Public Disclosure Authorized

ReportNo.7111-ET

Ethiopia
MineralSectorReview
June 22, 1918
Industryand EnergyOperationsDivision
EasternAfricaDepartment
AfricaRegion
Public Disclosure Authorized

FOR OFFICIAL USE ONLY

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Public Disclosure Authorized

of theWorldBank
Document

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only in the performanceof their officialduties.Its contentsmaynot otherwise
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 ACRONYMS

AGDE Adola Gold Development Enterprise

EIGS Ethiopian Institute of Geological Surveys
ELMICO Ethio-Libyan Joint Mining Company
EMRDC Ethiopian Mineral Resources Development Corporation
GDP Gross Domestic Product
LGDPIU Lega Dembi Gold Development Implementation Unit
MME Ministry of Mining and Energy
ONCP Office of National Central Planning
TYPP Ten Year Perspective Plan

Exchange Rate

June 1988

Birr 1.00 = US$0.483

US$1.00 = Birr 2.07

Fiscal Year

July 8 - July 7
 FOR OFFICAL USE ONLY

This report is based on the findingsof a January 1987 mission

consistingof Constance Bernard.Senior Economist,Robert Rodger, Hining
Engineer and Peter Fozzard,Geologist. Sections of the report were updated
durirn a subsequentmission by Peter Fozzard in May 1988. Elizabeth
Tweddle,Victoria Davies and Grace Coward were responsiblefor word
processingof the report.

|This documenthas a restricteddistributionand may be used by recipientsonly in the perforrnnce|

of their officialduties. Its contents may not otherwisebe dischsed withoutWorld Bankauthoriztion.|
 MINERAL SECTORRZVIEW OF ET1IOPIA

Table of Contents

Page No.

SUIHARY AND CONCLUSIONS ........ ..

........................ i-vi

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

A. Mineral Production ................................... 1

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

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

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

CHAPTER III: PRINCIPAL MINERALS: PROSPECTS FOR EXPLORATION

AND DEVELOPMENT .................................. 9

A. Geological Mapping and Mineral Exploration ................. 9

B. Gold Development ...... . 11
....................................
C. Base Metals 16
................................................
D. Other Metals ............................................... 17
E. Industrial Minerals ...... ..................................17
F. Construction Materials ..................................... 21

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

A. Mineral Legislation ........................................ 22

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

Table 1: Ethiopia: OfficialMineralProduction

Table 2s EthiopianMineral ResourcesDevelopmentCorporationt State_ent
of Revenuesand Expenditures
Table 3s Ethiopia: Investmnt in Mining Sector, 1981g2-198819
Table 4s SelectedTargets of DIRDC and ZLMICO Under 1986189 Three-Year
Plan
Table 5: Contributionof Mining Sector to Economy, 1986-1995

Charts

1. OrganizationalStructureof the Ministry of Mines and Energy

2. OrganizationalStructureof
Surveys
3. OrganizationalStructureof
Corporation
4. Major Minerals: Summary of
the Ethiopian Instituteof Geological
the EthiopianMineral ResourcesDevelopment
Status and Development

M2p

IBRD 20784
 ACRONYM

AGDE Adola Gold Development Ente-pries

RIGS Ethiopian Institute of Geological Surveys
KLMICO Ethio-Libyan Joint Mining Compeay
D4IDC Lthiopian Mineral Resources Devalopment Corporation
GDP Gross Dcmestic Product
LCDPIU Lega Dembi Gold Development Project Ipl_mentation Unit
MHz Ministry of Mines and EnerGy
ONCCP Office of National Comittee for Central Planning
TYPP Ten Year Perspective Plan

Exchange Rate

June 1988

Birr 1.00 - US$O.483

US$1.00 - Birr 2.07

Fiscal Year

July 8 - July 7
 SUIM4aY AND CONCLUSIONS

1. The mineral sector has historicallybeen a neglected and relative-

ly unimportant part of the economy, reflectingin part the scarcity of
economic deposits, political insecurity, problemsof access and inadequate
infrastructure,and the low level of industrialdevelopment,leading to
minimal internal markets for industrial minerals comodities. Mining
accounted for l.e. than 0.32 of GDP and less than 22 of merchandise exports
in FY1985. The mining sector is in its infancy; most of the country has
not even been mapped at a scale adequate to identify mineral potential. As
a consequence,the sector'smost promisingmineral depositsmay have yet to
be identified.

