptfrom ZincOx Resourcesplc Half-Yearly Report, 2008. 52 7.5 THEJABALIPROJECT The Jabali project (see section 5.2.1) has progressed well and the Joint Venture Company developing the project, Jabal Salab Company (Yemen) Ltd., has worked to maintain a good relationships with neighbouringtribes. Delays have resulted, however (Box 5.2). 7.6 COMMENT AND SUGGESTIONS Working ina basically rural country such as Yemen requires a sensitive approach to relationships with the local tribal people. Investors must develop an understanding with community leaders and find a way to involve them inthe project. Inthe case ofthe Jabali project, the local partner, Ansan Wikfs, provided invaluable assistanceto the foreign joint venture partner, ZincOx Resources. ZincOx also had experience working in other environments, and the senior staff understood the need for careful maintenance of tribal relationships. The security situation in Yemen cannot be fully explained without reference to the country's tribal traditions. A lack of knowledge of the complex social relationships in Yemen can lead the uninitiated inadvertently into dangerous situations or lead to project failure. A social structure based on tribal affiliations is not a peculiarly Yemeni phenomenon: similar structures permeatethe entire Arabian Peninsula, stretching from Lebanon and Syria inthe north to the southern border of the Russian Federation and, farther east, to the border o f India. In additionto these structures, affiliations are also marked out by language and dialect. Specific tribal interests will, o f course, differ across the country, and in some areas there is still a perceived or even real threat to incomers. This is particularly the case inthe Sa'dah zone to the northwest (see for example the Chatham House briefing paper).28 In order to reduce the risk posed by these threats, incoming investors might usefully seek a local partner from the relevant license areas. Another cultural aspect that overseas investors find difficult to come to terms with i s the habit of chewing Qat in the afternoons. Foreign firms frequently lack understanding of the important cultural implications of Qat and do not adjust their expectations of local workers accordingly. Finally, investors will need to be aware of the relative lack of opportunities for women. Inmuch o f the country, women have significantly fewer educational opportunities than men and, although women can be found working in many organizations (e.g. in the GSMRB library and in the General Investment Authority), their full potential i s not available to the general economy of the country. In conclusion, at least a part of any investment program in Yemen should target assistance to help the people in the tribal areas to develop their own enterprises, thus providingthem with a vehicle for job creation and entrance intothe real economy. 28Hill,Ginny, Yemen: FearofFailure, ChathamHouseBriefingPaper,www.chathamhouse.ore.uk,November2008. 53 8. INVESTMENT CONDITIONS 8.1 INVESTOR DECISION MAKING The opportunity for Yemen to take advantage of favorable geology to develop mineral deposits will, in the case of most metallic mineral and some industrial mineral opportunities, depend a great deal on attracting foreign mining companies that have no prior experience o f working in Yemen and have, because of the international scope of their operations, the possibility of investing in mineral exploration and mining operations in many other countries. This places a premium on the government understanding the way in which investment decisions are made and taking actions, wherever possible and reasonable to address investor requirements.The purpose of this chapter is to provide a brief assessment of factors other than the geology and mineralogy of the country that may influence decisions by foreign mining companies on whether or not to invest inYemen. I n general investors will evaluate factors such as: -- Stability o fthe political regime and safety and security. Existence of a reliable andattractive MiningCode. - -- Existence o f a stable fiscal regime. Existence of reliable and acceptable environmental legislation. Previous miningactivity -by whom, and was it successful? - - Marketingand distribution networks. Infrastructure -roads, water, power distribution, ports, etc. - Labor - both skilled and unskilled with (preferably, but not essentially) a mining tradition. Notwithstanding the above factors, it should be remembered that some companies are specialized in certain geological environments and others have experience working in certain political or economic environments. Therefore, from an investment promotion point of view, the officials responsible for promotingthe sector should be aware of such companies. 8.1.1 PoliticalFactors Investors will evaluate political risk factors when considering investment. This is partly for security reasons (with perceived insecurity due to terrorists or banditry acting as a negative deciding factor) and partly due to the fact that perceived or real risk increases the cost of capital and thus the cost of an investment. Other local aspects that influence investors include the level of uncertainty with regard to relationships with local populations and between central or local government and local and traditional leaders. These social aspects were addressedinSection 7. It is important for the national government to recognise and address these potential risk factors and make local populations aware of the potential benefits to be derivedfrom investment intheir territory. Progress in these areas requires a deep understanding o f the traditions o f the local population and must therefore be resolved internally within the country; the imposition of solutions from outside can be counter-productive, although outside assistance to the government can yield dividends. 54 8.1.2 Legislative and Fiscal Environment As part oftheir assessmentof whether or not to invest in a country, mining companies will seek a number of basic assurances, which are described in the following paragraphs. The Government of Yemen is currently revising its mining legislation, which was prepared with assistance from IFC's PEP-MENA project. The new Mining Law is currently pending approval by Parliament. This will replace existing mining legislation and, in so doing, will significantly modernise and standardise sector regulation in accordance with internationalbest practice. The points presented below show a number of generic characteristics that investors seek in a country's mining legislation. A secure title to mininp riphts. InYemen, as in most countries, minerals in the ground are the property of the state and an investor in the mining sector is not permitted to explore for or produceminerals without beingauthorised so to do by a licence grantedunderthe applicable law. The investor's root of title is this licence and it must authorise the specific activities in which the investor is engaged at any given moment inthe life ofthe project. In judging whether the applicable law gives an appropriate measure of security, the potential investor will be concernedwith a few specific issues: (a) Does the law ensure that a license, once granted, cannot be suspended or revoked except on specific grounds that are clearly set out in the law and invoke the application of objective criteria? (b) Does the law provide reasonable assurances that guarantee the continuity of operations over the life ofthe project? The investorwill beparticularly concernedwith the grantingofaright to mine. Ifa separate mining license is required, the investor will want to be certain that the holder of a prospecting(or exploration) license who identifies a commercialdeposit will have the legal right to the granting of a mining license. That right may not be unconditional; however investors will be looking for a legal entitlement, linked to objective criteria, which could ifnecessary be enforcedthrough an agreed dispute settlement mechanism. (c) Doesthe law ensure that the holder of a license has the sole and exclusive right to conductthe mineral activity authorizedby that license? Inadditionthe investorwill oftenask: (d) Does the law allow the normal license period to be extended, and minimum expenditure requirements to be waived, on areas where the explorer has already expended substantial sums of money identifying a mineral deposit, but where current economic, technical or political factors make immediate progression to exploitation uneconomic, or otherwise unacceptablefor the license holder (sometimes called a retentionlicense)? Objective criteria shouldalso determinethe investor's rights to the renewalof licenses at different stages inthe life ofthe project. A satisfactorv fiscal repime. No miningcompanywill spend substantialsums on exploration for minerals unless it is satisfied that-in the event of it identifying a commercial deposit-the fiscal regime will permit the company, when the mine is developed, to earn what it regards as an appropriate rate of return on its investment. There are two critical factors in deciding whether a particularregime passesthe test of acceptability: 55 (a) Are the terms offered competitive whenjudged against terms offered by other countries with similar geologicalendowments? (b) I s the fiscal regime structured in such a way that high royalties or other