Report No. 7111-ET

EthiopiaMineral Sector ReviewJune 22, 1918

Industry and Energy Operations DivisionEastern Africa DepartmentAfrica Region

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization.

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ACRONYMS

AGDE Adola Gold Development EnterpriseEIGS Ethiopian Institute of Geological SurveysELMICO Ethio-Libyan Joint Mining CompanyEMRDC Ethiopian Mineral Resources Development CorporationGDP Gross Domestic ProductLGDPIU Lega Dembi Gold Development Implementation UnitMME Ministry of Mining and EnergyONCP Office of National Central PlanningTYPP Ten Year Perspective Plan

Exchange Rate

June 1988

Birr 1.00 = US$0.483US$1.00 = Birr 2.07

Fiscal Year

July 8 - July 7

FOR OFFICAL USE ONLY

This report is based on the findings of a January 1987 missionconsisting of Constance Bernard. Senior Economist, Robert Rodger, HiningEngineer and Peter Fozzard, Geologist. Sections of the report were updateddurirn a subsequent mission by Peter Fozzard in May 1988. ElizabethTweddle, Victoria Davies and Grace Coward were responsible for wordprocessing of the report.

|This document has a restricted distribution and may be used by recipients only in the perforrnnce|of their official duties. Its contents may not otherwise be dischsed without World Bank authoriztion.|

MINERAL SECTOR RZVIEW OF ET1IOPIA

Table of Contents

Page No.

SUIHARY AND CONCLUSIONS ........ ........................ .. i-vi

CHAPTER I: THE MINERAL RESOURCE BASE ..... .................. 1

A. Mineral Production ................................... 1B. Mineral Potential .......................................... 1C. Infrastructure ......................................... . ... 3

CHAPTER II: SECTORAL INSTITUTIONS ............................. 4

A. Ministry of Mines and Energy .................... . . .......... 4B. Ethiopian Institute of Geological Surveys .5................. C. Ethiop4an Mineral Resources Development Corporation ........ 6D. Others ............. ........................................ 7E. Institutional Development and Training ..................... 8

CHAPTER III: PRINCIPAL MINERALS: PROSPECTS FOR EXPLORATIONAND DEVELOPMENT .................................. 9

A. Geological Mapping and Mineral Exploration ................. 9B. Gold Development ...... . .................................... 11C. Base Metals ................................................ 16D. Other Metals ............................................... 17E. Industrial Minerals ...... .................................. 17F. Construction Materials ..................................... 21

CHAPTER IV: MINERAL LEGISLATION AND POLICY .................... 22

A. Mineral Legislation ........................................ 22B. Taxation ................................................... 23C. Financing .................................................. 25D. The Investment Program ..................................... 26E. Foreign Exchange ........................................... 27F. A Strategy for the Future . . ............................,. 28

TABLZS AND CHARTS

Table 1: Ethiopia: Official Mineral ProductionTable 2s Ethiopian Mineral Resources Development Corporationt State_ent

of Revenues and ExpendituresTable 3s Ethiopia: Investmnt in Mining Sector, 1981g2-198819Table 4s Selected Targets of DIRDC and ZLMICO Under 1986189 Three-Year

PlanTable 5: Contribution of Mining Sector to Economy, 1986-1995

Charts

1. Organizational Structure of the Ministry of Mines and Energy2. Organizational Structure of the Ethiopian Institute of Geological

Surveys3. Organizational Structure of the Ethiopian Mineral Resources Development

Corporation4. Major Minerals: Summary of Status and Development

M2p

IBRD 20784

ACRONYM

AGDE Adola Gold Development Ente-priesRIGS Ethiopian Institute of Geological SurveysKLMICO Ethio-Libyan Joint Mining CompeayD4IDC Lthiopian Mineral Resources Devalopment CorporationGDP Gross Dcmestic ProductLCDPIU Lega Dembi Gold Development Project Ipl_mentation UnitMHz Ministry of Mines and EnerGyONCCP Office of National Comittee for Central PlanningTYPP Ten Year Perspective Plan

Exchange Rate

June 1988

Birr 1.00 - US$O.483US$1.00 - Birr 2.07

Fiscal Year

July 8 - July 7

SUIM4aY AND CONCLUSIONS

1. The mineral sector has historically been a neglected and relative-ly unimportant part of the economy, reflecting in part the scarcity ofeconomic deposits, political insecurity, problems of access and inadequateinfrastructure, and the low level of industrial development, leading tominimal internal markets for industrial minerals comodities. Miningaccounted for l.e. than 0.32 of GDP and less than 22 of merchandise exportsin FY1985. The mining sector is in its infancy; most of the country hasnot even been mapped at a scale adequate to identify mineral potential. Asa consequence, the sector's most promising mineral deposits may have yet tobe identified.

2. The Government envisages an increasingly important role for thesector in the economy. Its major objectives are to increase mineralexports and to develop substitutes for mineral imports, the latter largelythrough development of mineral-based industry. Prospects in the sector willobviously depend on the identification of economic deposits. Based onEthiopia's known resource base and infrastructural constraints, the mostapparent opportunity in the sector lies in the development of gold,through successful implementation of the N. Lega Dembi project (which alonecould triple mineral exports and value added); further exploration of areaswhich hold promise for primary gold deposits and encouragement of smallscale gold mining. Current prospects for medium-or large-scale developmentof lower-value industrial minerals are unpromising since the limitedinternal market makes it difficult to find projects of sufficient scale tobe economic, and because of the major obstacle posed by high domestictransport costs to exporting low value products. Wherever possible,domestic requirements are being linked to export potential with respect tothe industrial minerals sector. Particularly as far ts the export marketis concerned for new opportunities such as in soda ash, a solution to thetransport cost problem will need to be found and satisfactory marketingarrangements established.

3. The potential economic impact of the mining sector is small butsignificant at the margin, particularly with regard to exports Whilemining value added is unlikely to exceed 1Z of GDP during the next eightyears, if existing projects come on stream as scheduled, mining couldaccount for over 62 of total exports of goods and nonfactor services by themid-1990s, compared to 22 today. The projected net foreign exchange con-tribution from mining could cover 72 of the projected current account defi-cit by 1990. These estimates could be considerably higher if small scalegold mining could be further accelerated or if additional economic primarygold deposits are identified and developed. Growth of small scale mininghas the potential of increasing sectoral employment substantially as wellas diversifying and strengtnening the econouic base in certain regions.

4. For the most rapid development of the sector, the Government willneed to maximize its ability to attract foreign expertise and capital, andto establish strict criteria for Government spending, since the requiredmanagerial, technical and financial resources are severely IL'ited in

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Ethiopia. At the same time, the most rapid route to increasing small scalemining (mainly of gold but also of industrial minerals and constructionmaterials) will be through promotion of cooperatives and the local privatesector. A recent proclamation by Government to encourage cooperative proj-ects has not yet been extended to mining. Good organization will befundamental to success. Speciiic recommendations towards meeting theseobjectives are set out below.

5. Mapping. An assessment of the mineral potential of a countrydependa on adequate geological information; however, both manpower andfinancial constraints have prevented Ethiopia from establishing a completegeological information base. The Government needs to accelerate the geolo-gical mapping program with the goal of completing between 10 and 15 map-sheets by 1994/95 but budgetary cutbacks will make this difficult toachieve. To this end, the EIGS might consider using 1t100,000 scale base-maps for this work instead of 15O,OOO; also, cartography, petrology andreport preparation services would need to be strengthened. Recent progresshas been made for publishing of field data and maps and this rhythm needsto be maintained so that up to date information is easily accessible tointerested parties. The shortage of support logistics such as vehicles,equipment and supplies is a major bottleneck.

6. Exploration. The exploration program needs to be better inte-grated with the regional mapping program and to give greater priority tothe evaluation of existing geological information. More detailed geologi-cal mapping such as at 1:50,000 or 1:25,000 scales may need to be linked toexploration work over promising areas in a systematic manner. Explorationmethodologies could also be updatud and made more cost-effective. Ideally,Government institutions should focus on early-stage exploration whichfollows up on the mapping program, while more detailed explorationT work isundertaken by private entities, who would provide specialized expertise andtheir own financing. Economic criteria for government-financed explora-tion projects need to be established and applied.

7. N. Lepa Dembi Development. The north sector of the Lega Dembigold deposit is one of the most promising sites to date for commercialmineral production. A feasibility study based on the exploration resultsfor Lega Dembi North was completed in 1987; the African Development Bank,the European Investment Bank and the Ethiopian Agricultural and IndustrialDevelopment Bank have agreed to finance this project. The mission notedsome weaknesses in the draft study which suggest that additional detailedgeological information may be requirel to optimize the feasibility work.Mcre detailed mapping and sampling will be needed continuously duringproject implementation to update the accuracy of the feasibility study.Management for project design, procurement, construction and start-up hasbeen contracted to international consultants with this work supervised byconsultants to be provided by one of the foreign component projectfinanciers. While this contract/consultant approach will not be asefficient as overall management by private equity partners it will help tooffset the lack of country mining experience and inherent problems causedby the complex nature of the deposit. Experienced management will make thedifference between project success and failure. Performance-basedincentives are considered to be essential to maximize project viability.

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8. Small-Scale Goli Mining. There appears to be considerable scopeto increase small scale gold mining production with relatively low levelsof additional investment (compared with, for example, development of aprimary gold deposit). Such development would require the proper legaliza-tion of private gold mining and the establibwAent of a realistic pricebased on the international price for gold and a reasonable exchange rate asminimum preconditions. Given this as a basis, a program to promote small-scale gold mining through provision of technical assistance and serv±ces tominers might be considered; such a program would need to be meticulouslydesigned and would require considerable preparation effort given limitedexisting knowledge and the informal4 ty of the sector.

9. Mineral Legislation and Policy. The current legislative regime isnot optimal for the development of the sector. In this regard, the Govern-ment has already taken a positive step by rationalizing legislation regard-ing petroleum exploration in 1986 and instituting a promotional program.It is currently reviewing the possibility of revising mineral legislationalong similar lines, with assistance from the UNDP. Are.. which might beaddressed in this effort include:

(i) a change in Government's policy so that precious metalmining is not a state monopoly;

(ii) the development of specific rules and guiidelines to be usedby the Ministry of Mines and Energy for the negotiation ofmineral development agreements;

(iii) the need to shape a fiscal regime appropriate to foreigninvestment and mining developmert (promotional incentives,etc.);

(iv) a review of 'closed area' definitions and limitations; thepresent law is extremely restrictive;

(v) definition of regulations for small-scale mining;

(vi) clear assurances that mining rights will be granted aftersuccessful ard properly implemented prospecting andexploration activities.

10. The Investment Program. Planned resources allocated for invest-ment in the sector during the next three years are projected to increase toabout Birr 261 million plus 32.5 million in credits and grants in foreigncurrency equivalents or more than three times the level of the previousthree years (Birr 62.5 million plus 31.6 million in foreign grants andcredits). The increase in part reflects ongoing project implementation(i.e., Lega Dembi and marblelgranite). The projected level appears to behigh in relation to the implementation capability. Given the prospects foran acceleration of mining development, the Government needs to givepriority to undertaking a careful review of proposed capital spending andto establishing economic and financial criteria for publicly-funded miningprojects. The investment review might focus on the following issues: (1)identification of projects which could serve as vehicles to mobilize exter-nal financing (i.e., the soda ash project); (2) review of the AGDE invest-ment program; (3) review of the geological mapping program and

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establishment of economic criteria for exploration projects (as discussedabove); and (4) review of the viability of ongoing projec-s, in particularmarble/granite development and construction materials.

11. Institutional Development and Training. At the same time, thereis a need to re-evaluate ongoing and planned institution-building effortsfrom the perspective of current priorities and to reassess the skillbalance required for sector development. In the past, the emphasis, under-standably, has been on developing geologists; the University of Addis Ababacurtently produces about 30 geology graduates a year. ZIGS and DMRDC con-stitute the main source of employment and will not be able to continue toabsorb all these graduates and use them effectively. At the same time,there is a shortage of experienced mining engineers, which is now parti-cularly critical given the increasing emphasis on project development andexecution. Other important skills in short supply include financial/eco-nomic analysis of projects, accounting, inventory control, maintenance and,in general, project management. Before launching further technicalassistance efforts, it might be useful for the Government to undertake anassessment of sector manpower Iequirements for the next 10 years, in con-junction with the investment program review. The Government also needs totake measures to improve the financial condition of the state-owned miningoperations, especially EMRDC.