2. The Governmentenvisagesan increasinglyimportantrole for the

sector in the economy. Its major objectivesare to increasemineral
exports and to develop substitutesfor mineral imports,the latter largely
through developmentof mineral-basedindustry.Prospects in the sector will
obviously depend on the identification of economicdeposits. Based on
Ethiopia'sknown resource base and constraints,the most
infrastructural
apparent opportunity in the sector lies in the developmentof gold,
through successfulimplementationof the N. Lega Dembi project (which alone
could triple mineral exports and value added); furtherexplorationof areas
which hold promise for primary gold depositsand encouragementof small
scale gold mining. Current prospectsfor medium-or large-scaledevelopment
of lower-valueindustrialmineralsare unpromising since the limited
internalmarket makes it difficultto find projects of sufficientscale to
be economic,and because of the major obstacleposed by high domestic
transport costs to exporting low value products. Whereverpossible,
domestic requirementsare being linked to export potentialwith respect to
the industrialminerals sector. Particularlyas far ts the export market
is concerned for new opportunitiessuch as in soda ash, a solutionto the
transportcost problem will need to be found and satisfactorymarketing
arrangementsestablished.

3. The potential economicimpact of the mining sector is small but

significantat the margin, particularlywith regard to exports While
mining value added is unlikely to exceed 1Z of GDP during the next eight
years, if existing projects come on stream as scheduled,mining could
account for over 62 of total exports of goods and nonfactor servicesby the
mid-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 estimatescould be considerablyhigher if small scale
gold mining could be furtheracceleratedor if additionaleconomicprimary
gold depositsare identifiedand developed. Growth of small scale mining
has the potential of increasingsectoralemploymentsubstantiallyas well
as diversifyingand strengtneningthe econouicbase in certain regions.

4. For the most rapid developmentof the sector, the Governmentwill

need to maximize its ability to attract foreignexpertise and capital,and
to establishstrict criteria for Governmentspending, since the required
managerial,technicaland financialresourcesare severelyIL'ited in
 - ii -

Ethiopia. At the same time, the most rapid route to increasingsmall scale
mining (mainlyof gold but also of industrialminerals and construction
materials)will be throughpromotion of cooperativesand the local private
sector. A recent proclamationby Governmentto encouragecooperativeproj-
ects has not yet been extendedto mining. Good organizationwill be
fundamentalto success. Speciiic recommendationstowards meeting these
objectivesare set out below.

5. Mapping. An assessmentof the mineral potential of a country

dependa on adequategeologicalinformation;however, both manpower and
financialconstraintshave preventedEthiopia from establishinga complete
geologicalinformationbase. The Governmentneeds to acceleratethe geolo-
gical mapping program with the goal of completingbetween 10 and 15 map-
sheets by 1994/95 but budgetarycutbackswill make this difficult to
achieve. To this end, the EIGS might considerusing 1t100,000 scale base-
maps for this work instead of 15O,OOO; also, cartography,petrology and
report preparationserviceswould need to be strengthened. Recent progress
has been made for publishingof field data and maps and this rhythm needs
to be maintainedso that up to date informationis easily accessibleto
interestedparties. The shortageof support logisticssuch as vehicles,
equipment and suppliesis a major bottleneck.

6. Exploration. The explorationprogram needs to be better inte-

grated with the regionalmapping program and to give greater priority to
the evaluationof existing geologicalinformation. More detailed geologi-
cal mapping such as at 1:50,000or 1:25,000 scales may need to be linked to
explorationwork over promisingareas in a systematicmanner. Exploration
methodologiescould also be updatud and made more cost-effective. Ideally,
Governmentinstitutionsshould focus on early-stageexplorationwhich
followsup on the mapping program,while more detailed explorationT work is
undertakenby private entities,who would provide specializedexpertise and
their own financing. Economiccriteria for government-financed explora-
tion projectsneed to be establishedand applied.