up-front payments will not prevent the development of marginal discoveries, or delay the recovery of the high investment costs associatedwith large-scaleminingprojects? Stabilitv of the FiscalRepime. Stabilitv of the fiscal repime. The mining investor must be able to calculate the likely financial outturn of a project. This implies that the country's fiscal regime will remainstable. Investorswill be seekingeffective guarantees from the government that, over the life of the project, there will be no new taxes or duties and no increase in existing tax rates that will significantly alter the assumptions about costs and profits on which the original investmentdecisionwas made. Foreipnexchatwe retentionand repatriationriphts.Investors inthe mining sector will expect to have the right to retain the proceeds from the sale of mine products, together with the funds borrowed in foreign exchange for mine development, in offshore banking accounts under their own control. Investors will also seek assurance that there will be no restriction on their right to convert profits earned in local currency into foreign currency and to remit these profits abroad. Such facilities may be a pre-requisite for international lenders before they will provide loans towards the capitalcost of any mine and may well be a requirementfor the equity investor(s) too. The reason for this is that providers of capital, including lenders and a company's shareholders, and foreign suppliers of equipment and services will require timely repaymendpayment in hard currency. The r i h t to dispose of mine products freely. Mining companies may require agreement that mine products can be freely marketed for export or as the company sees fit and appropriate. Obligations to sell mine productsto the government or to market them through a state-controlled agency are often unacceptable to investors. The riphtto assipn. Companies will expectthe right to assign the mineralrights they hold. This means havingthe right to assign up to 100percent of the interest held, or to "farm out" part in an unincorporatedjoint venture. Importancewill also be attached to the right to dispose freely of the shares ina mining company, subjectto the applicablecompany laws. Companies seek the right to assign mainly because the cost of a mining project may not be apparent at the beginningof the explorationphase and because companies themselves are subject to changing fortunes that cannot always be predicted. Where there is the right to assign, a company has the opportunity to share the risk of a project with one or more partners, and that action may enable a project that would otherwise have been abandoned to be sustained and completed. Stabilitv in environmental manapement. At the development stage of any mining project, consideration will always be given to environmental issues. However, in many developing countries and in countries emerging from conditions of state monopoly, there is no existing network of statutory requirements for mining operations. Provisions to prevent or limit environmental damage will be project-specific and will need to be agreed upon between government and the mining investors. When investors put forward proposals for environmental management as part of a mine development plan, they will need the assurance that-in the event that the plan received approval-it would, over the life of the project, define the limits of the environmental obligations of the investor. 56 In the event that government wishes to alter the requirements imposed on a license holder because, for example, stricter international standards have been developed or new scientific data may have become available showing the existence of dangers not previously recognized, such a right shouldberecognizedbut innarrowly definedcircumstances. International arbitration. A satisfactory procedure for the settlement of disputes will be regarded by most mining investors as essential for a major investment. For most companies this will meaninternational arbitration. Freedomof commercial operation. Investors will seek the freedom to manage their operations in the most appropriate manner based on commercial criteria and without government interventionindecisions that are essentially commercial. Previousminim activitv. Mininginvestors will be aware of recent miningactivity ina country in which they may be considering investment. Previous successful ventures will provide confidence to the miningcompany and to the potential project investors. Unsuccessful ventures, on the other hand, will raise questions inthe minds of newcomers and can result ina reluctance to invest, especially if the lack of success be attributable to local issues. It is thus of utmost importance that those charged with the promotion of the sector are aware o f the circumstances of unsuccessful investments as well as successfulones. Inthis context, the successfulfinancing ofthe Jabali project is apositive news story (although the delay due to a dispute between a contractor and the local tribes is negative) and the signing of an Option Agreement between Cantex and Vale i s also very positive. Previous small-scale or artisanal mining can also provide information to companies interested in an area's potential. Inthe case of Yemen, there is evidence o f miningactivity inthe distant past, but little evidence ofrecent artisanal or small-scale precious metalmining. This is not necessarily a handicap, but it would indicate to an incoming investor that there is an absence o f a mining culture inthe country. 8.1.3 Infrastructureand Services Mining requires access to power, water and other services in varying degrees at the different stages ofthe mining cycle. It must be recalled that a mining project will only be successful if the cost of recovering the mineral ore over the lifetime o f the project i s less than the market value of the product to an extent adequate to provide the rate of returnrequired by the investor when taking into account all the costs (which are also affected by perceptions of risk). Therefore the cost of infrastructure, such as power, water and transport, may be a determiningfactor. Similarly, if services required by the mining company are not available or expensive, this will affect the viability of an investment. This will include the availability of experienced and qualified labor. It i s expensive for a miningcompany to import technical, management or other skills. Although a foreign company will wish to have in place a minimum number of its own senior experienced staff, the greater the availability of qualified local staff, the more likely it will be that costs and work practices can be optimized, whether or not there is a legal requirement for the company to employ localpeople. The availability of infrastructure, services and qualified staff-and possible ways to improve these factors-is considered elsewhere inthis report. 57 8.2 DOINGBUSINESS YEMENIN The World Bank Group's "Doing Business" rankings provide a useful source of information on the cost of doing business in a given country.*' It i s not the purpose of this report to analyse these rankings in detail. However, it is useful to note that while Yemen ranked 98" out of 181 countries overall in2009, the country`s "worst" rankings were inthe following sub-categories: Ease of ... Rank out of 181 GettingCredit 172 burden and the number of payments to be In other aspects, however-such as starting a business, dealing with construction permits and enforcing contracts-Yemen scored relatively well, particularly in relation to other countries in the region. A mining investor seeking to invest in Yemen will probably seek to acquire political insurance and for that might approach the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group. It is therefore useful to understand the risk level that MIGA would apply to Yemen. It appears that MIGA uses the risk assessment of ONDD, the Belgian Export Credit Agency,30whose conclusions are considered below. 8.2.1 RiskAssessment ONDD considers that political risk for Yemen is low for short-term export transactions, but relatively high for medium- to long-term transactions. It places Yemen in the lowest of three Commercial Risk ranks. Where Direct Investments are concerned, War Risk i s considered medium(3 out of 7), whereas risk of Expropriation and Government Action is relatively high(5 out o f 7) and Transfer Risk even higher (6 out o f 7). These classifications are illustrated inFigure 7.1. Overall, these data provide an indication of the perceptions of investors and areas to be addressed. Figure 8.1 Yemen RiskAssessment 58 8.2.2 Feedback from Existing Investors It is clear that many potentialinvestors are concerned with the general security of access to sites remote from the major cities. As a result, it will be importantfor the Government of Yemen to addressthe perceptions derived from the risk assessmentdiscussion above, as well as governance inthetribalareas(see Chapter 6). It should be mentioned that, although some companies have clearly been dissuaded from investing in Yemen, those that are present are relatively positive about the general investment conditions. However, both foreign and local investors have mentioned concerns about employment legislation and (probably) custom. For example, it appears that if a company employs personnel, it is expected to care for them even after they have been released. Yet companies have stated that they have a policyto employ casual or subcontract labour in order to limit the number of full-time employees. Other examples includecases of staffbeingterminated for illegal activities, then the company being found at fault by the courts for allowing such activities. It is well understood and commendable that Yemen wishes to protect its workers. However, doingso within improvedlabor legislationandwith greatertransparencycouldprovide an incentiveto investorsto employ morepeople. 