Local Value Addition Mineral Resource Potentials and the Economic Value of Extractive Industry Projects

A country can only sustainably develop its extractive sector, if sufficient information about its mineral resources is available. Mining authorities typically gather extractive industry and geological data, which is made available for example, in mineral resource maps, mineral deposit inventories and guidelines for investors. By providing this information, countries can reduce the commercial risks for companies engaged in resources development and thus promote investment in exploration and extraction. The more comprehensive the information provided by the government, the easier it is for businesses to engage in the country’s extractives sector – and the greater the likelihood of a deposit being discovered and developed into a mine.

Yet, not all the mineral resources discovered are commercially viable. The value of a metal gives little indication about its actual economic value. Therefore, after successful exploration, mining companies conduct economic assessments as a basis for their decision on whether or not to proceed with extraction.

Subsequently, the assessments are submitted to the competent authorities, responsible for the development and management of the mining sector. The supervisory authorities must scrutinize the assessment during the licensing procedure to decide whether they issue a mining permit or not. Therefore, an understanding of how to interpret geological data is important. However, the authorities often lack the necessary expertise to assess the actual economic conditions and the associated potential as well as the consequences of individual mining projects. As in many partner countries of German development cooperation the mining sector is a potential driving force for sustainable economic development, these circumstances are even more severe.

Sector Programme Commitment

This is where the Toolkit comes into play, which was developed as part of the Sector Programme “Extractives and Development” together with experts from the German Federal Institute for Geosciences and Natural Resources. It provides the mining authorities with a tool for the rough economic assessment of potential mineral resource projects, and can be used in both, an early stage of development as well as the subsequent feasibility study phase.

In the early stages of project development, the Toolkit can be used to assign mineral deposits a monetary value and make them comparable to each other. In addition to the economic evaluation, for a final assessment other factors such as environmental and social impacts or the infrastructure and geologic potential of a region must be considered. At the stage of the feasibility study of a mineral resource project, the toolkit can be used again to scrutinize the profitability analysis provided by a company. This means to examine whether the costs and profits given in the feasibility study are in line with the results of the toolkit. If they are not, it is important to take a closer look at these inconsistencies.

In 2016, the Toolkit was successfully implemented for the first time in the Main Department of Geology of Tajikistan. After two intensive training sessions with the Department’s Working Group for Economic Geology, the project partners are now using the Toolkit independently for the economic reassessment of known mineral resource deposits.

After further successful implementations in other partner countries of the Federal Ministry for Economic Cooperation and Development (BMZ), the Toolkit has been digitalized and published on the website of the Sector Programme. It is now available to all interested stakeholders, first and foremost geological experts from state authorities, companies, educational and scientific institutions.