CHAPTER I

THE MINERAL RZSOURCZ EASE

A. Mineral Production

1.01 The history of mining in EthLopia is a long one; gold (mainLyalluvial) has been mined more or less continuously for over 2,0t0 years.The first minexal concessions were granted to European interests in thewestern adminAlstrative region of Welega around the turn of the centur,;considerable quantities of gold and platinum were mined between the twoWorld Wars. Gold mining in the north also developed during the sameperiod, but was discontinued in 1935; production at the Adola Gold Fieldsin the scuthern administrative region of Sidamo began a few years later in1943. Apart from precious metals, iron ore, salt, industrial minerals andconstruction materials, deposits have traditionally been mined on anextremely small scale for local use. The mineral sector has historicallybeen a -ieglected and relatively unimportant part of the economy, reflectingix part the scarcity of known economic deposits, periods of politicalinsecurity, problems of access and inadequate infrastructure, and the lowlevel of industrial development, leading to minimal internal markets forindustrial minerals. Based on available data, mining accounted for lessthan 0.3Z of GDP in FY1985; gold represented close to 601 of the total,with official production of 916 kg, the equivalent of US$9.4 million, forFY1985 (see Table 1). An additional unknown quantity of gold is producedtraditionally from alluvial deposits primarily in Welega administrativeregion, where it is estimated that some several thousand part-time artisansare producing about 260 kg of gold, the equivalent of US$3.5 millionannually. Another 351 of mineral production comprises constructionmaterials, including limestone and gypsum for cement production, crushedstone, and building stone. The balance includes small quantities ofplatinum, and industrial minerals, such as salt, kaolin and diatomite.Official mineral exports, essentially gold and a little platinum, representless than 21 of merchandise trade exports. Employment in the sector,including traditional gold mining activity, is estimated at 13,000, or lessthan 0.12 of the employable population.

B. Mineral Potential

1.02 The mining sector is in its infancy; most of the country has noteven been mapped at a scale adequate to identify development potential.Optimal development of the sector will require a systematic and cost effec-tive mapping and exploration effort; mobilization of financial cesourcesand management/technical skills as well as the applicatior. of stricteconomic criteria in project d relopment and enterprise operations; thepatience to wait for results which for the most part will be in the mediumor longer term; and a market-oriented focus in assessing tlhe developmentprospects of minerals, in general, and industrial minerals in particular.

1.03 A wide variety of mineral and construction material deposits havebeen identified, despite significant gaps in the geological informationbase. Gold is by far the most promising. Other minerals include metals--copper, zinc, nickel, tantalum, and platinum; industrial minerals--salt,

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soda ash, potash, phosphate, feldspar, diatoaite, bentonite, kaolin, andlignite; and construction materials--marble, granite, limestone, andbasalt.

1.04 Geologically, the most promising regions for gold and other metal-lic minerals are those areas underlain by Precambian rocks, primarily vol-canogenic belts of Proterozoic age. These regions are in the northernEritree and Tigray administrative regions; in the west along the Sudanborder, particularly the Welega administrative region; and in the southernSidamo administrative region. Present known gold deposits, mostlyalluvial, are largely found around the Adola gold field of Sidamo wheremining over the past forty years has yielded an estimated 35 tonnes ofgold. Many of the alluvial deposits have been worked, but one primarydeposit has been discovered at Lega Dembi and a second at nearby Sakaro andthe potential for discovery of additional economic primary deposits ishigh; some forty showings have been identified. Less is known aboutalluvial deposits or possibilities for primary deposits in Welega, wherealluvial gold has been mined for centuries, because of more limitedexploration to date. The geclogical environment around Asmara in Eritreaalso has excellent potential for primary gold occurrences. Zinc and copperalso occur in this region. Although they are less promising than in theAsmara region, there are also base metal showings in the west, particularlyin Welega where base metals are found associated with magnetite, in acopper--gold prospect, and under gossan showings. Platinum deposits areworked on a small scale at Yubdo, Welega. In addition, tantalite (Ti205)has been discovered in pegmatites at Kenticha in Sidamo. Occurrences ofberyllium, lithium, and niobium have been noted in this area, as well as asmall lens of chromite.

1.05 Some potential also exists for industrial mineral development,although it faces more formidable transportation and market constraintsthan higher value metals. Soda ash is found in sodic lake brines of LakesAbijata and Shala, Shewa administrative region in the Rift Valley.Resources of soda ash in these two lakes are sufficiently large to supporta major operation; a pilot plant is presently under development (seeChapter III, para. 3.28-33). Potash deposits in the Danakil depressionnear Dallol, Tigray have been known since the turn of the century.Attempts to develop the deposit in the 1960s were halted by water controlproblems (see Chapter III, para. 2.34-37). A feasibility study which con-templates solution mining is presently underway.

1.06 Bentonite occurs in lagunal/lacustrine deposits in the Rift Valleybut evaluation thus far has not established any deposits of high oualitysodium bentonite; the deposits investigated are calcium bentonites whichhave more limited market uses. Testing of a deposit at Gewane hasindicated possible use in sanitary ware and tableware. In addition, anumber of diatomite deposits have been identified in a similar geologicalsetting as bentonite; at least portions of some of these deposits couldfind application in local industry as a filtering medium and as fillercomponents. Finally, the large zoned pegmatites at Kenticha have beenexamined as possible sources for microcline feldspar and quartz. Testinghas shown both these minerals to be of high quality, suitable for theiruses in ceramic and glass production. The nature of their occurrence inpegmatites could make mining and processing fairly complex for the scale ofoperations. A nearby kaolin deposit, at Bombawoha, also seems promisingfor use in ceramics.

1.07 Construction materials. Limeston*, gypsu and clays for cement,and basalt, other volcanic rocks and limestone for crushed stone are inample supply. Deposits of marble near Mendi, Welega and granite nearHarar, Harerghe administrative region are being developed for use asdecorative stone.

1.08 A few other minerals have been identified which could also have aneconomic potential. Sulphur deposits have been mined in the past; thesedeposits, however, are small. Barite occurences are known in Eritrea.Semi-precious stones--peridot and garnets--are found in limited quantitiesin the pegmatite/ultrabasic complex of Sidamo. The latter could possiblysupport cottage scale industry.

C. Infrastructure

1.09 While the potential for economic mineral deposits is highestaround the extremities of the country, infrastructure - electrical energy,transportation, couunications - is best developed in the center, aroundAddis Ababa. Limited infrastructure in more remote areas poses constraintsfor mineral development (with the exception of precious metals).

1.10 Electrical Energy. The Ethiopian Electric Light and PowerAuthority (EELPA) is responsible for generation and distribution ofelectrical energy. The interconnected system, based largely on energy fromhydropower sources, covers a broad north-south area through the centre ofEthiopia. The Eritrea region operates an isolated system, with oil as asource of generation. A 132 KV line has just been completed to serveShakisso, in the Adola gold mining area. Other areas, in particular thewestern administrative regions--Welega and Gojam--are supplied with dieselengines or small hydroelectric power plants until their demand justifiesextension of the grid system. Mineral projects in these administrativeregions would be required to make their own arrangement for powergeneration pending extension of the grid system.

1.11 Transportation is the single most serious infrastructural con-straint to the mining sector. While the road network is sufficientlydeveloped to permit access to most areas with mineral potential, with themajor exception of the southwestern area, the quality of roads is poor inthe peripheral areas, and freight costs are high relative to mostcountries. Road transport, including service provided by the privatesector, is organized, regulated and controlled by the Government throughthe Road Transport Authority. A recent Bank-executed transport sectorstudy suggests that existing freight rates, though high, are still notadequate to cover costs and permit adequate repair and replacement of thetrucking fleet. Existing rail transportation is substantiallydeteriorated, and more expensive than road transport. As a consequence,base metal and iron ore deposits in the western part of the country wouldprobably face prohibitive transportation costs (transport costs for marbleproduced by ELMICO in Welega are Birr 520/ms (US$250) to the port ofAssab). Transport costs will also be a critical determinant of theeconomics of large scale soda ash development. Ethiopian ports are notequipped to handle bulk mineral commodities for export; this deficiencywould need to be addressed if soda ash and/or potash were to be exported.

CHAPTER II

SECTORAL INSTITUTIONS

2.01 As might be expected in a country with a centrally plannedeconomy, Government entities are the dominant actors in the mineral sector.Under the Hinistry of Mines and Energy (MME), the Planning and ProgrammingDepartment (P&P) and the Mines Exploration and Development Control Depart-ment are responsible for mineral related activities. The former is concern-ed with both ener J and mining sectors. The MME also supervises the semi-autonomous Ethiopian Institute of Geological Surveys (EIGS) and theEthiopian Mineral Resources Development Corporation (EMRDC). Nationalplanning, foreign exchange and general budgeting are mainly the function ofthe Office of the National Committee for Central Planning (ONCCP), whichworks closely with the Min.tstry of Finance. With the Ten Year PerspectivePlan (TYPP) covering the period FY1985-1995 as a framework, capital alloca-tions are made under the current three year plan (FY1987 to FY1989), whichwas approved in 1986. In addition, annual requests for both foreignexchange and local expenditures are submitted to ONCCP for approval.

A. Ministry of Mines and Energy (MME)

2.02 The MME (see Chart I), the principal institution in the sector,was created in 1964, previously existing as a department in the Ministry ofFinance (MOF). The Geological Survey was established within the MME in1967 in order to increase knowledge of the geology and resource base of thecountry. During the 19709, the Mines Department of the MME took overoperation of the alluvial gold mines in Adola. In 1982, the EIGS and theEMRDC were spun off, largely depleting the MME of well qualified personnel.

2.03 In relation to the mining sector, the role of the MM coversmineral policy and planning, the administration of mineral legislation, andsupervision of state-owned agencies and corporations. The Planning andProgramming (P&P) Department is responsible for development of sectoral andinvestment plans in accordance with the national plan, coordination withthe ONCCP, and evaluation of mining projects. Because of its staff con-straints (10 professional staff) and the demands of the more highlydeveloped and active energy sector, the role of the P&P Department in rela-tion to mining has been primarily limited to a coordination function. Astronger role on the part of the MME in assessing policy issues, theinvestment program, and the relative role of institutions in the sectorwould add an important perspective to the planning process.

2.04 The Mines Exploration and Development Control Department (61 staffof which 10 are professionals) is responsible for licensing, regulating andrecording of prospecting, exploration and mining activity; technicalservices and industrial health and safety. The licensing and recordingdivision issues only five to ten prospecting and exploration permits peryear. Production statistics do not appear to be comprehensive or reliable.Since mining royalties are based on quantities or value of production,

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accurate statistics could increase revenues. In regard to safetylegislation, a few regulations on industrial health and safety, for exampleon storage and use of explosives, currently exist; however, as the industrydevelops, development and adoption of adequate safety regulations will berequired. A mining safety and environmental protection regulation isexpected to be passed in 1989. The Mines Control Department has draftedregulations for the organization of mining cooperatives but seems to havedone little organizing thus far. There are, reportedly, a number ofcooperatives operating small building materials quarries.

B. Ethiopian Institute of Geological Surveys (EIGS)

2.05 EIGS (see Chart II) originally existed as a department of MME.During 1971 to 1982, its activities and facilities were expanded, with UNDPassistance, to include geological mapping; hydrogeological and geothermalstudies; geophysical surveys; mineral and other exploration; and thedevelopment of support facilities such as drilling, laboratory, and carto-graphy. The first phase of a new complex is now under construction at anestimated cost of Birr 9 million (USS 4.35 million) to house EIGSfacilities. The entire complex is costed at Birr 23 million (USS 11.1million at 1988 prices).

2.06 The EIGS is headed by a General Manager, who reports to the ViceMinister for Mines of the MME. The technical services, reporting to theChief Geologist are: Central Geological Laboratory, Cartography andSurveying Services, Equipment and Engineering Services, Central Data andDocumentstion Service, and Drilling Service. Regional Mapping, MineralExploration, Geophysics, Hydrogeology and Geothermal, and Hydrocarbonsdepartments also report through the Chief Geologist. The EIGS has a totalstaff of 1,234, of whom 454 are professionals (243 geologists). Many ofits professionals are relatively young; in mineral exploration, the 45geologists have an average of three years experience.

2.07 Funding of the EIGS' activities is provided from both recurrentand capital budgets. Head office, support services, and administrativeexpenses are met from an annual recurrent budget of approximately Birr 2.9million (US$1.4 million). Projects are funded from capital allocationsunder the TYPP. Available data shows that expenditures have increased froman estimated Birr 9.5 million in FY 1984 to Birr 20.0 million in FY 1987.Foreign grants and credits have diminished from Birr 14.6 million (US$7.1million) in FY 1984 to Birr 4.0 million (US$1.9 million) in FY 1987. Ofthese amounts, only about 3Z went to geological mapping, while 35Z went tomi'neral exploration. The EIGS has some twenty five (25) ongoing projects--3 in regional mapping; 11 in mineral exploration; 4 in hydrogeology; 3 ingeothermal exploration; 2 in engineering geology; and 2 in hydrocarbonexploration. Four are financed partly by credit and grant components(USSR, Sweden, UNDP).

2.08 Among the EIGS support facilities, the Central Laboratory has beenbuilt up to a well equipped, well staffed facility. The Laboratory under-takes chemical analysis, mineralogical studies, physical material testing,and hydrocarbon analysis. With recent expansion and diversification of itsactivities, however, the time required to obtain analytical results can beas much as six months. One difficulty the laboratory faces is the present

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diversity of its functions; in order to provide adequate support toexploration efforts consideration should be given to establishment of aseparate unit to provide service for exploration requirements (a traceelement laboratory). More effort and money should also be put intoreequipping and maintenance so that the laboratory can function in anefficient, clean environment.