59 9. PROJECTEDMINERALSECTOR GROWTHAND BENEFITSTREAMS Miningrepresents a source of economic growth inYemen, offering employment, revenue inthe form of royalties, duties and taxes, foreign exchange earnings and raw materials demanded inthe domestic market. This Chapter sets out our projections of mineral sector growth and benefit streams based on the preceding analysis of mineral prospectivity and conditions for investment and assuming that the underlying economic and security conditions for development of mining within Yemen do not deteriorate. It is also assumedthat progress will continue to be made by the Government to implementmeasuresto support the development of the sector. Projections of mineral sector growth and direct economic benefits are presentedover a five year time horizon and, more speculatively, 10 to 15 years into the future (Section 9.1). The wider benefits of mineral sector growth are also discussed, mainly by reference to the experience of other countries that have experienced mineral sector growth, and by distinguishing between artisanal and small scale miningand quarrying and industrial-scale mining(Section 9.2). 9.1 PROJECTIONSOF MINERAL SECTOR GROWTH 9.1.1 Projection for 2010 to 2015 Giventhe mineral resource base (Chapters 2 and 3) and current activity inthe sector (Chapter 4), it is possible to develop agrowth scenariofor the five-yearperiod2010to 2015 (Table 9.1). Table 9.1 Mineral Sector Growth Scenario, 2010-2015 Existing or under New investment Annual Annual Annual Annual Tax development Volume Sales Value Export Share Revenues' Start up of Jabali zinc 70,000 tlyr US$56mn 100percent US$1-2mn in in2009 zinc oxide(80 (@$lOOO/t the early years percentzinc zinc) content) AI Hariqah gold 200,000 odyr US$180mn 100percent US$5-lOmn developed by end gold (@$9oo/oz of period gold) Productivity n/a US$20-30mn 10-20percent US$2-3mn improvement at existingquarries duringtheperiod One or more new nia US$20-30mn 75 percent US%2-3mn large granite/marble quarries for export of dimension stone opened during the period Little growthinthe scale andvariety of nla nla nia nla explorationprograms 1. Revenue receipts based on royalty, duties and taxes, however, tax holidays, duty exemptions and investment The scenario shown in Table 9.1 is naturally conjectural, but reasonable assumptions have been used. Under this scenario, the value of mineral sales would grow substantially from existing 60 levelsto reach some US$300 million annually by the end of the periodwith a marked impact on exports. The revenue impact would also be significant, albeit starting from a low base. One of the mainsources of uncertainty is the present depressed state of mineralcommodity markets and the global financial crisis. The longer these conditions last, the less likely is it that the new investments shown inTable 9.1will materialise. Some ofthe key assumptionsunderlyingthe mineralsector growthscenariofor 2010-2015 are: Jebali Zinc Mine: The Jebali zinc mine is due to start operating in late 2009 and has the financinginplaceto proceedas planned. Zinc prices are sharply lower than at peak in 2008, but they are still within the range usedto evaluate the feasibility of the project. The product exported is an upgradedzinc oxide with 80 percentzinc metalcontent (for further details see Section 4.2.1. and Section8.4). A1 Hariqah Gold Prospect: Cantex is in the process of drilling the deposit to establish full grade-tonnage data and commence mine and processing design. Because the gold price outlook remains robust there is every chance that Cantex will seek to sustain its program, whether on its own or by seeking a partner. The company aims to prove the presence of a large low-gradedeposit (1.65g/t Au) amenableto open-pit miningwith gold content of some 2 to 3 million ounces recovered by heap-leachchemical processing at site (www.cantex.ca). Cantex operates under an agreement that secured it a 1 percent net smelter royalty and a tax holiday. Quarry stone sector -existing quarries: The quarry stone sector is already widespread in Yemen but underperforms owingto (a) strong price competitioninthe domestic market from Indian and Chinese suppliers, (b) high transport costs from quarry to processing plant and then to buyers and (c) low capitalizationand hence poor equipment, an unskilledworkforce and weak marketing. The focus of effort in the 2010-2015 period would need to be on addressing some of these barriers, resultingin productivity improvements, the re-capture of some of the domestic market and new opportunitiesfor export. Buildingstone productionis estimated to be valued at some US$lO-15 million. This could potentially double over a five year period, principallyby capturingmore ofthe domestic market. Quarry stone sector - new investment:The assessment in this review is that one or more mineral deposits suited to the commercial quarrying of granite, marble, limestone and travertine dimension stone for export does exist and that, given targeted support to build market interest, it shouldbe possiblefor investmentto be forthcoming.A large-scale granite quarry would typically require an outlay of US$2 million and another US$1-2 million for modern processing plant. Such operations could generate some US$20-30 million in sales, mostly for export. Jordan, for example, went from producingdimension stone valued at little morethanUS1millionto export sales ofaroundUS$30 millioninjust a few years. Exploration: There are numerous holders of explorationrights in Yemen, many of whom have been implementingprograms of exploration over a number of years. The outlook for this effort being sustained at this time is clouded by uncertainty due to depressed mineral markets, cutbacks inexplorationbudgetsand a strong likelihoodthat manyjunior exploration companies simply will not survive. That is why the growth scenario projects that few explorationprospectswill graduateto minedevelopmentsby 2015. 61 9.1.2 Speculative Prospects for 2016 to 2030 Given the mineral resource base and the preceding growth scenario, potential mineral sector growth beyond2015 can be forecast as follows: Suwar nickel prospect: This mineral prospect is considered to be a potential world-class mine, as demonstrated by Vale's decision in2008 to financefurther evaluationby Cantexand thereby earn an equity interest in the prospect. However, it may take many years to establish the viability of developing Suwar into a mine. Nickel, copper and cobalt are three of the minerals most severely affectedby the current global recession. Moreover, development of a large-scale operation with sophisticated processing technology will present significant technical, logistical and transportation challenges. The prospect has potential to generate some US$250-500million insales annually. Additional goldprospects: The occurrence of severaltypes of gold mineralisationanalogous to those found on the Arabian Shield and other gold mining belts worldwide, as well as the progress already made to evaluate a number of deposits, including Cantex's Al-Hariqah prospect, implies that several gold mines could eventually be developed in Yemen. Moreover, gold prices have demonstratedresilience in the present global recession, thereby sustaining interest in conducting gold exploration. Two or three additional gold mines of medium scale could be speculatedto generate some US$50-100million insales annually. Iron oreprospects:There are a number of iron ore deposits undergoinginvestigation, but it is too early to state with confidencethat there might eventuallybe commercialiron ore mines in Yemen. Any future mine development would be contingent on building or obtaining access to reliable bulk commodity transport and port facilities. One might speculate that such conditionswill eventually be inplacetowards the end of the period. Industrial mineral prospects: Some concrete industrial mineral targets have been identified recently, only some of which (industrial limestone, tantalum, scoria and pumice) are under active investigation. It seems probable that, if such investigations can be sustained and establishthat deposits can be mined to supply a product meeting the specifications required by users, mine developmentwill take placeinthe forecast period. Quarry stone sector: The key to continued growth of the natural stone sector in Yemen beyond 2015 will be a deeper understandingand investigation of the suitability of the main mineral deposits-especially granite, marble, limestone and travertine used for dimension stone-to be quarriedwith sufficient scale andreliability to meet export market requirements. Efforts undertaken in the 2010-2015 period, especially selected pilot programs to test the exploitation of high-potential deposits, will provide an indication of how much growth can be realised over the longer term. In principle, it is possible to speculate that Yemen could eventuallygenerate salesvalue of some US$25-50millionannually from this sector. Exploration: Over the longer term, only sustained exploration work will supply the next generationof mineral prospects that can be evaluated and some of which will eventually be commercialised. It is assumed that global exploration programs will continue to experience ups and downs, as inthe past, but that further successes by mining companies in finding and developingmines in Yemen will provide the impetus necessary to attract other companiesto explorefor minerals inYemen. 