7. N. Lepa Dembi Development. The north sector of the Lega Dembi

gold deposit is one of the most promising sites to date for commercial
mineral production. A feasibilitystudy based on the explorationresults
for Lega Dembi North was completedin 1987; the African DevelopmentBank,
the European InvestmentBank and the EthiopianAgriculturaland Industrial
DevelopmentBank have agreed to finance this project. The mission noted
some weaknesses in the draft study which suggest that additionaldetailed
geologicalinformationmay be requirelto optimize the feasibilitywork.
Mcre detailedmapping and samplingwill be needed continuouslyduring
project implementationto update the accuracyof the feasibilitystudy.
Management for project design, procurement,constructionand start-uphas
been contractedto internationalconsultantswith this work supervisedby
consultantsto be providedby one of the foreign componentproject
financiers. While this contract/consultant approachwill not be as
efficient as overall managementby private equity partners it will help to
offset the lack of country mining experienceand inherentproblemscaused
by the complex nature of the deposit. Experiencedmanagementwill make the
differencebetween project success and failure. Performance-based
incentivesare consideredto be essentialto maximize project viability.
 - iii -

8. Small-ScaleGoli Mining. There appears to be considerablescope

to increase small scale gold mining productionwith relativelylow levels
of additionalinvestment (compared with, for example, developmentof a
primary gold deposit). Such developmentwould require the proper legaliza-
tion of private gold mining and the establibwAentof a realisticprice
based on the internationalprice for gold and a reasonableexchange rate as
minimum preconditions. Given this as a basis, a program to promote small-
scale gold mining through provision of technicalassistanceand serv±ces to
miners might be considered;such a programwould need to be meticulously
designedand would require considerablepreparationeffort given limited
existingknowledge and the informal 4 ty of the sector.

9. Mineral Legislationand Policy. The current legislativeregime is

not optimal for the developmentof the sector. In this regard, the Govern-
ment has already taken a positivestep by rationalizinglegislationregard-
ing petroleum explorationin 1986 and institutinga promotionalprogram.
It is currently reviewingthe possibilityof revisingmineral legislation
along similar lines, with assistancefrom the UNDP. Are.. which might be
addressed in this effort include:

(i) a change in Government'spolicy so that preciousmetal

mining is not a state monopoly;

(ii) the developmentof specificrules and guiidelines to be used

by the Ministry of Mines and Energy for the negotiationof
mineral developmentagreements;

(iii) the need to shape a fiscal regime appropriateto foreign

investmentand mining developmert (promotionalincentives,
etc.);

(iv) a review of 'closed area' definitionsand limitations;the

present law is extremely restrictive;

(v) definitionof regulationsfor small-scalemining;

(vi) clear assurancesthat mining rights will be granted after

successfulard properly implementedprospectingand
explorationactivities.

10. The InvestmentProgram. Planned resourcesallocated for invest-

ment in the sector during the next three years are projected to increaseto
about Birr 261 million plus 32.5 million in credits and grants in foreign
currencyequivalentsor more than three times the level of the previous
three years (Birr 62.5 million plus 31.6 million in foreign grants and
credits). The increasein part reflectsongoing project implementation
(i.e., Lega Dembi and marblelgranite). The projected level appears to be
high in relationto the implementationcapability. Given the prospects for
an accelerationof mining development,the Governmentneeds to give
priority to undertakinga careful review of proposedcapital spending and
to establishingeconomicand financialcriteriafor publicly-fundedmining
projects. The investmentreview might focus on the following issues: (1)
identificationof projectswhich 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 geologicalmapping program and
 - iv -

establishmentof economiccriteria for explorationprojects (as discussed

above); and (4) review of the viability of ongoing projec-s, in particular
marble/granitedevelopmentand constructionmaterials.

11. InstitutionalDevelopmentand Training. At the same time, there

is a need to re-evaluateongoing and planned institution-building efforts
from the perspectiveof current prioritiesand to reassessthe skill
balance required for sector development. In the past, the emphasis,under-
standably,has been on developinggeologists;the Universityof Addis Ababa
curtentlyproducesabout 30 geology graduatesa year. ZIGS and DMRDC con-
stitute the main source of employmentand will not be able to continue to
absorb all these graduatesand use them effectively. At the same time,
there is a shortageof experiencedmining engineers,which is now parti-
cularly critical given the increasingemphasison project developmentand
execution. Other importantskills in short supply include financial/eco-
nomic analysisof projects, accounting,inventorycontrol,maintenance and,
in general,projectmanagement. Before launchingfurther technical
assistanceefforts, it might be useful for the Governmentto undertake an
assessmentof sector manpower Iequirementsfor the next 10 years, in con-
junctionwith the investmentprogram review. The Governmentalso needs to
take measures to improve the financialconditionof the state-ownedmining
operations,especiallyEMRDC.
 CHAPTER I