C. Ethiopian Mineral Resources Develomuent Corporation (DEMRDC)

2.09 The DMRDC (see Chart III) was established in 1982 and startedoperations in mid-1983. Its objective is "to engage in development ofeconomic mineral deposits and in the production, purchase, and sale ofminerals*. The EMRDC is a semi-autonomous agency, headed by a GeneralManager who reports to the Vice Minister of the M1M. At start-up in 1983,the EMRDC took over operation of the Adola alluvial gold mines at Shakiso,Sidamo, from the MME. Operating entities, s.th as the Adola Gold Develop-ment Enterprise (AGDE), are treated as rep*rate enterprises within theEMRDC. Departments in the head office include finance, personnel, purchas-ing, exploration and studies, and technical services. The exploration andstudies department is responsible for investigating mineral deposits, andpreparing feasibility and other studies. It follows up on evaluation ofmineral deposits after discovery and/or assessment by the EIGS. Over thepast four years, the EMRDC has expanded its activities, managing the AGDE,gold and soda ash projects and undertaking exploration and technicalstudies of a number of metallic and industrial mineral deposits. Throughthe recently formed Lega Dembi Gold Development Implementation Unit(LGDPIU) it is managing the start-up of Ministry operation at Lega DembiNorth.

2.10 Considering its relatively short existence, the EMRDC's accom-plishments are impressive. It has built a competent staff of profes-sionals, numbering 110 university graduates. Permanent employees number1,110, of whom 620 are employed by AGDE mainly as alluvial miners (thereare an additional 270 temporary employees). Nevertheless, a shortage ofexperienced mining, mineral processing and maintenance engineers adverselyaffects its operations; EMRDC personnel could benefit from technical sup-port and training in these areas.

2.11 The EMRDC's unaudited financial statements show that it hasincurred losses since its creation (see Table 2). This in part reflectsthe fact that EMRDC undertakes non-revenue generating exploration activi-ties, and is in the early, non-revenue producing stages of project develop-ment for gold, soda ash and crushed stone. The Corporation has incurredsubstantial expenditures for exploration, which have been charged tooperating expenses. At its creation, the EMRDC took over a mineralexploration program, financed by a credit from the USSR, in Sidamo (thetype of exploration usually undertaken by the EIGS). The EMRDC has alsoactively pursued evaluation of various mineral deposits, not all of whichwill result in viable projects. It would be more logical to treat explora-tion expenses as investment costs.

2.12 A second problem is the impact of the tax regime. Taxation legis-lation for public enterprises requires that operating enterprises such asthe AGDE are taxed as separate entities. Profits generated by the goldmines are taxed at 501. After allocation of 101 of after tax profits tothe EHRDC's general reserves, the balance or residual surplus is

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transferred to the Ministry of Finance (MOF). In addition, the EHRDC isrequired to pay a 5Z annual charge on its capital (comparable to a returnon equity) to the MOF. The EKRDC therefore finds itself in a position ofpaying income and other taxes and charges on its gold operations whileincurring losses at a corporate level. The Corporation's financial posi-tion has deteriorated since its creation and this situation can be expectedto continue. DODC will not be able to operate effectively if it continuesto be starved for cash. The impact of each project on EMRDC's financialsituation also requires examination. Recent projects, such as the crushedstone quarry and the Lakes Soda Ash Development Enterprise (LSADE) havebeen largely financed with debt. When these projects come on stream, theEMRDC will face debt service payments which may not be covered by cashflow, at least in the case of the crushed stone quarry. In its projectevaluation, the DMRDC calculates a before tax return, since the after taxreturn is negligible in any event. Nevertheless, assessment should beundertaken of the after tax cash flow as well to establish the debt servicecapacity of the project and to fully assess its impact on EMRDC's financialposition.

D. Others

2.13 The only entity with a foreign investor playing a role in mineraldevelopment is the Ethio-Libyan Joint Mining Company (ELMICO) in which theLibyan Arab Investment Company holds 492, and the Government through theMOF, 51Z. Established in 1981, with capital in cash and in kind of Birr20.7 million (US$10 million), ELMICO has focussed its activities on deve-lopment of decorative stone quarries (para. 3.43) and exploration of theDallol potash deposits (para. 3.32). In FY1985, ELMICO incurred a loss ofBirr 1.8 million (US$0.87 million). With its investments in marble andgranite quarrying and processing; potash studies; and the operating losses,ELMICO has exhausted its paid-in capital. The status of further equitycontributions from the Libyan partner is inclear and ELMICO's ability topursue development of its projects may be hampered.

2.14 As shown in the following table, there are a significant number ofprivate operators producing a wide range of quarry substances andindustrial minerals:

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ETHIOPIA

Organizations Holding Mine LicensesManpower and Production

YY 1986ApprozimateAnnual

Number of ProductionMaterial Organizations Man Power (Cu. m.)

White sand 27 1,164 314,164Red Sand (Scoria) 9 164 51,858Red Soil 6 36 12,213Basalt

- Uncrushed 18 207 48,655- Crushed 21 566 155,037Clay 4 190 42,726Lime 16 33 20,547Trachyte 55 1,271 378,698Pumice 6 29 10,000Gypsum 2 40 1,104Marble 2 N.A. N.A.Diatomite 3 6 N.A.Salt 4 N.A. N.A.Kaolin 1 6 N.A.Granite 1 N.A. N.A.

E. Institutional Development and TraininR

2.15 While the role assigned to the institutions in the mineral sectorseems appropriate, and their performance, for the most part, must beconsidered good, there is a need to build on the strengths of these insti-tutions and to re-evaluate ongoing and planned institution building effortsfrom the perspective of current priorities. One issue which needs to beaddressed is the skill balance required for optimal sector development. Inthe past, the emphasis, understandably, has primarily been on developinggeologists; the University of Addis Ababa is currently producing about 30geology graduates a year. EIGS and EMRDC, which constitute the main sourceof employment, will not be able to continue to absorb all of thesegraduates and use them effectively. At the same time, there is a shortageof experienced mining engineers, which is particularly critical as increas-ing emphasis is placed on project development and execution. Other impor-tant skills in short supply include financial/economic analysis of proj-ects, accounting, inventory control, maintenance and, in general, projectmanagement. In most fields, there is a shortage of mid-level technicians.

2.16 Several training and institutional development efforts have beeninitiated. A UNDP-financed program was begun in 1984 to train 30 geolo-gists per year over a three-year period; it focuses on providing practicalfield training for young geology graduates hired by the EIGS and EMRDC.After four months of classroom orientation, the trainees are given fieldassignments for 7 months under a 1-year training program; about half aregranted fellowships for post graduate study abroad, mostly in India. The

Government recently submitted a proposal to UNDP to finance a second threeyear phase. In addition, a proposal was prepared for an institution build-ing program in the MME, directed at increasing MME's capabilities in policyformulation, project analysis and monitoring, investment planning, promo-tion of small-scale mining and adoption of safety regulations but this wasnot approved. Finally, under the aegis of the LIGS, a project to establisha technical school at Mekele, Tigray is under development. The schoolwould offer three-year diploma courses, initially, to train geologicaltechnicians, as veil as mining, mineral processing, maintenancetechnicians, surveying, geochemical, and other miing assistants. Whilethe school has been located at Mekele to take advantage of existing unuti-lized facilitiep and long-term resource development potential of the area,it might be better situated close to an active mining area such as Sidamo.In any event, the school would fill a need for technicians; its futureorientation should be towards expansion of courses to train a broader rangeof technicians, rather than creation of a degree-granting institution forthe mineral sector.

2.17 These efforts are in the right direction. However, before launch-ing further technical assistance efforts, it might be useful for theGovernment to undertake an assessment of manpower needs for the sector forthe next 10 years. This should be done in conjunction with a mininginvestment program review (see paras. 4.15-4.16 below) and might be bestcarried out by a small task force with representatives from differentmining sector and educational institutions. The objective would be toroughly quantify the skills gap in the sector (including private operators)and to develop a strategy to fill it. This strategy might serve as aframework for training, technical assistance, and institutional strengthen-ing efforts and would need to be updated periodically. Within thiscontext, the MME proposal might be expanded to address EIGS and EMRDCrequirements as well in an integrated way. Overseas training will howeverstill be essential in the short to medium term.

CHAPTER III

PRINCIPAL MINERALS: PROSPECTS FOR EXPLORATION AND DEVELOPMENT

A. Geological Mapping and Mineral Exploration

3.01 Mapping. An assessment of the mineral potential of a countrydepends on adequate geological information; both manpower and financialconstraints have prevented Ethiopia from establishing a complete geologicalinformation base. A geological map on a scale of 1:2,000,000 was compiledin 1975 from more detailed mapping, aerial photographs, and other sourcesof information. Its accuracy consequently varies from area to area depend-ing on the data base, but it does provide a broad overview of the country'sgeology. Only about 20% (about 215,000 square km) of the country has beenmapped at a scale of 1:250,000, the minimum necessary for an adequateassessment of mineral development potential. Until very recently most ofwhat had been mapped has not been published. There was, therefore, a longgap during which information was not widely available. The Government hascorrectly focused its efforts on the promising Precambrian areas in Sidamo,Welega and Eritrea, although mapping in the latter has been curtailedbecause of the disturbed security situation.

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3.02 The Government's 10-year plan (for the period 198415-1994/5) ori-ginally foresaw the com=letion of 35 geological mapsheets. (Each mapsheetcovers about 18,000 km' and requires about 15 professional staff-years tocomplete). Under ideal conditions, this would be reasonable; however, EIGSis not funded to achieve this target, which would require a sevenfoldincrease in qualified mapping staff and comparable increases in budgetallocation (expenditures on mapping totalled about US$1,000,000 during thepast four years). If funds were made available, it may be possible toidentify sufficient staff to carry out an expanded program but not at thetargeted level. Presently only eight teams can be financed from arequirement of 40 teams.

3.03 Given these constraints, the Government had modified its mappinggoals downward substantially in the draft three-year plan (1986-89) to anaverage of about three-quarters of a map sheet per annum. This downwardadjustment appears excessive; it should be possible to accelerate this ratein order to produce about 15 map sheets by 1994/95. To accomplish thisgoal and strengthen the mapping effort, which is critical to maximizing thelong-term prospects of the sector, the Government may wish to considerseveral steps. At present, 1:50,000 scale base maps are used to produce1:100,000 scale working sheets from which the 1:250,000 scale map sheetsare produced. The Government may wish to consider in reducing detail by50Z through working on 1:100,000 scale sheets for rapid coverage of thecountry. Accuracy will be reduced. This should, however, be able to iden-tify areas of potential which could then be subjected to a parallel system(using different teams) of 1:50,000 scale mapping. With this approach, itseems reasonable to target a completion of some 10 to 15 map sheets at the1:250,000 final scale by 1994/5 whilst regular coverage at 1:50,000 scaleof targeted areas is implemented. This would not only entail an increaseof available resources for the mapping effort but also some strengtheningof support services in EIGS--cartography, petrology, report preparation.In addition, field data and maps should be published as expeditiously aspossible to ensure that the information is easily accessible.

3.04 Exploration. Mineral exploration has taken place in Ethiopiasince before the turn of the century, by both foreign and local entities.In recent years, however, an increased commitment to systematic explorationhas been in evidence; an estimated US$7 million has been spent on mineralexploration activities during the last four years. Ongoing explorationwork includes a USSR-supported metallic minerals program in the Bulbul-Hagare Mariam area of Sidamo, which will be completed in three years; aUNDP-assisted exploration/training project, recently relocated from Welegato Sidamo (see para. 2.16); two regional exploration programs in Welegawhich have identified primary gold showings requiring diamond drillingfollow-up, a small Czechoslovak-supported project also in Welega and 6industrial mineral projects in various areas of the country.

3.05 The exploration program could be improved if it were better inte-grated with the regional mapping program, and gave greater priority to theevaluation of available geological information. Priority should be givento gold and other minerals with the best economic potential; minerals withless economic potential (like iron ore) are being given disproportionateattention. In addition, exploration methodologies could be updated andmade more cost-effective. For example, multi-element analysis of samples

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is employed, with each sample typically assayed for copper, lead, zinc,arsenic, nickel and cobalt; arsenic is assayed as a pathfinder for gold.This approach could be made more cost-effective if the initial sampleanalysis were to be reduced to gold, zinc and possibly copper only. Such aprogram would be just as effective for exploration, would be les costly,and would reduce th' burden on the geological laboratory. In addition,heavy mineral sampling work is carried out in conjunction with bothregional and follow-up work. More selective and flexible follow-upprocedures could be adopted to maintain effectiveness with reduced costs.

3.06 The Government is proposing an expanded exploration effort for thenext three years (FY's 1986/87/88) amounting to Birr 30 million (US$14.5million) for minerals (see Table 3). This program includes low prioritywork on iron-ore (292 of minerals exploration budget and 102 of totalexploration including geothermal, hydrogeology and hydrocarbons). At thesame time, hydrogeological exploration work, given the country'sdifficulties with water supply, appears underfunded at Birr 1.4 million(US$628,000). Since exploration is a high risk activity and constitutes adrain on the Government's scarce resources, ideally, EIGS should focus onlyon early-stage exploration which is integrated with the mapping program,while more detailed exploration work is undertaken by private sectorentities, who would bear the risk and provide expertise and financing. Inorder to encourage such investment in petroleum exploration, the Governmentissued new legislation in 1986; a similar effort in mining is underway (seeChapter IV). The establishment of an appropriate legislative environmentand a promotional program to attract investors are essential steps tostrengthen the exploration effort. In the meantime, the Government mightwish to consider limiting its expenditures on later stage exploration,focusing on areas with strong economic potential (i.e., gold development)and seeking foreign assistance and/or partners whenever possible.