62 9.2 THE WIDERBENEFITSOFMINERAL SECTOR GROWTH The benefits of mineralsector growthwill be felt inmany different ways; so too will the impacts and associatedrisks. It is importantto distinguishbetweendifferent scales and modes of mining activity, since the types of benefits and impacts-and accordingly the focus of government strategies for mineral sector development-will differ according to the type of miningthat will take place. For convenience,three types ofminingcanbe distinguished: Artisanalmining, 0 Small-scalemining, and 0 Industrial-scalemining. In some cases, the definitions of artisanal and small-scale mining are assimilated into the same activities, whereas in other cases artisanal mining is defined specificallyas exploitationworking with simple tools and equipment, usually in the informal sector, outside the legal and regulatory framework. 9.2.1 Artisanal Mining Artisanal mining is typically understood to be a form of mining conducted using rudimentary equipment and tools with heavy relianceon manualeffortsto extract stones and ores and simple but sometimes dangerous methods to obtain a saleable mineral. In the context of Yemen, this definitionappliesmainlyto the rudimentarystone quarries, sand and clay winningand gemstones pitsthat proliferatethroughout the ~ountry.~' The draft of Yemen's new Mining Law, which defines artisanal mining as a site where a maximumof five workers are permittedand where no machinery is allowed, would seem to be a consistent albeit somewhat narrow approach to dealing with the legalisation of such activities. Legalartisanal miningpractices should be reserved, as much as possible, for local communities (especially to avoid"rushes" by outsiders for high-valueminerals). Every encouragementshould be given to such communities to improve their mining practices by employing machinery appropriate to the scale of their operations so that they can become small-scale mechanised miners. In this case a rigid differentiation of mineral rights between artisanal and small-scale miningmightbe counterproductive. Inmany cases, artisanal miningis an importantaspect of rural livelihoods, representinga source of cash income for local people between planting and harvesting crops. Some studies have concluded that poor access to infrastructure prevents local populations from easily transporting agriculturalproducts to markets. These communities often turn to artisanal mining to provide more easily marketable products. This cash income might allow rural populationsto invest in improvingtheir own livingenvironment. 31Inmanypartsofthe world abroadrangeofminerals is extractedby artisanalandsmall-scaleminers. The practiceis an enormous generator of jobs: accordingto the MMSD Draft Global report on Artisanal and Small Scale Mining, November 2001artisanal and small-scale mining is thought to involve 13 million people directly and affect the livelihoodsof a hrther 80-100 million worldwide. It is clear that the vast majority of artisanal miners are very poor, exploiting marginal deposits in harsh and often dangerous conditions. Such mining practices have a considerable negativeimpact on the environment, well beyondthe overallbenefitto the country. 63 However, artisanal mining can also be very disruptive, either by keeping children out o f school for the purposes of employment or by creating a sudden `rush' causing local people to desert their farms or encouraging immigration. When the rush is over, most of the profits are likely to have disappeared, while the social and environmental damage persists. The environmental impacts of artisanal miningare of great concern to many observers. These impacts include direct dumping of waste and effluents into rivers, threats from improperly constructed tailings dams, river damage in alluvial areas, river siltation, erosion damage and deforestation, and landscape destruction. (In some countries, uncontrolled artisanal metal mining operations are associated with a risk o f pollutants such as mercury and cyanide and o f tailings deposition or leaching into waterways and resources.) Artisanal miningpractices often leave behind lands that are unsuitable for any other use, due to the destruction of the surface and lack of rehabilitation of the land (Figure 8.1). A lack of awareness, combined with a lack of information about affordable methods to reduce impacts and a lack of obvious incentives to change, all contribute to these problems. In some cases, recommendations have beenmade to limit artisanal miningto local communities, and to combine artisanal mining with a wider project to encourage agricultural development. This depends on local communities placing a greater value on the use o f land and therefore actively working to rehabilitate land for diverse uses. Natural stone artisanal quarrying is an area where support and technical assistance would benejit local communities as well as the entire NS supply chain. Such an approach at tribal level may have merits in a society like Yemen. Additional impacts o f artisanal mining relate to the social pressures engendered by an influx of miners and the associated service industries, including food supply but also prostitution. For many years there was pressure to ban the practices o f artisanal mining, but more recently the donor community has begun to recognise the income-generation potential of artisanal mining activities. Figure 9.2: Exampleof damage caused by poorly controlledartisanalmining 64 9.2.2 SmallScale Mining Small-scale mining (SSM), where differentiated from artisanal mining, normally connotes organised mining o f mineral deposits that requires some degree of mechanical equipment to assure regular extraction of ores and minerals that are often not accessible unless minedby such means, combined with processing facilities that recover a saleable mineral product. The dividing line between artisanal and small-scale miningcan be somewhat fluid. SSN operations are of a type where local communities or companies could directly participate, but the deposit beingworked may not be of a scale or quality that would require high levels of investment in specialized mining operations and hence be of interest to international mining companies. In the current Yemeni context, SSM activities appear to be confined to the stone sector. Historically, however, Yemen has had a culture o f metal mining that by present-day definitions would be classed as SSM. This culture has seemingly disappeared over the years, but examples can be found. Artisanal workings were found at Jabali (Box 6) and duringthe time o f the Queen of Sheba there is evidence that substantial gold miningwas undertaken. Box 9.1 Jabali Workings Artisanal workings at Jabal Salab (Jabali) date back about 2,500 years. These workings exploitedthe relatively soft oxidised ore which was locally silver-rich. It was considered in the tenth century AD one of the biggest mines in the Islamic world for silver production. Mining was performedby both undergroundand open cast methods. Ithas beenestimatedthat 30 galleries extendingbetween 10and 150mare present underground. A large number of open pits, some up to 25m deep are found within in the area. 300,000 - 400,000t of ore is believedto have been minedhistorically, totalling 7,000- 10,000t of containedPb and 30-50t of containedAg. Source: From a report by Saint Barbara Consulting Servicesand TheProject of Developmentof the Mining Industy in theRepublic of Yemen, GSMRB,Evaluation andPromotion Department 2008. SSM, if properly conducted, can assist in introducing technical and management skills to local entrepreneurs and act as driver o f the local economy by taking the artisanal mining concept to a higher level. In order to encourage this development, it would be useful to review the legal framework to encourage small-scale enterprises runby local communities or businessmen. These enterprises would require significant assistance in defining "reserves"; puttingtogether business plans; conducting market research; acquiring finance; acquiring, operating and maintaining equipment and machinery of appropriate scale; and managing the exploitation and the environmental and social impacts. This assistance, in the form of extension services, could be provided by the GSMRB, which itselfwould benefit from external assistance to develop the skills required. As part of any SSM reform, local communities or enterprises should be able to maintain a stake in any licence area if a larger deposit is discovered that requires a larger investment, probably from international investors. Inview of the tribal nature of Yemeni society, the development o f SSM by initially involving the tribal chiefs inprospective areas should be encouraged. Ifthe culture of miningcan be reintroduced into the country at large, this could improve the interactionbetween local communities and incoming investors. 