THE MINERAL RZSOURCZEASE

A. Mineral Production

1.01 The history of mining in EthLopiais a long one; gold (mainLy

alluvial)has been mined more or less continuouslyfor over 2,0t0 years.
The first minexal concessionswere granted to European interestsin the
western adminAlstrativeregion of Welega around the turn of the centur,;
considerablequantitiesof gold and platinumwere mined between the two
World Wars. Gold mining in the north also developedduring the same
period, but was discontinuedin 1935; productionat the Adola Gold Fields
in the scuthernadministrativeregion of Sidamo began a few years later in
1943. Apart from preciousmetals, iron ore, salt, industrialminerals and
constructionmaterials,depositshave traditionallybeen mined on an
extremelysmall scale for local use. The mineral sector has historically
been a -ieglectedand relativelyunimportantpart of the economy,reflecting
ix part the scarcityof known economicdeposits,periods of political
insecurity,problems of access and inadequateinfrastructure,and the low
level of industrialdevelopment,leading to minimal internalmarkets for
industrialminerals. Based on availabledata, mining accounted for less
than 0.3Z of GDP in FY1985; gold representedclose to 601 of the total,
with officialproductionof 916 kg, the equivalentof US$9.4 million, for
FY1985 (see Table 1). An additionalunknown quantity of gold is produced
traditionallyfrom alluvial depositsprimarily in Welega administrative
region,where it is estimatedthat some several thousand part-timeartisans
are producing about 260 kg of gold, the equivalentof US$3.5 million
annually. Another 351 of mineral productioncomprisesconstruction
materials, includinglimestoneand gypsum for cement production,crushed
stone, and building stone. The balance includessmall quantitiesof
platinum,and industrialminerals, such as salt, kaolin and diatomite.
Officialmineral exports,essentiallygold and a little platinum, represent
less than 21 of merchandisetrade exports. Employmentin the sector,
includingtraditionalgold mining activity, is estimated at 13,000, or less
than 0.12 of the employablepopulation.

B. Mineral Potential

1.02 The mining sector is in its infancy;most of the country has not
even been mapped at a scale adequate to identifydevelopmentpotential.
Optimal developmentof the sector will require a systematicand cost effec-
tive mapping and explorationeffort; mobilizationof financial cesources
and management/technical skills as well as the applicatior.
of strict
economiccriteria in project d relopmentand enterpriseoperations;the
patienceto wait for resultswhich for the most part will be in the medium
or longer term; and a market-orientedfocus in assessingtlhedevelopment
prospectsof minerals, in general,and industrialminerals in particular.

1.03 A wide variety of mineral and constructionmaterial depositshave

been identified,despite significantgaps in the geologicalinformation
base. Gold is by far the most promising. Other minerals includemetals-
-copper,zinc, nickel, tantalum,and platinum;industrialminerals--salt,
 2-

soda ash, potash, phosphate,feldspar,diatoaite,bentonite,kaolin, and

lignite; and construction materials--marble, granite, limestone, and
basalt.

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 northern
Eritree and Tigray administrative regions; in the west along the Sudan
border, particularlythe Welega administrativeregion; and in the southern
Sidamo administrativeregion. Present known gold deposits,mostly
alluvial, are largely found around the Adola gold field of Sidamo where
mining over the past forty years has yielded an estimated 35 tonnes of
gold. Many of the alluvialdepositshave been worked, but one primary
deposit has been discoveredat Lega Dembi and a second at nearby Sakaro and
the potential for discovery of additionaleconomicprimary deposits is
high; some forty showingshave been identified. Less is known about
alluvialdeposits or possibilitiesfor primary deposits in Welega, where
alluvialgold has been mined for centuries,because of more limited
explorationto date. The geclogicalenvironmentaround Asmara in Eritrea
also has excellentpotential for primary gold occurrences. Zinc and copper
also occur in this region. Although they are less promising than in the
Asmara region, there are also base metal showingsin the west, particularly
in Welega where base metals are found associatedwith magnetite, in a
copper--goldprospect, and under gossan showings. Platinum depositsare
worked on a small scale at Yubdo, Welega. In addition,tantalite (Ti20 5)
has been discoveredin pegmatitesat Kenticha in Sidamo. Occurrencesof
beryllium,lithium,and niobium have been noted in this area, as well as a
small lens of chromite.