B. Gold Development

3.07 Lega Dembi, one of the primary gold occurrences identified in thearea of the Adola alluvial gold field near Shakisso, was discovered in 1979and selected in 1981 for more detailed exploration as part of the programand is the most promising site to date for commercial production. The LegaDembi structure, which has been traced over 1.8 km on surface, consists ofsteeply dipping parallel quartz zones. Within the structure, three areascarry ore grade gold values. Most of the exploration thus far has focusedon the northern area, where surface trenching and pitting was followed bydiamond drilling. An EIB-financed prefeasibility study was undertaken in1985 for Lega Dembi North; its recomnendations included undergrounddevelopment to provide additional information on the deposit.Consequently, an adit was driven in 1986, some 110 m below the top of theore zones; some 1480 m of drifting and crosscutting have now beencompleted. The Lega Dembi North ore deposit has been extensivelyinvestigated to the 1920 m. above sea level elevation as a result of thisexploration. A diamond drilling program is being undertaken between LegaDembi N. and Central as well as extension to the north - to prove mineralcontinuity. Surface trenching, pitting, and initial diamond drilling havebeen completed on Lega Dembi Central, and Ethiopian Mineral ResourcesDevelopment Corporation (EMRDC) is planning to drive an adit at the sameelevation. The results thus far have reportedly been encouraging.

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3.08 A feasibility study based on the exploration results for LegaDembi North was completed this year; only draft sections of the study wereavailable at the time of the mission. The African Development Bank hasagreed to provide Birr 45.2 million in foreign currency equivalent (US$21.8million) And EIB Birr 49.8 million in foreign currency equivalent (US$24million). Local costs are to be financed through a Birr 58.9 million loanfrom AIDB (US$28.5 million equivalent) and Birr 26.1 million (US$12.6million equivalent) from the Government budget. Total financing of closeto US$87.0 million appears high for the size of the project but exchangerate distortions (overvalued birr) must be taken into account as well asinfrastructural development which it appears is also being fully charged tothe project. The mission noted some areas of weakness in the feasibilitystudy which suggast some additional geological work would be valuablebefore defining the mining plan and beginning construction. Minedevelopment is, however, now underway and hopefully, these apparentweaknesses will be addressed.

3.09 The feasibility study did not examine the nature of the golddeposition in detail. As is typical of gold bearing quartz deposits, thegold values occur erratically within the quartz zones (or extremely closeto the contact). It may be that the gold values occur in smaller highgrade lenses or stringers. Only detailed study of the quartz zonesencountered in the adit could provide a better understanding of the natureof gold deposition and of the geologic controls--whether structural orother. Since the lenses could be quite narrow, the sample length (onemetre) used in evaluation is too long to permit a thorough examination ofthe nature of gold deposition. To address this problem, detailed under-ground mapping and resampling of the high grade intersections at geologi-cally determined intervals would greatly improve assessment of the depositquality. Such a program would require some four to five man-months ofadditional work by geologists with experience in gold quartz deposits.

3.10 A related problem is that the ore reserve estimate (3.14 milliontonnes with a grade of 8.6 g/tonne, 2/g/t cut-off) did not take availableinformation on the geology of the deposit into account. Only statisticaldata from sample assays has been used, and consequently there may be sub-stantial errors in reserve estimation. The uncertainty extends to theestimate of mineable reserves as well, which the study states are some 4.18mt of 6.47 g/mt grade. The latter estimate assumes an open pit miningmethod with a pit bottom at the 1870 m level whereas the study proposes2000 m. More recently it has been considered that to the 1940 m level,some 5.1 million tonnes with a grade of 5.34 g/t constitute mineablereserves using a 1.0 g/t cut-off. Gold recovery is estimated to be 95Z.For effective open pit mining, tight grade control based on detailed sampl-ing of each bench--whether blast hole drill cuttings or other (Australiantype wDitchwitchingw), and utilization of the assay results in a mineplanning computer program to determine the blocks mined as ore or wastewould be necessary. The pit design must also provide for multiple faces toensure sufficient flexibility in supplying a regular feed to the concentra-tor. Consideration should also be given to stockpiling, say, 0.5 to 1.0g/t material for future heap-leachilLg potential.

3.11 Several other areas of concern include:

(i) The reasons for major differences in the gold content ofsamples taken from opposite walls of the underground work-ings need to be investigated and understood. This will be

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particularly important for future possible underground deve-lopment.

(ii) There was no review of sampling errors or assaying bias andprecision in the draft study, although samples had been sentabroad to control local assays. These should be reviewedbefore finalizing the project design even thoughconsiderable check sampling has been carried out.

(iii) The mine production rate in the study is based on an assumedannual gold production of three tonnes. The final feasibi-lity study should have established a mine production ratebased on technical and financial criteria.

3.12 It was not possible to arrive at a conclusive assessment of theeconomics of the project at the time of the mission, given the concernsaddressed above. However, based on available information, the project isattractive, with cash operating costs in the order of US$150/troy ounce.Assuming production at the rate of 3 tons per year, and at today's goldprices (US$450/oz), the mine could net about US$30 million per annum inoperating revenues. Any change in the assessment of the quality and extentof the ore reserves could sharply alter these prospects, affecting minedesign, production costs, and output.

3.13 A major challenge for EMRDC will be management of the operation.This is the first mining operation of its size to be established inEthiopia. The EMRDC has recently awarded a contract to an internationalengineering consulting group (Davy McKee) for project design, procurementand start-up and independent consultants are being made available by EIE tosupervise and assist in this work. In addition to project implementation,management assistance will be essential durlag the first few years of miningoperations, in particular to strengthen mine production planning, gradecontrol (relatively complex, since visual control will not be possible andassay control will be required), operation of the processing plant, equip-ment maintenance, supply management, and cost accounting and control. SinceEthiopia lacks experience in this type and size of mining operation, theother alternative to the management/consultant approach being adopted wouldhave been a joint-venture approach in which the experienced foreign equitypartner would have management control. The second best arrangement in placeshould be based on performance incentives to maximize cost-effectivenessthrough project design into operation.

3.14 Mineral processing tests have been conducted, on a bench scale inFrance and the USSR. These tests indicate a possible 952 recovery rate ofgold using a combination of gravity and cyanide leach/CIP treatment. TheEMRDC has acquired a 50 tonne per day (tpd) concentrator to test ore fromboth surface and the adit. The plant was put into operation in November1987. An on-site assay laboratory (AA and fire-assay methods) has also beenrecently established to provide rapid sample results; essential during theproduction phase when daily turn-around will be required of hundreds ofsamples to maintain grade control and mining patterns. A small mineralprocessing laboratory will also be necessary to test adjustments in theprocess flowsheet. The pilot plant trials are important to ensure that thebench scale tests are achievable in an actual plant, to optimize the unitprocesses, and to enable EMRDC to train its personnel.

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3s15 Infrastructure requirements are moderate. The 132 kv electrictransmission line, has Deen extended to Shakiso and road access is underimprovement. Maintenance shops, administrative, and social facilities willbe required for the mine.

3.16 Cash operating costs are estimated to be $150/troy ounce based onrecent estimates. This appears to be rather low by world standards for thistype of operation and it is more likely to be closer to US$200-250/oz. Thepotential net revenues suggested previously (3.12) are, therefore expectedto be lower. The complex geology and the lack of other than small scalegold mining experience in the country will provide a substantial challengeto the implementing agency. While present prices of gold ($430-$450/oz)provide an attractive margin, it seems prudent to plan, as the Government isdoing, on medium to long term prices in the US$350/oz range. It will becritical to ensure that the project has adequate initial capital and thatthe internal price of gold (paid to the newly formed operating unit withinEHRDC, the Lega Dembi Gold Development Project Implementation Unit), iscomparable to market prices at the shadow exchange rate. Otherwise,EMRDC/LEDPIU will suffer cash constraints which could affect production.Similarly, since about 602 of operating costs will be foreign exchange,ready access to foreign exchange will be necessary for successful mineoperation.

3.17 Under the regional exploration program in Sidamo, exploration foralluvial gold deposits was undertaken in three areas - the Genali basin, theAwata/Mormora basin and Dawa/Aflata basin. With completion of the regionalexploration programme, the EMRDC has concentrated its efforts on evaluationof known deposits as well as tailings from previous mining. From past andcurrent exploration work in Welega, a compilation of gold occurences wasundertaken last year by the EIGS and EMRDC. This compilation, which alsotook into account previous exploration largely funded by the Government withUNDP assistance, outlined a number of possible alluvial and hard rock goldoccurrences, some of which might be suitable for small scale mining andothers for mechanized mining.

3.18 The AGDE is currently operating at a profit, producing about 1,000kg per annum with a total value of about US$16 million. Hining of thealluvial deposits by AGDE involves the removal of an average of 5 metres ofoverburden with bulldozers. Once the gravel is exposed, it is moved bybulldozers to a washing station. Hydraulic monitors wash the gravel over awire mesh screen. The oversize are rejects while the undersize flows ontoan amalgamation pad, followed by a steel sluice. The amalgam concentrate isseparated while the sluice concentrate is hand panned to recover the gold.While the operation is fairly straight forward, it has been hampered by lewavailabilities of bulldozers, and other equipment which can be attributed toa shortage of foreign exchange since the allocation system requires a longlead time for acquisition of spare parts and supplies; weak stores manage-ment, and inventory control system; and poor maintenance practices-- equip-ment life is only 40-70Z of the life achieved in other mining operations.With the gravity concentration process used by EMRDC, the fine grained goldis lost in the tailings. Gold recovery probably varies between 55Z and 85?.Consideration should be given, after appropriate testing, to installation ofgravity separation equipment at the end of the sluice. Watson washers,similar to those being tested for small scale mining, but with a largercapacity, might be a solution to improve recoveries.

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3.19 Some 115 to 125 kg of official gold production is purchased fromsmall scale miners in the Adola area. There are two types of small scaleoperations:

(i) The traditional small mine where the miners sink a 1.0 mdiameter shaft 1 to 15 m deep to the gold beari.ig gravel andthen mine the gravel. Gold is recovered by hand panning thegravel at a nearby water source. The miners are paid birr 4(US$1.93) per gram (g). equivalent to about $60/ounce;

(ii) Mining cooperatives: after suitable deposits and/or oldtailings are identified, miners dig the gravel and transportit by wheelbarrow to a 10 tonne per hour capacity Watsonwasher, a gravity separation unit. The final concentrate ishand panned to recover the gold. The groups consist of some60 persons on two shifts. Some difficulty was encounteredis getting miners to work scheduled shifts on a daily basis,but this situation is gradually being improved. Most of theminers are not native to the area, having been sent to theregion when it was used as a penal colony in the fifties,and their average age is quite high. The miners are paid ona sliding scale, starting at Birr 4 (US$1.93) per g on thefirst 14g per man-month, and increasing 1 Birr per g foreach 7g per man-month increment to a maximum of Birr 8(US$3.86) per g.

3.20 In addition to the 700 small scale miners at Adola, there arereportedly several thousand part-time artisans - farmers operating onsimilar alluvial deposits in Welega province. Numbers vary depending ongrowing seasons and there is little information available on their activi-ties and production. Mining and gold recovery work is similiar to thesmall hand operating in Adola. Most of t;eir production is sold to traderswho use the gold to acquire consumer goods in Sudan for resale in Welegaadministrative region. Some is sold to jewelers in Addis.

3.21 There appears to be considerable scope to increase small scalegold mining production, foreign exchange generation and employment, withrelatively low levels of additional investment (compared with, for example,development of a primary gold deposit). Such development would require twobasic policy changes as a minimum:

1) Enacted legalization rather than tolerance of traditionalgold mining. AGDE mining under the auspices of the EMRDC islegal, however, all activity in Welega and other areas in thewest and south-west of the country is illegal under the termsof the existing legislation which reserves gold mining forthe Government; and

2) Establishment of a realistic price based on the internationalprice for gold and a reasonable exchange rate. In othercountries with significant small scale gold mining develop-ment, maintenance of an internal price equivalent to theinternational price of gold has been a key factor in minimiz-ing smuggling and maximizing foreign exchange inflows.