65 Stone quarryingis an importantaspect of SSM, where muchofthe energy andeffortsof local and internationalinstitutionsshouldbe addressed, for the benefitofthe sector. A good example is the case of GalallaQuarry District inEgypt, where small artisanal limestonequarries were developed into more organised quarries run by SMEs, which are now skilledtechnically and in marketing followinga periodoftraining and support by localinstitutions. As a result, this materialandthis district have become among the most significant and well known in the international market. Jobshavegrown by 1,000 percent, with 2,000 percentofturnover in5 years. It would be appropriate to establish a programme to encourageSSM in local communitiesand develop extension servicesto beprovided by the GSMXB. 9.3 INDUSTRIAL SCALE MINING Industrial-scale mining is understood as large-scale operations, usually requiring significant capital and resources and often requiringinputs from international investors. One of the main, and most obvious, benefits of large-scale mining is employment. Large-scalehndustrialmines provide construction phase employment and "full-time" employment thereafter. Construction phase employment is four to five times the size of "full time" employment, but usually lasts no more than 12 months. In additionto the direct employment providedby the miningcompany, a number of industries (and associated jobs) are created by the need to supply the mine with operating equipment and spare parts, transport and shipping services, communications, comestibles, etc. A summary ofthe benefits expectedfrom the Jabali project is presentedinBox 9.3. 66 Box 9.3: Benefits to Yemen from the Development of the JabaliDeposit Employment The mine, processingplant and associated facilities will employ approximately370 people, the vast majority of whom will be Yemeni nationals.A further 100nationals are likely to be employedby contractors (e.g. transport of materialsto and from Hodaidahand Salif). Trainingof YemeniPersonnel A Yemenizationpolicy andtrainingprogramswill be put inplaceby Jabal Salab, so that after four years from the start of productionover 95 percent of the staff will be Yemeni. A wide variety of skills will be requiredby Jabal Salab. These will include qualified managerial staff such as accountants,geologists, mining engineers, metallurgists, mechanicaland civil engineers; skilled labor such as mechanics, electricians, heavy earth moving operators, highway drivers and plant foremen; and unskilledlabor. Where suitably skilled and experiencedworkers are availablethese will be drawnfrom the areaaroundJabali, butwhere suitable people are not available locally these will be sourcedfrom other areas inYemen. In addition to the budget for training within the company, Jabal Salab has agreed within the terms of the Exploitation Agreement to make annualcontributionstowards atraininganddevelopment programinthe GSMRB. Technology Transfer There is currently no large-scale mining for metals being carried out in Yemen. The processing technology for the recovery of zinc at Jabali is new to Yemen, although it has been used in the copper and nickel industries elsewhere. Considerabletransfer of bothmining andprocessingtechnology will, therefore, take place. Furthermore, if the silver that occurs at Jabali can also be recovered economically, the technology that is likely to be appliedis also applicable to gold. Yemen has considerable gold potential, the exploitationof which would benefit from the skills andtechnology appliedat Jabali. Industry and Services Constructionof the processing and associated facilities at Jabali will require considerable input from local engineering contractors and services. While some specialized plant and equipment will be imported, civil engineering work will be contractedto local firms. During the 12 month constructionperiod alone, it is estimatedthat over $30 million of goods and services will be sourced in Yemen. Similarly, throughoutthe life o f the mine, as many supplies as possible will be purchasedlocally. At the endofthe mine life the miningfleet andprocessingplantwill haveavalue estimatedat $30 million. Local Socio-EconomicBenefits An environmentalimpact study has been preparedfor this feasibility study in accordance with the guidelines set down by the Yemen Environment ProtectionAuthority and the World Bank. It shows that there are no significant negative impacts from the Jabali Project on the local environment. The study incorporates a socio-economic analysis into the impact of the mine's developmenton the local community.It summarises by saying that the employment opportunities, directly and indirectly derived from the mine, and the infrastructureimprovements will have long-term benefits well beyondthe life ofthe mineandthe surrounding area. Development of Infrastructure Jabali is located inan area of mountainterrain, 16kmoff a good quality asphalt roadfrom Sana'a to Marib. A new road to the mine site will be constructed by Jabal Salab. This will bring long-termbenefits to the local Bedouin tribes by improvingaccessto their villages. Cont'd.... 61 Benefitsto Yemen from the developmentofthe Jabalideposit concluded Grid electricity is not available at Jabali, so the mine will operate on diesel-generatedpower. However, if at some time in the future a gas pipeline were constructed to transport gas to Sana'a from the gas fields near Marib, Jabal Salab would be apotentialconsumer. ZincOx has spent over US$300,000 identifying areliablelocal source of water for the processingplant, inassociation with a team from the National Water Resources Authority (NWRA). A large source of sustainable water has been identified in Wadi Khaynagh, to the west of the mine. Jabal Salab will spend considerable sums to recycle water so that only a modest amount of water will need to be abstractedfor mine use; this means that sufticient spare capacity will be available to sustain a potablewater supply for the local community.Today none is available. TaxRevenues As a substantial investor in a remote rural region, Jabal Salab is eligible under the Investment Law for a 7-year tax holiday. Corporationtax revenueover the life of the mine payable by Jabal Salab (after the tax holiday) is estimated to be US$58 million. Inaddition, the government will benefit from taxes and social security contributionsamounting to approximatelyUS$lOmillion from employeesofJabal Salab over the life ofthe mine. Royalty Revenue The 2 percent net smelter return royalty payable by Jabal Salab is estimated to amount to approximatelyUS$15 million over the life ofthe mine. ForeignExchange All zinc productionfrom Jabal Salab will be exported and sold in US dollars, as is the case with most metal sales throughout the world. Since many of the costs will be incurred in Yemeni rials, the project will provide a flow of regularforeignexchange for the country. All the zinc producedat Jabali will be exported through one o f the Red Sea ports. Approximately 75,000 tonnes of oxidewill be exportedper year, adding significantlyto Yemen's non-oil exportsandport activity. Exploration Potential Jabal Salab believesthe resources at the Jabali deposit extendto the south and east. The company will commit funds on further exploration.Extensionof mineralizationcouldprolongthe mine life from 12to 16years or more, resulting inimprovedGovernmenttax receiptsandforeignexchange earnings. Multiplier Effect It is well recognised by economists that the development of a mining operation in an area with little economic activity, such as the area around Jabali, produces a large economic and social multiplier effect. If the value of the multiplier effect is three times the capital cost of the mine's development, then in the case of Jabali this could be worth over US$225million to the Yemeni economy. Developmentof theMining Industry and Foreign Investment Perhaps the biggest benefit to Yemen arising from the development of the Jabali deposit is the significant impact it will have on the future of the untapped potential for large-scale mining in Yemen. Exploration and mining are inherently risky and capital-intensivebusinessesthat depend on the ready availability of risk finance. Attracting such finance requires a fair and supportive fiscal policy that encourages foreign investors. Jabali's developmentwill show the world that the Government of Yemen is serious about the development of its mining industry and its ability to diversify away from dependenceon oil andgas production. ZincOx and Anglo American are well known in the internationalmining industry and news of the successful project will spread rapidly. Likewise, Jabali is ahigh profile project due to its complex metallurgyand innovativeprocessing technology. Its development under the umbrellaof an attractiveExploitation Agreement will undoubtedlyencourage other foreigncompanies into Yemen inasimilar way to that experiencedby the oil industryinthe early 1980's. Source: Extract from the report submitted to the GSMRB by Jabal Salab Company (Yemen) Ltd.; provided by the GSMRB. 