1.05 Some potential also exists for industrialmineral development,

althoughit faces more formidabletransportationand market constraints
than higher value metals. Soda ash is found in sodic lake brines of Lakes
Abijata and Shala, Shewa administrativeregion in the Rift Valley.
Resources of soda ash in these two lakes are sufficientlylarge to support
a major operation;a pilot plant is presentlyunder development(see
Chapter III, para. 3.28-33). Potash depositsin the Danakil depression
near Dallol, Tigray have been known since the turn of the century.
Attempts to develop the deposit in the 1960s were halted by water control
problems (see Chapter III, para. 2.34-37). A feasibilitystudy which con-
templates solutionmining is presentlyunderway.

1.06 Bentoniteoccurs in lagunal/lacustrine deposits in the Rift Valley

but evaluationthus far has not establishedany depositsof high ouality
sodium bentonite;the depositsinvestigatedare calcium bentoniteswhich
have more limited market uses. Testing of a deposit at Gewane has
indicatedpossibleuse in sanitary ware and tableware. In addition,a
number of diatomitedepositshave been identifiedin a similar geological
setting as bentonite;at least portionsof some of these deposits could
find applicationin local industryas a filteringmedium and as filler
components. Finally,the large zoned pegmatitesat Kentichahave been
examinedas possible sources for microcline feldsparand quartz. Testing
has shown both these minerals to be of high quality, suitablefor their
uses in ceramic and glass production. The nature of their occurrencein
pegmatitescould make mining and processing fairly complex for the scale of
operations. A nearby kaolin deposit, at Bombawoha, also seems promising
for use in ceramics.
1.07 Constructionmaterials. Limeston*,gypsu and clays for cement,
and basalt, other volcanic rocks and limestonefor crushed stone are in
ample supply. Deposits of marble near Mendi, Welega and granite near
Harar, Harerghe administrativeregion are being developed for use as
decorativestone.

1.08 A few other mineralshave been identifiedwhich could also have an

economicpotential. Sulphur depositshave been mined in the past; these
deposits,however, are small. Barite occurencesare known in Eritrea.
Semi-preciousstones--peridotand garnets--arefound in limited quantities
in the pegmatite/ultrabasiccomplex of Sidamo. The latter could possibly
support cottage scale industry.

C. Infrastructure

1.09 While the potentialfor economicmineral depositsis highest

around the extremitiesof the country,infrastructure- electricalenergy,
transportation,couunications - is best developed in the center, around
Addis Ababa. Limited infrastructurein more remote areas poses constraints
for mineral development(with the exceptionof preciousmetals).

1.10 ElectricalEnergy. The EthiopianElectricLight and Power

Authority (EELPA)is responsiblefor generationand distributionof
electricalenergy. The interconnectedsystem, based largely on energy from
hydropower sources,covers a broad north-southarea through the centre of
Ethiopia. The Eritrea region operatesan isolatedsystem,with oil as a
source of generation. A 132 KV line has just been completed to serve
Shakisso, in the Adola gold mining area. Other areas, in particularthe
western administrativeregions--Welegaand Gojam--aresuppliedwith diesel
engines or small hydroelectricpower plants until their demand justifies
extension of the grid system. Mineral projects in these administrative
regionswould be requiredto make their own arrangementfor power
generationpending extensionof the grid system.

1.11 Transportationis the singlemost serious infrastructuralcon-

straint to the mining sector. While the road network is sufficiently
developedto permit access to most areas with mineral potential,with the
major exception of the southwesternarea, the quality of roads is poor in
the peripheralareas, and freight costs are high relativeto most
countries. Road transport,includingserviceprovided by the private
sector, is organized,regulatedand controlledby the Governmentthrough
the Road Transport Authority. A recent Bank-executed transport sector
study suggeststhat existingfreight rates, though high, are still not
adequate to cover costs and permit adequate repair and replacement of the
trucking fleet. Existing rail transportation is substantially
deteriorated,and more expensivethan road transport. As a consequence,
base metal and iron ore deposits in the western part of the country would
probably face prohibitive transportation costs (transport costs for marble
producedby ELMICO in Welega are Birr 520/ms (US$250)to the port of
Assab). Transportcosts will also be a critical determinantof the
economics of large scale soda ash development. Ethiopian ports are not
equipped to handle bulk mineral commodities for export; this deficiency
would need to be addressed if soda ash and/or potash were to be exported.
 CHAPTERII