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3.22 Given these prior actions, a development program directed at pro-moting small scale mining would be worth examining. Such a program mightinclude: 1) identification of suitable deposits; 2) removal of overburden,since mining under uuconsolidated overburden is hazardous and difficult; 3)equipment lease; i.e., shovels, wheelbarrows, and manual jigs; and 4) pos-sibly credit in the future (present demand for credit from banking sourcesis negligible because of the informality and illegality of the subsector).Some of these approaches have been tried successfully in other countries;however, the practicality of these measures is heavily dependent on localcircumstances, and a thorough feasibility study is proposed to determinethe optimal form of assistance in the varied Ethiopian environment. It isenvisaged that an economic evaluation would be undertaken of each depositand a system of charge-back to the miners for costs of services and equip-ment would be evaluated. The resulting promotional program would need tobe meticulously designed and would require considerable preparation effort,given limited existing knowledge of the resource base and present modusoperandi of the sector, cultural and language diversity, and the specialproblems of the small-scale gold miners. Anthropological and socialaspects would need to be carefully considered in the design of the promo-tional and implementation programs. At this stage, it is difficult toquantify the possible impact as far as production increases are concerned.

C. Base Metals

3.23 The most promising region for base metal deposits is the Asmarabelt in Eritrea and Tigray. Exploration during the late sixties and earlyseventies outlined several prospects, but the information available onthese is incomplete. The best known of the deposits are:

Debarwa, located 30 km south of Asmara, is a massive sulphidecopper deposit with minor zinc, silver and gold--with a secondaryenrichment zone some 80-100 m in depth. While the copper gradecan be quite high (7-82) in this secondary zone, the underlyingprimary mineralization is only 1.5X Cu. In the late 1970s, theEthio-Nippon Mining Co. did some diamond drilling, sank a 136 mvertical shaft, and mined a 2000 tonne bulk sample from lateraldevelopment for processing tests in Japan. Given the small sizeof the secondary zone, the low grade of the primary zone, andprospects for copper prices, the deposit must be considered mar-ginal.

Adi Nefas, located 6 km north of Asmara, is a massive sulphidedeposit--zinc with silver and minor gold. The Ethio Nippon MiningCo. drilled some 27 holes but the results of only 12 holes areavailable. The incomplete data and wide spacing between holesmakes assessment of the deposit difficult. The known results aresufficiently encouraging to justify additional exploration.

3.24 There has recently been renewed international interest, of sorts,in the Asmara belt. Early in 1986, a Yugoslav group presented a proposalfor a Birr 20.1 million (US$9.7 million) exploration programme on threeprospects--Debarwa, Adi Nefas, and Adi Rassi (a low grade copper/gold

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prospect 37 km SE of Asmara) together with some regional exploration. Theproposal also outlined a second phase of underground exploration for AdiNefas and Debarva at an estimated cost of Birr 15.3 million (US$7.4million). Financing of this programme would be through payment by GOE incash or by barter arrangements; or through negotiation of a joint ventureagreement.

3.25 Later in 1986, a proposal was submitted by Philips Barratt Kaiser(PBK), a Canadian consulting firm, for exploration of Adi Nefas. The workprogramme provided for a first phase of diamond drilling followed by addi-tional drilling, if watranted, "nd preparation of a pre-feasibility study.PBK would supply 35 m-m of s;ervi. s (presumably financed by CIDA) whileE4RDC would provide drilling uimz ther services. On completion of the pre-feasibility study, PBK would ',tl'r a net carried interest in the project.

D. Other Metals

3.26 As mentioned above in Chapter I, tantalite (Ta205) occurrenceshave been under exploration since 1984, at an approximate annual cost ofBirr 1.0 million (US$0.48 million). Mineable reserves are being developedin the weathered zone with grades of 250 g/tonne. Recent work has focussedon mineral processing tests, with trial production of 20 tonnes of a 10Ztantalite pre-concentrate and testing of the pre-con in the UK and USSR todefine processing. These tests indicate an expected tantalite recovery of60Z-65Z using a combination of magnetic and gravity separation methods toprovide a 35Z tantalite concentrate. Design of a mining project isunderway and construction of the first phase (pilot mine) is scheduled forAugust 1988 at a cost of Birr 6.0 million (US$2.9 million). Whileevaluation thus far has examined the technical aspects, preliminaryfinancial analysis should now be a priority.

3.27 Alluvial platinum deposits at Yubdo, Welega have been worked onand off for the last fifty years; however, in add4tion to being low grade(.03 to .1 g/m3), the platinum is fine grained, presenting recovery pro-blems. Tests are underway by an Australian firm to see if betterrecoveries can be attained.

E. Industrial Minerals

3.28 Soda Ash. The EMRDC is presently implementing a project to pro-duce 20,000 tonnes of soda ash (Na2CO3) per year from lake brines. Ofthis, 7,000 tpy will be in the form of crude soda ash (96Z Na2CO3) to sup-ply local markets such as the glass factory; 12,000 tpy in the form of wetsoda ash (972 Na2CO3.H20) for feedstock to a caustic soda [Na(OH)] plantnow under construction; and 1,000 tpy will be refined (99.5Z Na2CO3) fortesting and development of export markets. Lake Abijata, like other lakesin the Rift Valley, has a high sodium salts concentration, estimated at0.652 Na2CO3 and 0.602 NaHCO3. The project involves pumping lake brinesinto a series of solar evaporation ponds to concentrate the soda ash andeliminate the other sodium salt impurities. The technology used wasdeveloped by Giulini Chemie, which is also providing engineering and proj-ect management services, and is expected to result in operating costs per

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ton substantially lower than competing technologies. A processing plantwill be constructed to refine, dry, and size the products and prepare themfor shipment. The project is located beside Lake Abijata near the town ofBulbula. A 1,000 tpy refinery, presently under construction, will test theprocess flowsheet and the p-oducts, which will be used for market develop-ment. Pumping of lake brine from Lake Abijata into the pre-concentrationponds was targetted to start in mid to late 1987. Nine to fourteen monthsof evaporation are required to obtain the first pre-concentrate from theseponds. Production will build up over the following twelve months, with therefining plant coming on stream towards the end of this period.

3.29 The plant is considered to be a first phase in the development ofan operation, with a total investment cost of about US$45 million, to pro-duce 200,000 tpy of refined soda ash for the export market. It is expectedthat such an expansion could generate US$4-S million per annum in operatingrevenues. Financial viability will depend, however, on a sharp reductionof existing transportation costs. The plant is 950 km from the port ofAssab. The study by Giulini proposes bypassing expensive freight servicesavailable in Ethiopia through acquisition of a truck fleet (54 trucks and113 trailers) to haul 49 tonne loads of soda ash, and return-haul goods at80 of capacity to achieve a net transport cost of Birr 31 (US$15) pertonne of refined soda ash. Based on the present tariff established by theMinistry of Transport (MOT), the transport cost would be Birr 145 (US$70).Use of the rail line to Djibouti was examined but the rates were not compe-titive with the proposed trucking. A detailed cost analysis of truckingwas not presented in the study; however, at first glance, a cost ofUS$0.015 per t km under the conditions existing in the country would appeardifficult to achieve.

3.30 Another concern which will need to be addressed in project pre-paration is the environmental impact of a 200,000 tpy industrial plant onLake Abijata, a nature reserve and tourist attraction with abundant aquaticlife which acts as a food chain for a large number of bird species. Theproject would require pumping brine from Lake Shala to Lake Abijata, andwould use a portion of Lake Abijata as a pre-concentration pond. The proj-ect planners should seek assurance that the projected 17 fold increase inbrine concentration will not have an adverse effect on the wildlife.

3.31 A central issue to the successful development of Phase II of thesoda ash plant is the development of an export market. The Government'sprimary market focus is Western Europe, where it hopes to compete withhigher cost synthetic soda ash producers who may go out of production andto benefit from Lome preference. A secondary market focus will be Japanwhere the Government hopes to have a cost advantage over U.S. and EastEuropean producers. This marketing strategy will depend on producing sodaash of a quality acceptable to the Japanese and European markets. TheGovernment intends to conduct market tests in Europe when production comeson stream.

3.32 Potash. The deposits are located in the Danakil depression, some90 km from the port of Mersa Fatma on the Red Sea coast in NorthernEthiopia. They were discovered after the turn of the century, and havebeen worked and explored on and off since then. In 1981, an Ethiopia/Libya

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joint venture (ELMICO) acquired the deposit, and initiated a prefeasibilityreview. The final version of the initial (Phase IA) report was issued inAugust 1986, and consisted essentially of a review of existing geologicaldata, a recalculation of reserves, proposals for mining methods, and recom-mendations for additional field work (Phase IB). A review of marketprospects for potash vas also completed by LCA in 1982.

3.33 Most of the exploration thus far has focussed on the Musleyorebody. It is comparatively small, irregular, and complex. It is in atectonically active, highly faulted region, and there is a large aquiferabove the deposit, which led to flooding problems during explorationefforts in the 19709. It is, however, unique in that it is close tosurface, at depths ranging from 50 to 200 m. The potash bearing strataconsist of three units, of which the sylvite unit is of primary interest,with variable thickness (6 to 46 m), and containing an average of 33Z KC1.The intermediate unit is 3 to 20 m thick, and contains sylvite on top andkainite towards the base, with carnallite throughout. A number of otherminerals are also present. The lower unit, 4 to 13 m thick, consists of752 kainite and 25Z halite.

3.34 The potash deposit has a number of attractive characteristics;the deposits are close to surface, permitting cheaper open pit miningand/or solution mining. In addition to sylvite, kainite could also bemined to produce potassium sulphate. The deposit is close to the coast anda reasonable harbour, which in turn is advantageously located for marketsin Asia and Africa. On the negative side, the deposit is complex, and, atpresent, there is no technically or financially qualified partner.

3.35 Market prospects for potash are unpromising; demand and prices aredepressed and are projected to continue to be so during the medium term;current prices (f.o.b. U.S.) are about US$87/mt. At today's prices, theeconomics of the project seem in doubt. The ECA marketing study proposesthat projected production of about 1.5 mn tpy be primarily directed to theAsian/Oceanic and African markets. Penetration of the Asian market, whichconsumes about 2.8 million tpa, would be a major task; the project wouldneed to offer a substantial price advantage as well as to establish creden-tials as a reliable supplier. While well-located in relation to Africa,effective demand in this market is small (roughly 400,00Q-500,000 tpa) andis mainly in South Africa. Phase IB of the prefeasibility study,originally scheduled to begin in 1986, was delayed because of ELMICO'sfinancial problems. Given the deposits' complexity, and the variety ofoptions available for mining, processing, and products, the technical workprogram will be quite extensive. Before investing further resources inthis work, it would be prudent to reassess market prospects.

3.36 Ceramic raw materials are under evaluation in Sidamo. A kaolindeposit, discovered at Bombawoha north of Kebre Mengist, has provenreserves estimated to be 250,000 tonnes with a further 250,000 tonnes inthe probable category. Preliminary testing, including mineralogy,granulometry, chemical analysis, green strength, plasticity, shrinkage andwhiteness as well as wet dressing and upgrading, indicated possible pro-blems of purity, with mica and quartz as contaminants. With the variablecontent of these minerals in the deposit, production of a standardizedproduct will require careful beneficiation. The iron and titanium dioxidecontents are however low. The raw material (401 kaolin) was found to have

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a low bonding strength but could be used after dry dressing as a major bodycomponent in sanitary ware and in utility porcelains. For better qualitywhite china and hard porcelains, considerable upgrading would be required,which may prove to be uneconomic. More recent work by British clay/ceramicconsultants (January 1988) who were contracted by the Ministry of Industryprovided results which were considered promising enough to encourage thedesign of a mining and ceramic operation with the mine facilities and plantto be installed on-site at Bombawoha and the ceramic plant at Avasa some130 km distant. Economics of this operation which will involve hightransport cost of raw materials are not available for review. Furthertesting of products and the engineering design are scheduled to be done byItalian consultants (US$160,000 equivalent). Financing for this work aswell as future plant con3truction has not yet been secured. Estimatedproduction is 4,000 tonne/yr; 2,000 t for ceramics and 2,000 t for analuminum sulphate plant.

3.37 The other principal body component for the production of sanitaryware and tableware is feldspar. A pegmatite deposit is under evaluation atKenticha. The purity of this material is satisfactory but handsortingwould be required to ensure product standardization. Pilot mining andfurther product testing will be required to assess the economic viabilityof the operation. A production of 4,000 tonne/yr is foreseen to supplyboth the developing glass and ceramics industries as well as 4,000 tonne/yrquartz from the same area.

3.38 Exploration for sheet glass raw materials has been carried out byEIGS since 1984/85 at the request of the Ministry of Industry. Evaluationfor quantity and quality of silica sand, dolomite, feldspar, limestone andsoda ash (para. 3.28) has been completed and encouraging results have beenobtained. A final report is to be prepared in the near future.

3.39 Most Ethiopian soils are deficient in phosphate and explorationfor suitable raw materials has been going on since 1986/87 also at therequest of the Ministry of Industry. Parts of the sedimenvary terrains ofthe Ogaden Bain (eastern Ethiopia) and some magmatic rock units in centralWellega have been investigated. In the Biklal area of central Wellega,phosphate occurs in the form of apatite within a gabbro-hornblenditecomplex several kilometers in length, having an average value of 4 to 51P205. Detailed investigations are underway to evaluate the possibility ofdiscovering higher grade concentrations which could be worked economicallyas a phosphate source.