68 Some historical examples of the benefits of industrial scale mining from elsewhere are provided inthe following box. Box 9.4 Examples of Benefitsof Mining Developments SADIOLAAND YATELAGOLDMINES: MALI In2007, these two minesemployed some 1,381 peopledirectlyand2,737 contractors, ofwhoma greatmajoritywere nationals 2007paymentsto the GovernmentofMali: The companyhas awell developedtraining scheme for nationalemployees. Inadditionthe miningcompanycontributesto socialdevelopmentsinthe mining areas (see www.anglogold.com). POURA GOLDMINE, BURKINA FASO This was an openpit andthen undergroundgold minelocatedwest of Ouagadougou, the capital. The mine is now closed. In 1995the employees ofthe mine(about400) supporteddirectlymorethan 3,000 people. 11,000 people living inthe areawere dependenton the mine. An evaluation of the benefits of the mine indicated a multiplier effect of about 8 or 9, largely in view of the substantiallyhigher salaries earnedby the workers at the mine. SELEBIPHIKWE NICKELMINE, BOTSWANA Some 4,500 employees The town was built to servicethe mineand the industrynow supportsapopulationof some 40,000 inthe region. Goodinfrastructurewas developeddue to the mine. Now as the minenearsthe endof its life, there is aprogramto diversifythe economyto maintainemployment. OBUASIGOLDMINE, GHANA Extensive in-house trainingprograms Health and sanitation o Built andfurnished a GovernmentHospital o Company operates 170 bed modern hospital with eight (8) medical doctors including a specialist. External consulting specialists are also engaged. o Medical care is extendedto communities in and around Obuasi area o Financesstreet cleaning Urbandevelopment(including street 1ighting;i Rural electrificationprojects Rehabilitation of infrastructure (roads, bridges) Rural water supply 69 COPPERMINES,ZAMBIA A range of diversifiedindustriesgrew up inthe vicinity ofthe mines. A greatnumber of skilled workers andmanagerswere trainedup. Infrastructurewas developed. The decline ofthe industrywas an exampleofwhy a State shouldnot become involved inthe management ofthe industry. ALUCAM, CAMEROUN Aluminium smelter Usedlocal resources:cheap source ofpower available. The wealthcreationis evident inthe town of Edka. Motor ofthe local economy It should be recalledthat the benefits to the Government are not only the jobs created and any royalty charges, but the revenues via taxation, both of the mining company itself and of the incomes of the employees and other beneficiaries. The mining company will pay taxes on the profits it makes and the employees will pay income taxes on the salaries they earn. In addition, the mining company will pay such indirect taxes as vehicle excise tax, local government taxes, propertytaxes, etc. InYemen currentlythe only operationthat meritsthis label is the Jabali project, which has been describedearlier. The investmentrequiredto develop the project is inexcess of US$ 200 million and this is likely to be the largest investment in Yemen in the resource sector outside the oil industry.Inorder for the companyto raise the necessaryfinance it was necessary inthis case for the Government to allow a tax holiday. Amongst other aspects, this enabled the company to recover the initial investment more rapidly and reimburse the finance. This shortened period of repayment effectively decreasesthe politicaland financial risk. IfYemen can present itself as a lowerrisk investment target, the needfor suchtax holidayswould disappearandthis wouldresult ina morerapidreturnto the country inthe formofincreasedtaxes inthe earlyyears. 70 10. RECOMMENDEDPROGRAMOF REFORMAND SUPPORT MEASURES This final chapter sets out an indicative program o f reform and support measures that will be necessary if the mineral development potential identified in the preceding chapter i s to be realized. The focus is on priority actions that would aim to strengthen the regulatory framework for minerals development and build capacity in the key institutions that manage the sector. It i s also recommended that studies be conducted to assess the potential for infrastructure development that would be supportive of mining and other productive activities in areas of the country where infrastructure provision is presently limited. Strong feedback from stakeholders has identified the need to further strengthen the regulatory framework and to build capacity of the institutions involved in regulating the Yemeni miningsector. Measuresto achieve thisare set out in Section 10.1. Minerals development will require attraction of investment, both foreign and local, but for this to happen on a sustainedbasis support is neededto further develop knowledge in GSMRB about mineral occurrences in Yemen and the commercial potential of their exploitation as a platform for effective promotion to the mining industry. Measures to achieve this are set out inSection 10.2. As yet little small-scale mining occurs in Yemen other than quarryingof building stone and other construction materials but there is potential, if supported with suitable programs, to create a basis for engagement by Yemeni's in this sub-sector o f the mining industry.Measuresto achievethis are set out inSection 10.3 Skills development in the regulatory institutions through training and other forms o f instruction i s a key requirementthat cuts across all areas of sector management and needs concerted effort. Measuresto achieve this are set out inSection 10.4. Stone quarrying and processing is the most active part of the miningindustryinYemen at the present time but faces many challenges to operate on a commercially viable and competitive basis. As such, specific measures are seen as being necessary and, accordingly, these are addressedseparately in Section 10.5. A significant constraining factor onthe potential growth ofthe miningindustryinYemen is the remote location of mineralized areas in relation to available infrastructure. Stakeholders have identifiedthe needfor strategic investmentsto alleviate this constraint. Measures to assess the scope for infrastructure investment to address this challenge are set out in Section 10.6. REGULATORY FRAMEWORK AND CAPACITY BUILDING OF REGULATORY INSTITUTIONS In the context of these recommendations, capacity building refers to the improvement, or modernization, of the institutions concerned with the mineral industry in Yemen. The overall objectives o f this pillar of the proposed investment program are to put in place administrative structures capable of: Regulatingthe sector, Promotingthe sector, Providing services to the sector. Additional efforts to build GSMRB's capacity and to improve its institutional organization are required. These activities would buildonthe work already carried out with the assistanceo fPEP- 71 MENA and the IDF, aimed at consolidating institutional streamlining of GSMRB, preparingthe Yemeni authorities to be better equipped, when dealing with international investors. 10.1.1 Regulation of the Sector In addition to the drafting of a National MiningPolicy and new mining legislation, the World Bank is supporting, through the InstitutionalDevelopment Fund, a miningcadastre baseline study and development of a monitoring and evaluation system. These important elements would be incorporated into any modified structure of the GSMRB. The contract for consulting services to help the GSMRB conceive and design a mining sector- specific monitoring and evaluation system and to train local central and provincial staff to implement it has been signed and i s due to commence in the coming few months. These consultancy services will build on the work carried out by Chris Morgan Associates and Titan Consultants for the PEP-MENA operation on the institutional set-up and administrative procedural mapping at GSMRB, respectively. Insummary, this project will deliver: Diagnostic institutional study and preparation o f reportingtemplates and procedures 0 Preparation and delivery o f "train the trainer" programs on monitoring and evaluation The mining cadastre project will provide the tools required to record and regulate the mining licenses and train officers inthe use of the computerised cadastre. These projects intendto involve a cross-section of stakeholders in addition to the GSMRB and specifically agencies such as the Ministry of Local Administration, Ministry o f Plan and Environment Ministry. 1 Monitoring and Evaluation System IDF-World Bank underway 2 Cadastre IDF-World Bank underway Usinginpartthe applicable findings o f Project 3 Structure of the Regulatory Body No. 1andthe CMAL report, implement a reorganization o fthe regulatory agency. 10.1.2 Promotion of the Sector Inorder to develop a strategy for the promotion of any country's mineralsector, it is necessaryto understand the point of view of the potential investor. The specific areas which the promoters of the mining sector will need to address are three components or pillars: (1) the geology; (2) the legal and regulatory environment; and (3) the human resources. The key objectives o f the strategy will thus be to: 0 Bringthe current investmentsituationofYemento the attention ofpotential investors; 0 Publicize the new mininglegislative environment; 0 Publicizethe geological and mineralogical information; 0 Encourage investors to take up mineral permits inYemen. 