SECTORALINSTITUTIONS

2.01 As might be expected in a countrywith a centrally planned

economy,Governmententitiesare the dominantactors in the mineral sector.
Under the Hinistry of Mines and Energy (MME), the Planningand Programming
Department (P&P) and the Mines Explorationand DevelopmentControl Depart-
ment are responsiblefor mineral related activities.The former is concern-
ed with both ener J and mining sectors. The MME also supervisesthe semi-
autonomousEthiopian Instituteof GeologicalSurveys (EIGS) and the
EthiopianMineral ResourcesDevelopmentCorporation(EMRDC). National
planning, foreign exchangeand general budgetingare mainly the functionof
the Office of the NationalCommitteefor Central Planning (ONCCP),which
works closely with the Min.tstryof Finance. With the Ten Year Perspective
Plan (TYPP) coveringthe period FY1985-1995as a framework,capital alloca-
tions are made under the current three year plan (FY1987to FY1989),which
was approved in 1986. In addition,annual requestsfor both foreign
exchange and local expendituresare submittedto ONCCP for approval.

A. Ministry of Mines and Energy (MME)

2.02 The MME (see Chart I), the principal institutionin the sector,
was created in 1964, previouslyexistingas a departmentin the Ministry of
Finance (MOF). The GeologicalSurvey was establishedwithin the MME in
1967 in order to increaseknowledge of the geology and resourcebase of the
country. During the 19709, the Mines Departmentof the MME took over
operationof the alluvialgold mines in Adola. In 1982, the EIGS and the
EMRDC were spun off, largelydepleting the MME of well qualifiedpersonnel.

2.03 In relationto the mining sector,the role of the MM covers

mineral policy and planning,the administrationof mineral legislation,and
supervisionof state-ownedagenciesand corporations. The Planning and
Programming (P&P) Departmentis responsiblefor developmentof sectoraland
investmentplans in accordancewith the national plan, coordinationwith
the ONCCP, and evaluationof mining projects. Because of its staff con-
straints (10 professionalstaff) and the demands of the more highly
developedand active energy sector, the role of the P&P Departmentin rela-
tion to mining has been primarily limited to a coordinationfunction. A
strongerrole on the part of the MME in assessingpolicy issues, the
investmentprogram,and the relativerole of institutionsin the sector
would add an importantperspectiveto the planningprocess.

2.04 The Mines Explorationand DevelopmentControl Department (61 staff

of which 10 are professionals)is responsiblefor licensing,regulatingand
recordingof prospecting,explorationand mining activity;technical
servicesand industrialhealth and safety. The licensingand recording
division issues only five to ten prospectingand explorationpermits per
year. Productionstatisticsdo not appear to be comprehensiveor reliable.
Since mining royaltiesare based on quantitiesor value of production,
 - 5 -

accurate statisticscould increaserevenues. In regard to safety

legislation,a few regulationson industrialhealth and safety, for example
on storage and use of explosives,currentlyexist; however, as the industry
develops, developmentand adoptionof adequate safety regulationswill be
required. A mining safety and environmentalprotectionregulationis
expected to be passed in 1989. The Mines Control Departmenthas drafted
regulationsfor the organizationof mining cooperativesbut seems to have
done little organizingthus far. There are,reportedly,a number of
cooperativesoperatingsmall buildingmaterialsquarries.

B. Ethiopian Instituteof GeologicalSurveys (EIGS)

2.05 EIGS (see Chart II) originallyexisted as a departmentof MME.

During 1971 to 1982, its activitiesand facilitieswere expanded,with UNDP
assistance,to include geologicalmapping;hydrogeologicaland geothermal
studies;geophysicalsurveys;mineral and other exploration;and the
developmentof support facilitiessuch as drilling,laboratory,and carto-
graphy. The first phase of a new complex is now under constructionat an
estimatedcost of Birr 9 million (USS 4.35 million) to house EIGS
facilities. The entire complex is costed at Birr 23 million (USS 11.1
million at 1988 prices).