3.40 The other major industrial minerals which offer possibilities fordevelopment for local use are bentonite and diatomite. Apart from theGewane bensonite which has been tested for use as body mixes in ceramics,the best development potential would appear to lie with diatomite. Furtherproduct testing to complement work performed with the assistance ofCzechoslovakia will almost certainly result in defining sufficient tonnageof quality material for the filler industry as well as for use in filtersand for other specialized industrial requirements (binders, bricks,insulating materials). A micronization feasibility study using bentonite,kaolin, diatomite, quartz and feldspar has recently been completed. Forthe foreseeable future, the development of ceramic and other raw materialswill be limited to supply of local industrial needs. Since the local

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market is extremely small for most existing industrial minerals,development will need to be integrated vith that of small industry as isbeing done vith respect to the Bombawohah kaolin. This might be supportedmore effectively if the Government made development finance available formall scale mining (funding is already provided for small scale industry)through the Agricultural and Industrial Development Bank. The privatesector could potentially play a more active role than at present in thisarea.

F. Construction Materials

3.41 Crushed Stone. At the request of the GOE, the EMRDC is implement-ing a project to provide sized crushed stone for the construction industryin the Addis Ababa area. The request was motivated by a desire to reducethe price for crushed stone in the local market. Initial assessment of thebasalt deposit (a fine grained volcanic rock) which is 4km from the AddisAbaba airport, was undertaken by the EIGS. This was followed by atechnico-economic study and a review of the market by the EHRDC. Design oftwo identical crushing-screening plants, procurement, and constructionsupervision were provided by a firm from East Germany. The first crushingplant with an annual capacity of 297,000 tonnes started up in February1987. A few start-up problems have been encountered, in particular thehandling of oversized boulders at the jaw crusher, and the design of thetransfer chutes. In addition, the whole operation is rather dusty. Sitingof the present quarry face in an area of sloping overburden is also notideal due to a high percentage of fine waste as well as large erratic boul-ders.

3.42 In the assessment of the market, a growth rate of 12.62 is proj-ected for demand over a ten year period from 427,000 tonnes in FY1985.Even accounting for an increase in construction of public housing which isgovernment policy, this growth rate seems optimistic. On the supply side,the capacity of the quarry operated by the Ministry of Construction isprojected to increase 402 to 151,000 tpy.

3.43 Decorative Stone. ELMICO obtained a mining lease in 1985 on amarble area in Welega. Pure white as well as variegated rose, green andgrey marbles are being produced from four quarry faces and the intention isto produce facing slabs and tiles as well as small and large blocks. Aprocessing plant for small blocks (less than 1.5m) is planned on site andconstruction of a plant is underway for large block processing (3m x 2.5m x1.5m) near Harrar, where rose, black and pale-colored granites are underexploration. Products have been exhibited at European fairs, trial blockshave been exported to Kuwait and Italy, and finished slabs and tiles toWest Germany, the Middle East, and Kenya. Planned production is to reach5,000 ms next year and 10,000 m3 in four years. Production costs at Mendiare expected to be US$135/M3 (including depreciation), transport costsUS$250/ms from Mendi to the Red Sea port of Assab, and US$150/ms for seafreight to Italy. The combined freight costs of about US$400/ms are 702 oftotal cost.

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CHAPTER IV

MINERAL LEGISLATION AND POLICY

A. Mineral Legislation

4.01 The basic law governing mineral activity is the 1971 MiningProclamation of Ethiopia, together with the 1971 Mining Regulations whichdefine application of the law. Other proclamations have since mu 'ifiedsom provisions of the Mining Proclamation. The most significant of theseis the 1975 Government Control of Mineral Prospecting, Exploration andMining Activities Proclamation which reserved precious metals, nuclearminerals and large scale salt mining for the Government. The 1983 JointVenture Establishment Proclamation defines the participation of foreigninvestors in projects in Ethiopia. The exclusion of precious metal miningwas eased somewhat by permitting foreign participation with specificapproval of the Council of Ministers; the Ethiopian private sector, how-ever, continues to be prohibited from involvement in these minerals. As aconsequence, all alluvial gold mining, except for that conducted by AGDE,is illegal as far as present legislation is concerned although actuallytolerated. These umbrella documents are technically well executed andprovide detailed precise rules and regulations. However, review and revi-sion is required in order to ensure optimal furtherance of mining promo-tion, investment and development. Major issues which need to be addressedinclude:

(i) the development of specific rules and guidelines to be usedby the Ministry of Mining and Energy for the negotiation ofmineral development agreements;

(ii) encouragement to re-invest through additional exploration;

(iii) environmental clauses and a review of 'closed area defini-tions and limitations. Presently the law is potentiallyextremely restrictive and could be the subject of extensivelitigation and arbitration. The most restrictive clausesunder legal Notice No. 396 are those which prohijit anywork on land under cultivation, land within 100 m of anybuilding, 200 m of any historic or burial site or any landwhich the Minister may declare closed to prospecting,exploration or mining;

(iv) the need to differentiate between the scale of miningoperations (small, medium and large). In particular, theneed to simplify regulations for small (artisanal) scalemining is required;

(v) relaxation of the pre-emptive right of Government to pur-chase all mineral production or to force sale to a desig-nated person or persons;

(vi) complete review of the royalty and taxation regime (i.e.,the requirement for incentive, a promotional and negotiable

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fiscal regime with flexibility linked to rates of returnand a work-incentive adjustment to land rental rates); and,

(vii) more clear and positive assurances that mining rights willbe granted after successful and properly implemented pro-specting and exploration activities. Article 30 of the1971 Mining Regulation (Legal Notice No. 396) presentlystates that the Minister may grant a mining lease afterapplication compliance. Most investors will require afirmer assurance than presently implied.

4.02 Mineral rights are vested in the state, and the Mining Proclama-tion authorizes the Minister of Mines to grant these rights to qualifiedparties. At present, granting of prospecting permits, exploration licensesand mining leases is largely centralized in Addis Ababa although processingcan be effected in Asmara and Harar; some regionalization of this activitymight eventually be considered to simplify procedures for small miners.Mining rights are presently conferred only to a specific mineral within thearea of the '.icense or lease. Most mining codes confer rights to all non-fuel minerals found in the permit area. There are innumerable examples ofexploration programs, geared to a particular mineral, which led to thediscovery of another mineral. In addition, many deposits are polymetallic;and the combinations are not always immediately obvious.

4.03 The periods of validity for prospecting permits (one year) andexploration licenses (two years) are adequate, to the extent that renewalsare granted without undue difficulty, when predetermined work requirementshave been met. There is a long lead time between mineral exploration andinitiation of production of an eventual discovery, and there must be areasonable assurance that high risk investments in exploration can providea return from mining of discoveries. The size of areas which may begranted for area covered by prospecting permits and mining leases is notspecified while the area of exploration licenses can range from one to onehundred square kilometers (km2). Although the areas are supposed to berectangular, in practice they are of all shapes. For example, the mininglease granted to Elmico for marble is a nineteen side polygon which is pearshaped. The reason given for the shape was the exclusion of land undercultivation. For ease of administration, and to avoid potential conflicts,it would be preferable to have rectangular areas of a specified approximatesize. Most mining codes allow for multiple permits of a fixed size.

4.04 Reflecting the low priority previously attached to the mineralsector at the time, significant areas are excluded from prospecting, andconsequently exploration and mining. These include land under cultivation;historical and holy sites; municipalities; buildings; dams, cemeteries;highway, railway and pipelines rights of way, among others. This provisionignores the relative scarcity of economic mineral deposits. Such restric-tions on prospecting limit unnecessarily the possibility of discovering adeposit.

B. Taxation

4.05 Taxation of mining operations differs depending on ownership -whether local privat?, joint venture with foreign partners, or state

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corporations. Local private operations are taxed at a rate of 512 of netincome, with royalties deductible from income taxes. Exemption from pay-ment of royalties can be granted to new operations for periods up to fiveyears, or longer if approved by the Council of Ministers. Taxation of'Joint ventures', which are in fact mixed companies with foreign capitaland Ethiopian public capital, is covered under the Joint Venture Establish-ment Proclamation. Income is taxed at a rate of 402. There is provisionfor exemption from income taxes for five years for new projects and threeyears for expansion, as well as exemptions from customs and other duties(i) on imports of investment goods and the first round of spare parts; (ii)on imports of raw and other materials for specified periods; (iii) and onexports. Dividends remitted abroad are taxed at 102. Taxation of stateowned corporations is particularly onerous (see Chapter II).

4.06 Royalties on the gross value of mineral production are payable byall mining operations. The rates are negotiable within maximums set out inthe regulations, i.e.

Precious minerals 152Other metals and minerals 10oQuarry substances 52

Royalties are a poor form of taxation for commodities with cyclic marketprices, since they are a cost which must be borne during periods of lowmetal prices. Consideration might be given to a profit based taxationsystem.

4.07 While the taxation of mixed companies can be regardel as generallyfavorable, none of the fiscal regimes considers the particular circum-stances of the mineral industry. A mineral deposit is a depleting asset,and exploration must be encouraged to ensure that new discoveries are suf-ficiently numerous to replace depleted deposits and sustain growth in themineral sector. A high level of re-investment is therefore required andprovision should be made in the fiscal regime to encourage this. Thecyclic nature of many mineral commodity prices makes a fixed period of taxexemption less desirable for mining projects since it can be a windfall orof little value depending on when in the cycle a project comes on stream.A provision for r,ccelerated write-off of the investment against profits asthey occur might be a more appropriate incentive.

4.08 In the high risk area of mining exploration and development,Ethiopia needs to maximize its use of foreign investor financing. Apartfrom the obvious financial advantages, the required management and market-ing skills will be an integral part of such venture packages. Eventually,it will only be through long-term on-the-job project involvement that suchskills can be learnt by Ethiopian nationals and corporately by EHRDC. TheGovernment has made several positive steps in this direction, includingissuance of the joint venture proclamation in 1983, and, recently,modernization of petroleum exploration legislation.

4.09 Attractive mineral legislation, policy, tax laws and investmentcodes are an essential starting point for rational and cost-effectivemineral development. In this regard, a proposal to prepare comprehensive

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mineral development legislation and a model mineral development agreementfinanced by UNDP was recently approved and implemented. Whereas compara-tive studies with other mining codes has been completed and new consultantsare to be provided for drafting, the project has met with delays partiallydue to a UNDP financing shortfall and is now not expected to be completeduntil 1988/89. Changes to existing legislation may not immediately arouseinvestor enthusiasm but are essential for providing a basis for discus-sions. A considerable amount of follow-up promotional work will also berequired. Regardless of the foregoing, the key breakthrough will be whenone or two major projects with private sector investment can be brought onstream and can be seen by the international mining sector to be progressingsmoothly in their relationship with Government. In effect, this meanslong-term investment stability, i.e.,assurance that high risk investmentwill be rewarded through freedom to export directly or sell mine productsat international prices, freedom of profit repatriation and external debtservicing and freedom of management control commensurate with the riskstaken.

4.10 The Government envisages an increasingly important role for miningin the economy. Its major objectives for the sector are increasing mineralexports and substitution for mineral imports, the latter largely throughdevelopment of mineral-based industry. Growth in mineral production isestimated by ONCCP to average 5.52 over the Ten-Year Perspective Plan(TYPP) ending in FY1994. This objective is a modest one, given the small-ness of existing production; successful implementation of the N. Lega Dembiproject alone could triple exports and value added, even assuming that thegold price averages US$350/ounce between 1989 and 1995. At the presenttime, the best prospect for accelerated growth of the sector is thedevelopment of gold through successful implementation of the N. Lega Dembiproject, encouragement of small scale gold mining, and further explorationof areas which hold promise for primary gold deposits (e.g., the AdolaArea). Prospects for lower value industrial minerals are more problematic,since the small internal market makes it difficult to find projects ofsufficient scale to be economic, and because of the major obstacle posed byhigh transport costs for low value products. What opportunities exist,such as the soda ash development, will depend on finding a solution to thetransport cost problem.

4.11 The potential economic impact of the mining sector is small butsignificant (see Table 5). While mining value added is unlikely to exceed1Z during the next eight years, if existing projects come on stream asscheduled, mining could account for about 6.6Z of total exports of goodsand non-factor services by the mid 1990s, compared to about 2Z today. Theprojected net foreign exchange contribution from mining could cover 7? ofthe projected current account deficit by 1990. These estimates could beconsiderably higher if small scale gold mining could be further acceleratedor if additional economic primary gold deposits are identified and broughtinto production which is quite likely to be the case in the Lega Dembiarea.

C. Financing

4.12 Investment in the mineral sector until 1982 was extremely low.Government capital contributions, during the period from 1958 to 1982 were

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reportedly only Birr 40 million (USS 19 million). Foreign private invest-ment over the same period was limited, and sporadic. The most significantwere outlays for exploration of the Dallol potash deposits by the Ralph M.Parsons Co. prior to 1968, and exploration of the Asmara base metaldeposits by Nippon Mining during the late sixties and early seventies.External assistance has been contributed primarily by the UNDP, which hashad an almost continuous presence in the sector since 1967.