72 A current project, Contract7145061, fundedby the World Bank Group andcarried out by GEUS: Yemen Mining Investment Promotion Consultancy is contributing to this effort. However, considering the long term aspects, the specific role of a promotional cell in the GSMRB or elsewhere shouldbe considered.An initial recommendationto this effect has beenmade by CMA Limited. However, if the mining sector in Yemen is to be actively promoted, then a clear promotional strategy should be developed and following this a specific promotional structure shouldbe put inplace. Various structural models of the promotional Cell are possible, depending on the independence required of the Cell (with regard for example to the general Investment Promotion organization within Yemen) and on a decision as to which part of the mining administration should be responsiblefor the information database and library. Develop a promotional strategy, including a review of the structure 4 PromotionalStrategy of the promotional department within GSMRB, long-term objectives andtargeting of investors.Parts completedwith the DanishTrust fund by GEUS. 10.1.3 Provisionof Services to the Sector The GSMRB currently provides drilling and laboratory services to the mining sector and could provide geologicaland geophysicalservices to investors. A decision needs to be made regarding the way in which these services are provided. The CMA report recommends privatising the geophysical and drilling services and combining the Sana'a and Aden laboratories. In view of existing experienceworldwide, this is a reasonablerecommendation. However, the pathto sucha situation is not easy: the services must firstly be "commercialized" so that they are managed like a commercialoperation, andthen amethodof placingthem inthe private sector must be found. Experience elsewhere has shown that it is often difficult to find the investment requiredto place mining support services in a commercially competitive position. In Algeria, the drilling operations of the ORGM (the equivalent of the GSMRB) sufferedfrom old equipment, inflexible procurement practicesand a heavy administrative set up which did not encourage drilling teams to achieve high quality results. International private sector drilling companies could see no advantage inacquiring the assets. After a number of years, a capital injection from the petroleum industry's drilling sector has improved the situation. Other countries have relied on donor funding (World Bank or the EuropeanUnion) to fund geophysicalexploration campaigns. The mining support service sector needs to be commercialized. A specific study should be undertaken of the markets, training and capacity building requirements in the organisation and thepossibility of involving international industry in some way. Initial tasks would include a detailed audit ofthe laboratory facilities, the geophysicaldepartment and the drilling department. These three audits would be carried out by experts in the specific fields andwould have the following primary objectives: Laboratory Department: Benchmark against international best practice, define which markets the laboratoriesdo/could serve, examine the case for laboratory certification and 13 recommendthe scale and type of laboratory that should be supportedby the government, with budgets andmarkets. GeophysicsDepartment: Determinethe skill and know-how levels within the department. Define the types of programmesthat the department should be carrying out, including its provision of services to the publidprivate sectors. Ifthe objectives warrant it, develop a scope of work for an airborne geophysics survey over target parts of the country (to be performed by an international contractor in association with the GSMRB Geophysics Department:see Section 10.2). Drilling Department: Audit the existing equipment and drilling skills and determine which markets itmight be able to serve effectively (ifany). Develop a commercialisation plan, with the possiblemediumto long-term objective of seekingprivate investment. Service Provision 5 LaboratoryDepartment Carry out detailedstudy ofthe laboratory facilities, define markets, review need for outside certification. Review business case. Audit the Department, definetrainingkapacity building needs, GeophysicsDepartment define objectivesand scope for a modernairborne geophysical program. Drilling Department Carry out detailedstudy of the drill facilities, define markets, review needfor outside certification. Review business case. 10.2 TECHNICALPROGRAMSTO SUPPORTMINERALS SECTORPROMOTION Technical support programs inthe context of this report are those that would invest in improving the understandingof the geology and mineralization of Yemen. In fact they would in part be a continuationofpreviousprogramscarriedout incooperationwith the BGR. 0 Geologicalmappingto 1:100,000 scale 0 Airborne geophysicsfor miningpurposes 0 Specific studies on mineralsprioritized accordingto their commercialpotential The GSMRB is continuing the program of producing 1:100,000 geological sheets. It is understoodthat they would benefit from an experienced mapping geologist. An audit should be made of their mappingtechniquesand ifnecessary an internationalexpert or company should be assignedto work with the teams to transfer knowledge of modern mappingmethods and to assist incompletingthe series of 1:100,000 maps. The current geophysicalteam requires support to improve the understandingof the current state of practice. Following the work defined above, a consulting geophysicist should define training and capacity building needs, review the existing data from the historic surveys and, ifappropriate, define the objectives and scope for a modernairborne geophysicalprogramme, which could then be carriedout with the cooperationofthe department. The GSMRB has recorded the presence of a wide range of minerals, in particular industrial minerals that could be potentially commercially important. A country-wide review of the data available at the GSMRB should be performed and specific studies scoped in order to provide specific data for judging whether the minerals could be exploited, the markets available inside or outsideYemen and the possibility of addingvalue inYemen. The results might be initial business 74 plans for implementationby local SMEs or for presentationto potentialforeign investors, ifthe size ofthe deposits andthe marketsjustify it. 8 Geologicalmapping Define GSMRBneedsfor mappingassistance, prepare scopeof l work and implement geologicalmappingprogram 9 lAirborne geophysics Furtherto audit ofthe GeophysicsDepartmentand scopingof new program: implementprogram lo Specific studies on Carry out specificstudies for mineralsdefined as potentially minerals commerciallyimportant. 10.3 SMALL-SCALE MINING SECTOR The encouragement ofthe SSM sector is considereda possiblemechanismfor involvingthe local population more meaningfully in the economy and providingjobs and income to tribal areas. Currently in Yemen the natural stone sector has a history of small-scale quarrying and stone productionoperations. Apart from some lime productionand limitedgemstone mining, there is little other miningcultureinYemen. The feasibility of developingthis sector will also depend on understandinglocal culturalrealitiesandthis wouldneedto be a partofany futureprogramme. A stagedapproachto the evaluation anddevelopmentofthe SSM sector is proposed. The first task would be to identify the potentialfor SSM basedon existingreferences and reports in the GSMRB library and on the experience of GSMRB staff. From a brief review of the mineraloccurrencesalready identifiedinYemen, possibletargets couldinclude: Gold 0 Gemstones 0 Tantaludheavysands 0 Basemetals 0 Industrialminerals-gypsum, feldspar, fluorspar etc. 0 Limestonefor limeproduction 0 Buildingstones Havingidentifiedlikely targets, the approachwould then beto work closelywith the tribal chiefs to develop a programme. Itwould likely be possibleto choose a small number of pilot schemes, probablythree to four in diverse regions of Yemen. Ifthe building stones sector is included, a larger numberof projectsmightbe defined; a specific section onthis aspect is providedin Section 10.5. I Small ScaleMiningsector Fromexistingdata, definethe commoditiesthat mightbe IdentificationofPotential amenableto SSM and identifyregions/zonesof priority. for SSM Particular attentionwill bepaidto N S target identification,based I marketdemand 12 Pilotprograms I I on Define pilot projects 7s In the areas chosen, a limited number of local people would be selected to participate in the programme. The importance of mentoring by Yemeni professional staff will be paramount (see the discussion oftraining GSMRBstaffbelow). The programme will therefore comprise three pillars, once the pilot project areas have been identified: Involvement o f the local population Locally focused project development GovernmentIGSMRI3 level support These pillars and their interactionare described inthe following paragraphs. 