4.13 Over the past five years, there has been a gradually increasinggovernment comitment to the mineral sector. Annual capital investment bythe government in the non-fuel mineral sector (see Table 3) has averagedsome Birr 14 million (US$6.7 million) during this period, and reachedalmost Birr 30 million (US$11.0 million) in FY1986. The proportion com-mitted to actual mineral development projects has increased dramaticallyover the last two years, including the EMRDC implemented projects, such asthe crushed stone project, soda ash, and AGDE gold expansion. There hasbeen little foreign capital, other than the Libyan investment in ELMICO.Official external assistance has however increased. The largest contri-butor has been the USSR with two credits totaling 8.23 million rubles formineral exploration and for equipment for the AGDE. The UNDP has alsocontinued its presence in the sector with expenditures close to Birr 2.0million (US$1.0 million) per year. Other multilaterals (EIB) andbilaterals (Swedish IDA) have started to contribute small amounts. Overhalf of the capital expenditures over the last five years have been formineral exploration; given the lack of development of the sector, this isappropriate.

4.14 The EMRDC projects have been largely financed by loans from theAgro-Industrial Development Bank (AIDB). Thus far, loans granted includeBirr 2.3 million for the crushed stone quarry, Birr 7.0 million for thesoda ash, and Birr 64 million for the Lega Dembi N gold project. The AIDBdoes not appear to mount an independent project evaluation and has no staffexpertise in mining. As mentioned in Chapter III, the AIDB has not beeninvolved in lending to small scale mining to date, and might play a usefulrole by making funds available for this purpose.

D. The Investment Program

4.15 The investment program (see Table 3) was assembled from diversesources by the mission, and may include omissions or inaccuracies. Basedon available information, however, planned resources allocated for invest-ment in the sector are projected to increase dramatically, with proposedinvestment during 1986/87-1988/89 of over birr 290 million, or about threetimes the level of the previous three years. The increase in partreflects implementation of the Lega Dembi an4 marble/granite projects(which account for about Birr 115 million of the program). The totallevel proposed appears high relative to implementation capability. Giventhe prospects for an acceleration in mining development, the Governmentneeds to give priority to undertaking a careful review of proposed capitalspending and the establishment of economic and financial criteria for pro-viding public funds for mining projects. This function would be locatedmost logically in MME; however, MME would require strengthening to carry itout.

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4.16 The investment review should be directed at minimizing the use ofpublic funds without obstructing economic development of the sector andmight address, inter alia, the following issuess (1) identification ofprojects which could serve as vehicles to mobilize external financing, i.e.the soda ash project; (2) careful review of the AGDE investment program;(3) review of the geological mapping program, with a view to at leastdoubling proposed allocations; (4) review of the viability of the ongoingumarble/granite and construction materials projects; and (5) definition ofcriteria for public funding of exploration projects.

4.17 The last objective is not easy. Many if not most mining companiesdo not use economic criteria for exploration projects; they allocate aproportion of revenues for exploration and cut back on exploration activi-ties during hard times. (A mining company may also not do the explorationitself but purchase economic prospects from outside companies.) Somecompanies have adopted a methodology which calculates an expected value forexploration work based on historical experience in a particulargeographical area; the exploration budget is calculated according to theminimum level of spending required to ensure a reasonable probability of aneconomic find. This approach is, understandably, most effective in areaswith a track record on which expected value estimates can be based. Evenin places such as Ethiopia where this is not the case, however, such anapp:oach might be useful since it helps decision-makers clarify theirassumptions and provides a means of prioritizing projects.

E. Foreign Exchange

4.18 The Ethiopian Birr has been pegged to the dollar since 1973, with-out adjustment for the relative difference in inflation. Since mostmineral production is destined for export, the overvalued exchange rateoverprices domestic inputs and decreases the Birr equivalent of interna-tional market prices. Mineral import-substitutes must compete against anartificially low import price.

4.19 Allocation of foreign exchange by the ONCCP for capital investmentdepends on the priority assigned to a sector. Distortions are created inthe economy as certain activities are favored by access to foreignexchange. The low priority attached to the mineral sector in the past hascontributed to its relative under performance. The Government, havingawarded high priority to the mineral sector, should give due caution toovercommitment in relation to the sector's potential role in the economy.In addition, new capital investments should be protected by adequateallocations for operating supplies and spare parts. As a consequence ofpresent inadequate allocations to meet the needs for operating consumablesand spare parts, operations are less efficient and equipment availabilitiesare low. Equipment life can be adversely affected by the lack of spareparts to ensure proper maintenance. Also the long lead time betweensubmission of foreign exchange budgets and actual placement of ordersrequires that needs be anticipated up to eighteen months in advance, whichis difficult to do accurately. Delays in LC processing often leads to bidcancellations and the requirement to repeat the procurement process.

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F. A Strategy for the Future

4.20 Mining is intrinsically a high risk activity with a typicallymedium to long term development cycle. Constrained by limited skilledmanpower, foreign exchange scarcity, inadequate financial resources, andthe lack of an adequate geological information base, the Governmentagencies in the sector have nevertheless accomplished a great deal in theirfew years of operation. The prospects of the sector will obviously dependon the existence of economic deposits and the Government's ability to iden-tify them. Given the country's financial and manpover constraints, theGovernment will have difficult decisions to make about allocation ofresources to high risk activities with long-tern pay-offs. The most rapidroute to sector development will entail the cooperation of foreigncompanies, which could supply technology, training and experience forEthiopian nationals. Areas of particular interest may be detailedgold/base metal exploration in the Adola, Wellega and Asmara areas. Themission supports the Government's intentions to revise existing mininglegislation to increase the sector's attractiveness to invaators. At thepresent time, there are few potential projects of sufficient scale andprofitability to attract foreign investors.

4.21 The promotion of small scale mining, particularly of gold, butalso industrial minerals presents another opportunity to maximize the deve-lopment of the sector. A program to support small scale miners has thepotential of increasing sectoral employment substantially as well as diver-sifying and strengthening the economic base in certain regions. It mightbe best operated by the EMRDC, and could include technical assis ence,equipment rental and services, (overburden removal), delineation work, andfinancing. Its success would require legalization rather than jtsttolerance of traditional small scale gold mining, simplification or thelegal environment, and a pricing policy for gold which would enable thsGovernment to compete effectively with illegal markets.

4.22 With these concerns in mind, the following activities need to beemphasized during the next five years:

(i) the timely publishing of existing mapsheets and reinforcingthe regional mapping effort in order to strengthen thegeological information base and broaden its availability tointerested parties;

(ii) rationalizing the exploration program by coordinating itmore closely with regional mapping work, taking fulladvantage of available information, subjecting explorationprojects to economic criteria, and identifying possibleexploration projects which could attract foreign participa-tion;

(iii) encouraging the involvement of foreign expertise/equity ingold/base metal exploration and in the operational manage-ment of mine development in general;

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(iv) on an urgent basis, rationalizing existing mining legisla-tion along the lines described earlier in paragraphs4.01-4.04, delineating projects suitable for foreigninvestors, and designing a promotional program to attractthe interest of foreign companies; and

(v) designing of an integrated program and institutionalmechanism or vehicle for development gnd expansion of smallscale mining.

Table I - ETHIOPIA: OFFICIAL MINERAL PRODUCTION(BIrr 969)

FY 1i3WMI FY 1984 FY 1985 FY 19SFuantitY Value QuantiY Val" Quantity VYlue Quantity Value

Gold 488 kg 18,140 N6 kg 16,907 916 kg 19,830 932 kg 22,U1Platinum 1,682 g 43 172 9 4 112 9 8 N.A.Kaolin - - 1,741 cu.. 144 675 cu.. * N.A.Diatomite - - 486 T N.A. 167 T N.A. N.A.Gypeum 825 cu.u 6 1,119 cu.- 18 625 cu.r 13 N.A.Lim - - 48,427 T 589 4,229 T 645 N.A.Building

atone 06,964 cu.m 4,181 740,679 cu.m 4,8c 720,791 cu.m 6,68 N.A.Sand 23,817 cu.m 1,796 409,406 cu.m 2,541 U86,498 cu.. 2,743 N.A.Scorla 11,230 cu.m 4 19,184 cu.r 6s 12,281 cu.m 59 N.A.Pumice ,626 cu. 82 6,160 cu.m 42 8,686 cu.m 68 N.A.

Source: Ministry of Mining and Energy

w

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Table 2 - ETHIOPIAN MINERAL RESOURCES DEVELOPMENT CORPORATIONSTATEMENT OP REVENUES AND EXPENDITURES

(millions of birr)

1982/3 1983/4 1984/5 1985/6

Revenues from Gold Sales 0.66 15.96 13.04 18.89Less: Cost of Sales (0.60) (9.83) (6.88) (10.70)

Gross Profit 0.06 6.13 6.16 8.19Other Income 0.07 0.06 0.07 0.43Net Operating Revenues 0.13 6.19 6.23 8.62

Expenses: General Administrative 1.10 5.98 3.66 5.25Amortization of Deferred Cost 0.22 0.59 0.47 0.38F'nancial Costs 0.22 0.59 0.05 0.06

Other 0.04 0.02 0.02 0.03Total Operating Expenses 1.58 7.18 4.23 5.72

Net Operating Surplus/Deficit -1.45 -0.99 2.03 2.90

Less: Exploration Costs - - -4.58 -4.05Less: Capital Charge - - -1.39 -2.16Less: ADEE - Income Taxes n/a n/a -.34 -0.58Less: ADGE - Residual Surplus n/a n/a -.31 -0.52

Overall Surplus/Deficit -1.45 -0.99 -3.94 -3.31

Source: EMRDC

Tab I.SJ Eth i In, ae;n stn Minin. Soctor.

-------- Proj eated --------Executing Actual Actual Actual Crant. A Actual Grant Actual Grant. A Actusl Grants A Grant. a Grnt. A TOTAL

Prol e A"nr 1981/2 19921S 19U4 gredit. 1904/5 Credit. 198515 Cr9dit. 11I 3i . 1 CiX 1m9

Regional Mapping E105 0.1 0.2 0.2 0.S 0.6 0.7 0.7 0.4 1.8

ExplorationBllbul Mineral EICS 2.9 1.2 1.6 1.4 0.5 1.0 1.9 1.4 6.2WEeleg 11 0.4 0 9 0.6 1 4 1.8 0.6 NAdolgold DoC 1.7 1.7 1.6 1.8 2.7 1.7 . 8.4 8.6Iron EIC5 0.6 1.0 1.1 2.9 1.8 2.2 6.9Oth*r Metallic EIC5 O.Ore eZcous Stonu ENRC 2S0S02JSPs.cuatEI BCS 2.28 0.8020.2 8.8Hdrogoloical EICS 0.2 0.1 0.2 0.1 0.S 0.8 0.2 0 5 0.1 0.8 1.4I^4u&trial minerals EICS 0.1 0.1 0.2 0.2 0.3 0.5 0.6 0.6 1.7

GeothriI A frocarbons EIGS Li L9 07 i Li L ; 1 2 LA 0L A Li Li N1 auJ

Total Exploration 3.0 2.6 10.6 14.6 7.6 9.7 6.9 5.6 13.7 3.1 13.1 2.2 11.0 2S.0 68.1

Project OvelogmntGold:

N. lp DOA i*e eZC 1.9 25.0 25.S U.0 * 2.8Adole oid Dev. Er ENC 7.4 0.7 8.6 5.6 5.0 9.0 9.6 10.6 29.4Manual Prod. cc 1.6 1. 2 0 5.1

Soda AW% 3CC 0.2 2.4 5.0 4.0 4.0 18.0Construction ftet al C 4.0 7.0 8 0 ace W

Industrial Mlineral, 5.00 S.0 S.0 9.0Bikilal Iron Nin. of Ind. 0.3 0.9 1.0 2 2Mnrble & 0-anite WEICO 4.8 5.6 6.4 10.6 15.6 S2.0

Pletinum (ep. A d*vt) mc 0.S 1.0 1.0 2.6Poteb (esp. A devt) EMICO -S _I -.32

Totel Project Developeent 7.4 0.7 5.6 10.6 14.9 57.6 64.3 74.2 191

Traininf A Manpor DevelopentTrasnin in M'inral Ex. EIC5 0.5 0.6 0.5 0.9 0.6 0.9 0.5 0. 0.S5 0. C.7

Makel Gol. Training EICS 1.5 J8 4.0 9.8

Inatitutional Strong. EIC5 0.4 0.2 0.5 1.0 3.8 s.3 S.4 2.4 16.1Ore-Oreemin Lab -- -- _f - - - -

Total Training & Manower 0 LI Li 5L LA _ I LI _S LI LI Li 2 lJ

TOTAL MDININ 5ETOlt DfSTU1ENT ILI L Z 1 4 74 i7 31Q Li Imu 4.9 I.1 Q I S7 A au m2.

e Excludea ootherml work and oil and ga exploratione Inveotm_nt adjusted donward from O estimates to conform with recent estimte.

SOUCE: OCP; EICS; ENc; WE

- 33 -

Table 4: Selected Taraets of EMRDC and ELMICO Under 1986/89 Three Year Plan

Actual Estimated---------Projected----------1984/5 1985/6 1986/7 1987/8 1988/9

EKRDC

Core Drilling (m.) 2,107 356 4,400 7,700 18,000Aditing (m.) 420 150 500 800Geophysical work (km.) 272 200 350 300Final design N. Lega Dembi completeConstruction N. Lega Dembi completeConstruction of Soda Ash Project completeProduction:Gold (kg.) 916 932 1,175 1,370 2,150Platinum (kg.) 7 10 15Jewelry Minerals (kg.) 150 150 400Soda Ash (tons) 10,000Crushed stone (tons) 150,000 720,000 720,000Marble (cu.m.) 200 1,250 2,250

ELMICO

Marble in blocks (cu.m) 1,800 4,750 6,000 6,750Granite in blocks (cu.m) 875 4,500 9,000 11,000Marble in tiles (sq.m) 87,000 150,000 150,000 150,000Limestone in blocks (cu.m) 1,200 1,200Granite in slabs (sq.m) 143,000 200,000Marble in slabs (sq.m) 50,000 100,000Limestone in slabs (sq.m) 20,000 40,000

Source: ONCP

TABLE 5: Contribution of MininD Sector to Economy

Estimate1988/87 1987/88 1908/89 1989/90 1990/91 1991/92 1992/93 1998/94 1994/96 Coments/Assumotions

Mining Exports: VolumSmall Scolo Gold Froduetion (ox) 31,250 81,250 82,812 84,458 86,175 87,984 89,868 41,877 48,971 Assumd SS growth rateN. Log Dn mbi - - - 46,000 92,600 92,W0 92,600 92,600 92,500 Preductien at a tons/p.m.Sods Ash lot) - - - 8,000 8,000 8,000 80,000 100,000 200,000 Include Import substit.Marble (a ) 500 1,000 6,000 7,000 9,000 10,000 10,000 10,000 10,000

Mining Exports: PriceGold USI/oz 800 450 460 400 360 360 860 850 860Soda Ash USSi/t - - - 110 110 110 110 110 110 fob aesebMarble USS/m 600 00 500 500 500 500 500 600 500 fob aesab (tentative)

Mining Export Volue (USlan)Small Sc al Cold Production 9.4 14.1 14.3 1S.6 12.7 18.8 14.0 14.7 15.4N. Lag Dembi - - - 13.0 82.4 82.4 82.4 82.4 82.4Sods Ash - - - 0.9 0.9 0.9 8.8 11.0 22.0Marble 0.2 0.5 2.5 8.5 4.5 5.0 5.0 5.0 5.0

TOTAL ri I:i7 I":i W.T KU 1EI li7 lET 7 I(of which: gold) (9.4) (14.1) (14.8) (81.6) (45.1) (45.7) (46.4) (47.1) (47.0)

Net Forelgn Exchance Contribution

Sm ll Scale Oold Production 6.2 10.9 11.5 10.8 9.0 9.5 10.0 10.5 11.0 Assumes fx epersting costsof 3100/ox

N. Lag Dembi - - - 11.1 18.1 18.1 13.1 18.1 16.1 Assumes fx operating costaof 3154/oz

Soda Ash - - - 0.2 0.2 0.2 0.7 2.6 5.0 ( 26/t.e)Marble 0.2 1.0 1.4 1.8 2.0 2.0 2.0 2.0 (620 0/)

TOTAL 6.2 11.1 12.5 28.0 29.1 29.8 80.8 88.1 86.1(of which: gold) (6.2) (10.9) (11.6) (21.4) (27.1) (27.6) (28.1) (26.6) (29.1)

Projected Imports (G A NF_o 990 1,080 1,180 1,230 1,310 1,380 1,460 1,660 1,640 IBFD estimatesProjected Current Account Deficit 290 880 860 80o 410 430 460 470 500 IBRD *etim_tesProjected CDP 5,570 5,720 5,875 6,080 8,200 6,860 6,540 6,710 6,390 IBRD estimtes (2.7X growth pa)Projected Exports (C A NFS) 710 7S0 800 840 900 960 1,010 1,060 1,140 IBM estimates

Mining Exportsas % of total exports 1.3 1.9 2.2 4.8 6.6 5.4 5.4 6.3 6.6

Net Fx as X of total exports 0.9 1.5 1.6 2.7 8.2 3.1 8.0 3.1 8.2Net Fx as X of CDP 0.1 0.2 0.2 0.4 0.5 0.6 0.5 0.5 0.5Not Fx as X of Current Acet.

Deficit 2.2 S.4 3.6 6.9 7.1 6.9 8.6 7.0 7.2

Note 1: Excludes Investment CostNote 2: Governmnt also informs at 3 now projoets are projected to come on stream, Kenticho tantl;its (1969,90), Yubdo platinm (1990/91) and

Central Lega Dembi gold ki9M9/93). It is projected that combined thes projects will contribute sn additional annual net foreign exchangeof USS27.6 million by 1992/93. The Bank has not been able to verify this information.

ORGANIZATIONAL STRUCTURE OF THEMINISTRY OF MINES AND ENERGY

(MINISTER) |PLICY AOVISOYMINISTRY OF MINES AND ENERGY - - - - CONITTE- - - - - - - - - - - - - -

SECRETARY OFFICE

PUBLIC RELATIDN LEGAL SERVICESERVICE AUDIT A INSPECTION AWDINISTRATION

SERVICE SERVICE

GANIUZATION METHODS &PLAN PREPARATION A RESEARCH A DEVELOPMENT FINANCE DEP. PERSONNEL AFFAIRSFOLLOW UP DEP. DEP. DEP.

VICE MINISTERt FOR j VICE HMIISTERt fOR MINING DowX 1

-- T~~~~~~~~~~~~~~~~~~~~~~~-

PROJECT EXECUTION FOLLOW UP MINES EXPLORATION A PROJECT EXMCtTION FOLLOW UPA LOGISTICS COORDINATION . DEVELOPMENT A LOGISTICS COORDINATIONDEP. _ CONTROL DEP. DEP.

ETHIOPIAN OIL A GAS TIPA INSTITUTE OF I ETIOPIAN MINERAL RESOURCES I IOPIAN PETROLEUM ETHOPIN DENERY TNOPIAN ELECTRIC LIIRT[PRIONE RRISE G DEVELOPMENT CORP.RP. A-THIOTY Plll ALHM M

ORCANIZATIONAL STRUCTURE OF THE ETHIOPIANINSTITUTE OF CEOLOGICAL SURVEYS

| OFFICE O H G RA MANAER

AUDIT | NING AND ADMINISTRATIVE | AJO PRJECTS|SERVICE MM RORiING SERVICE DEPARTMENT I I FIE

* Oil a Csa (Ogoden) Project* Geothermal Exploration

CHIEF GEOLOGIST ProjectPottrloul Exploration

Promotion Projoct

DRILLING CENTRAL DATA AND EQUIPMENT/ENGINEERING CARTOGRAPHY AND CENTRAL GEOLOCICALSERVICE DOCUMENTATION SERVICE SERVICE SURVEYIN SCE A

REGIONAL MAPPING | INERAL EXPLORATION GEOPHYSICS HYDROCEOLOGY ANDl HYDROCARDS |DEPARTMENT DEPARTMENT DEPARTMENT GIEOTHERMAL DEPARTMENT f DEPARTMENT

IBRANCH OFFICE=,7T*---

ORGANIZATIONAL STRUCtNJRE OF THE ETHIOPIANMINERAL RESOURCES DEVELOPMENT CORPORATION

OfFICE IJITvNneO F 1 ----- -- -- EJNTEPRISESTHE GENE39tL MANACER

PLANNING ANDPROCRhAMING

AUDIT LABOR A PUBLICSERVICES RELATIONS SERVICES

LEGAL MINESERVICES SECURITY

I FINANCE KI fRCHASING AND O A H I EXPLORATION AND I TEO#4ICAL SERVICES I| DEPARTUENT | PROPERtTY EMANPOWERt STUDIES DEPARTENT| DEPARTMENT

DEPARTMENT A PERSONNELDEPARTMENT

r ENTÆK RSES |

- 38 -

CHART 4Page 1 of 3

MAJOR MINERALS: SUMMARY OF STATUS OF DEVELOPMENT

MINERAL LOCATION STATUS OF DEVELOPMENT COMMENTS

PRECIOUS METALS

Gold (primary) N. Lega Dembi, Draft feasibility Both open pit and un-Sidamo study complete; pre- derground exploita-

qualification of bid- tion possible. Ad-ders for design of ditional work neededplant begun. Reserves in reserve estima-estimated at 3.14 tion and cost esti-million tonnes with a mates. Deposit isgrade of 8.6 g/t (2 complex and adequateg/t cut-off grade). management at both

construction andimplementation stageis critical to suc-cess.

Gold (primary) C. Lega Dembi, Surface trenching, Good potential, pri-Sidamo pitting and diamond ority area

drilling completed.Next step is adit.

Gold (alluvial) Generali, Awa- Regional exploration Exploitable depositsto/Mormora, program completed; will be developed byand Dawa/Af- evaluation of known AGDE.lata Basins, deposits presentlySidamo underway.

Gold (alluvial) varied sites Compilation of possi- Difficult access andin Welega ble alluvial and hard limited infrastruc-

rock gold occurrances ture in area.suitable for smallscale and mechanizedmining in progress.

Gold (alluvial) Adola, Sidamo Ongoing alluvial pro-duction from smallscale miners (emplo-yees of EMRDC) andmining cooperatives(about 115-125 kg./year)

- 39 -

CHART 4Page 2 of 3

MINERAL LOCATION STATUS OF DEVELOPMENT COMMENTS

BASE METALSI

Copper with Debarva (30 Japanese/Ethiopian .opper grade is highminor zinc, km. south of joint venture con- in secondary enrich-silver & gold Asmara) ducted diamond dril- ment zone (7-8Z),

ling, sank a 136 m but only 1.5Z invertical shaft, and underlying primarymined a 2000 tonne zone. Deposit ap-bulk sample for pro- pears economicallycessing tests in marginal.Japan.

Zinc with sil- Adi Nefas (6 Same joint venturever and minor km n. of drilled 27 holes but Located in political-gold Asmara) only results from 12 ly sensitive area.

are available. The Yugoslav and Cana-incomplete data dian groups haveand wide spacing of expressed interestholes make assess- in undertakingment difficult. The exploration.known results aresufficiently encoura-ging to justify ad-tional exploration.

Copper/gold Adi Rassi (37 Identified Yugoslav group haskm SE of expressed interestAsmara in undertaking ex-

ploration

Tantalite Kenticha, Exploration work has Preliminary financialSidamo proven 1.6 mn cu.m analysis is a

with average grade priorityof 250g/cu.m in threeareas informed re-serves of 7,2000tonnes tantalite.Recent work has onmineral processingtests with trial pro-duction and testingof a lOZ preconcen-trate.

INDUSTRIALMINERALS

Soda Ash Lake Abijata Project to produce Transportation costs20,000 tpa under im- and market accessplementation; second are critical deter-phase expansion to minants of success.200,000 tpa planned Technology is alsoif first phase justi- untried and needsfies. to be tested.

- 40 -CHART 4Page 3 of 3

MINERAL LOCATION STATUS OF DEVELOPMENT COMKENTS

Potash 90 km from First phase of pre- Market access is criti-Red Sea coast feasibility review cal constraint.

completed. Finan-cing constraintshave delayed startof second phase.Solution miningapproach underconsideration.

Ceramic RawMaterials:

Kaolin Bombawoha Proven reserves esti- Pilot production test-mated at 250,000 ing and sophisticatedtonnes. Preliminary bench scale testingtesting underway; next stepspossible problemsof purity identi-fied.

Feldspar Kenticha A pegmatite deposit Pilot mining and fur-is under evaluation. ther product testing

required

CONSTRUCTIONMATERIALS

Crushed stone Addis Project under imple- Project experiencingmentation, first of some start-up problemstwo crushing plants Will substantiallybegan operation in increase availabilityFebruary 1987 of crushed stone in

Ethiopia and may drivedown price to levelsthat are unviablefinancially.

Decorative Mendi, Welega Project under imple-stone mentation; planned

production to meet5,000 cu.m next year

IBRD 20784

LISFABA OF F i

ChAD - { ) >o hXlf _; ETHIOPIAF02. S1' u D A s j t>) ,J NeAkEA 1.2 MILLION KM2

01.1.., (, ^5 '-_ f /POPULATION 30.5 MILLION'ETHIOPtA'

-'iC^ \ N .,OW 7021 /*j[14

A OFRA A . Al..U0 M,FF*.I KIENPA I kdS... *8.2. _ Nfl., AtONal! All w..F,h MaFn PFOOb,y

App, *.,~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~G .1 .

. N ,_ >_t. t AdGuIal + _ h~~~~~~~~~~~~~Ar w-. 2*2* .. O r - - P__ ~~~~~~~~~~~~~~~~~~~~~~4, 01

-~~~~~~~ - -I h.s.,.Fo.o hoondop.

S U D A N C b40200C|

f7 ;> rw gsie-j/~~~~~~~~~~~DJIBOUTI

[0. C d6- ' ) t 4 ~ t>/ f fiA,. S 0 M A L I A

MI.O 00 3M *00

K E N Y A IlesF- 5 / P-ua0 FOY 00 200 200

1UGANDA V _ F8 / /

JULY 1988