10.3.1 Involvementof the LocalPopulation Since one of the key objectives would be to encourage the local population to become involved and to take ownership o f any SSM activities, it will be important from the early stages to involve the tribal elders or chiefs inany programdiscussions. Ensurethat the localpopulationunderstand the objectives l3 Stakeholders I Involvement of and "buv in" to the Droiects 10.3.2 ProjectDevelopment The principaltasks for the development ofthe projects would be: Define the likely resource 0 Identifythe market 0 Develop a (simple) miningplan, including local beneficiationto the degree possible Check businesscase 0 Identifytraining needs ofthe local community 0 Develop project in association with the local community, ensuringthat: o Development takes account of possible upsides of the resource size o Environmental impacts are managed/minimized 0 Ifalarger resourceor potentialproject isidentified,ensurethe localpopulationmaintains a stake I I 14 Program development Carry out the tasks necessaryto implement the pilot programs 76 10.3.3 Government/GSMRB Level Support Government support to the local initiatives would comprise both, assistance during the project development and ongoing support through the establishment of local extension service offices in the key regions. Though it might at first seem logical to locate extension service offices in regional GSMRJ3 offices, they should be close enough to the areas of miningdevelopment to be readily accessible, without being too decentralized. The locations would therefore be decided as a function of the project locations. The extension service offices should be able to provide support inkey areas such as: 0 Geology 0 Mining 0 Marketing, managementand accountancy/fiscal issues Itwouldbeunrealistic to expect allthese servicesto beimmediately available allthetime, and so a feasibility study should be performedto identify the specific needs in each area. The GSMRB staff will also require training specifically for this support and such training would include: 15 Training Training of GSMRB staff 16 Extension Services Establish support services to the Industry A summary ofthe proposed SSM support programis provided inTable 10.1below. 2e, Yrn 0 '? -& W .-+ 0 a 42 5 m W iz c 8 I* 3 N m n 10.4 TRAINING Training is always an important part of any programme of investment and development. Many technical assistance programmes have failed to deliver their full potential due to inadequate follow-up and the lack of provision for continuoustraining or "professional development". It is important that training programmes involve people at all grades of an organisation. Senior grades must maintain up-to-dateknowledge of the sector and morejunior grades need to acquire the most modern tools of the trade. Such programmes should also play an important role in providing Yemeni staff with the skills needed to interact with international experts or investors. The outline given below will attempt to meet these requirements. A training needs analysis would be a first step to understandingexisting strengths and future requirementsdependingonresponsibility levels. 1Training I Analyse the training needs of staff accordingto their intendedrole l7 Training Needs Analysis inthe GSMRB. Define appropriateshort-termand long-term training programs 10.4.1 Management,Economicand FinancialSkills Training Management skills include an understanding of mineral economics, presentational skills and possiblybusiness administrationskills. The objectivesofthis training would be to: Provide a deeper understandingof the economic case for exploring for and developing specific mineral prospects, 0 Improvethe understandingofmineralmarkets, 0 Develop skills in economic modeling of mining prospects (and thus to understand the concepts of investment, cash flow, net presentvalue and returnon investment), 0 Improve capability and confidence in presenting the sector to investors and other stakeholders (promotion), 0 Improvethe management of staff. Inthe contextofYemen, it might alsobeusefulto expose chosen staffto the type ofpolitical and public relationsskills neededto communicateeffectively with local tribal leaders. The recommended training programme would thus include seminars in Yemen on mineral economics and mineral promotion, on marketing of minerals (metals, industrial minerals, and stones) and possibly social and environmental management. A number of staff would be selected to attendcourses overseas. 10.4.2 TechnicalSkills Training In a number of areas the GSMRB staff would benefit from updatingtheir skills to keep up with recent advances. Some of these areas are: 0 Mapping practice: best done by working with experiencedmappinggeologists 0 Geophysics:the use of airborne methods has advancedsignificantly inthe recent years 0 Environmentalassessment/modeling 0 Geologicalmodeling (use of software such as Surpac, Vulcanetc) 79 0 Databasesetc (ArcGIS, Mapinfo) The recommended training and capacity building programme includes detailed training needs assessments and programmes to assist Yemeni technical staff inupgrading their skills. I l1Training 18 Mineral Economics Introductory course for GSMRB staff inYemen and specific in-depth courses overseas for selectedstaff 19 MineralLegislation lI I Introductory course for GSMRB staff inYemen and specific in-depth II courses overseas for selectedstaff Following training needs analysis, define and arrangefor training in 2o 1 Yemen and overseas for GSMRB technical staff ina range of specialties. 21 :;;s;tational II For staff responsible for promotion of the sector and selected senior management. III 1 22 Markets For staffresponsible for reporting on possible deposits, for reviewing feasibility reports from operators and promotional staff 23 1IT and database Specialist training for IT sector, including databases and website maintenance. 10.5 THENATURAL STONE SECTOR The N S sector warrants its own capacity building programme. This would concentrate on training to SMEs, communities and related associations operating inthis sector. Since the objective will be provide support directly to the communities, it would be important initially to identify the commodities and regions with the greatest potentially for success. Pilot projects would subsequentlybe identifiedandtraining designedaround those. Associations of producers are usefulineffectively spreading market knowledge and sharing inthe support programmes. The existing efforts in Yemen will be taken into account, but for the purposes of this report, it is assumed that two associations might be created for DS and BS, respectively. Capacityand CapabilityBuilding Training, to SMEs, Communities and RelatedAssociations - Operatinginthe Natural Stone Sector Identification of Fromexistingdata, define the commodities that might be Potentialfor amenableto N S quarrying and identify regiondzones of priority, Quarrying basedon market demand (see also No. 11). Define pilot projects (quarries and processing plants) among the Pilot programs existing and/or new sites from the results ofNo. 24 and also from L knowledge o fthe social and environmental backgrounds o fthe areas. Support to N S Support to the creation and development of a new Associations of Association NSproducers. Two possible differentAssociations couldbe createdfor DS and BS. 80 Training for SMEs inquarry searchand evaluation, quarrying methods and equipment, processing, marketingand management. 27 Training The objective ofthis project is to establish skills withinthe SME community that can be usedfor future development of the sector and a professional approachto the market (domestic, regional and 2R overseas). Training of local Training and educational programmes for rural artisanal quarrying communities communities on quarrying and management. 10.6 INFRASTRUCTURE A significant constraining factor on the potential growth of the miningindustry inYemen is the remote location of mineralized areas in relation to available infrastructure, as described in Chapter 6. Stakeholders have identified the need for strategic investments to alleviate this constraint. Inthis respectthe ambitious plans proposed by the Government of Yemen through the GSMRB have been con~idered.~~ proposal was referred to in Chapter 4 and 5, which discussed the This plans for a railway line from Sana'a to a coastal port, as well as the development o f a new industrial city. The project also includes the construction of a technical centre for teaching modern scientific processes for exploitation o f natural resources, and security and safety techniques inthe mines in order to improve the level of miningtechnicians inYemen. The feasibility of the project has not been evaluated. Rail solutions for transportation of minerals and other goods must fulfill a number o f economic conditions. Railroads of this size and scope are only very rarely economically viable, given that, as a rule, a large and consistent mineral supply needs to be guaranteed over many years. At this stage this proposal's suitability needs to be further explored and it is therefore proposed to conduct a scoping study of infrastructure solutions which would include an assessment of GSMRB's proposal. Were a rail-based scheme o f this kindto be shownto havepromise, apre-feasibility study couldthenfollow. IInfrastructurePrqiectsProposed I Scoping Study of proposal inThe Project of Development of the A Railway and Port Development MiningIndustryinthe Republic ofYemen, The Departmentof Promotionand Evaluation, GSMRB, 2008 Pre-Feasibility Study o fproposal inThe Project o f Development of Railway and Port the MiningIndustryinthe Republic ofYemen, The Department of Development Promotionand Evaluation, GSMRB, 2008 (ifstep Nscoping study arrives at a positive conclusion) 32The Project of Development of the Mining Industry in the Republic of Yemen, The Department of Promotionand Evaluation, GSMRB, 2008 81