2.06 The EIGS is headed by a General Manager,who reports to the Vice

Minister for Mines of the MME. The technicalservices, reportingto the
Chief Geologist are: Central GeologicalLaboratory,Cartographyand
Surveying Services,Equipment and EngineeringServices,Central Data and
DocumentstionService,and DrillingService. RegionalMapping,Mineral
Exploration,Geophysics,Hydrogeologyand Geothermal,and Hydrocarbons
departmentsalso report through the Chief Geologist. The EIGS has a total
staff of 1,234, of whom 454 are professionals(243 geologists). Many of
its professionalsare relativelyyoung; in mineral exploration,the 45
geologistshave an average of three years experience.

2.07 Funding of the EIGS' activitiesis provided from both recurrent

and capital budgets. Head office, support services,and administrative
expenses are met from an annual recurrentbudget of approximatelyBirr 2.9
million (US$1.4million). Projectsare funded from capital allocations
under the TYPP. Available data shows that expenditureshave increasedfrom
an estimated Birr 9.5 million in FY 1984 to Birr 20.0 million in FY 1987.
Foreign grants and credits have diminishedfrom Birr 14.6 million (US$7.1
million) in FY 1984 to Birr 4.0 million (US$1.9million) in FY 1987. Of
these amounts, only about 3Z went to geologicalmapping,while 35Z went to
mi'neralexploration. The EIGS has some twenty five (25) ongoing projects-
-3 in regionalmapping; 11 in mineral exploration;4 in hydrogeology;3 in
geothermalexploration;2 in engineeringgeology; and 2 in hydrocarbon
exploration. Four are financedpartly by credit and grant components
(USSR, Sweden,UNDP).

2.08 Among the EIGS support facilities,the Central Laboratoryhas been

built up to a well equipped,well staffed facility. The Laboratoryunder-
takes chemicalanalysis,mineralogicalstudies,physicalmaterial testing,
and hydrocarbonanalysis. With recent expansionand diversificationof its
activities,however, the time required to obtain analyticalresults can be
as much as six months. One difficultythe laboratoryfaces is the present
 -6-

diversityof its functions;in order to provide adequate support to

explorationefforts considerationshould be given to establishmentof a
separateunit to provide service for explorationrequirements(a trace
element laboratory). More effort and money should also be put into
reequippingand maintenanceso that the laboratorycan function in an
efficient,clean environment.

C. EthiopianMineral ResourcesDevelomuentCorporation(DEMRDC)

2.09 The DMRDC (see Chart III) was establishedin 1982 and started
operationsin mid-1983. Its objective is "to engage in developmentof
economicmineral deposits and in the production,purchase, and sale of
minerals*. The EMRDC is a semi-autonomousagency, headed by a General
Manager who reports to the Vice Minister of the M1M. At start-upin 1983,
the EMRDC took over operationof 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*rateenterpriseswithin the
EMRDC. Departmentsin the head office include finance,personnel,purchas-
ing, explorationand studies,and technical services. The explorationand
studiesdepartmentis responsiblefor investigatingmineral deposits, and
preparing feasibilityand other studies. It follows up on evaluationof
mineral depositsafter discoveryand/or assessmentby the EIGS. Over the
past four years, the EMRDC has expandedits activities,managing the AGDE,
gold and soda ash projects and undertakingexplorationand technical
studies of a number of metallic and industrialmineral deposits. Through
the recently formed Lega Dembi Gold DevelopmentImplementationUnit
(LGDPIU)it is managing the start-upof Ministry operationat Lega Dembi
North.

2.10 Consideringits relativelyshort existence,the EMRDC's accom-

plishmentsare impressive. It has built a competentstaff of profes-
sionals,numbering 110 universitygraduates. Permanent employeesnumber
1,110, of whom 620 are employedby AGDE mainly as alluvialminers (there
are an additional270 temporaryemployees). Nevertheless,a shortageof
experiencedmining, mineral processingand maintenanceengineers adversely
affects its operations;EMRDC personnelcould benefit from technical sup-
port and training in these areas.

2.11 The EMRDC's unaudited financialstatementsshow that it has

incurredlosses since its creation (see Table 2). This in part reflects
the fact that EMRDC undertakesnon-revenuegeneratingexplorationactivi-
ties, and is in the early, non-revenueproducing stages of project develop-
ment for gold, soda ash and crushed stone. The Corporationhas incurred
substantialexpendituresfor exploration,which have been charged to
operatingexpenses. At its creation,the EMRDC took over a mineral
explorationprogram, financedby a credit from the USSR, in Sidamo (the
type of explorationusually undertakenby the EIGS). The EMRDC has also
activelypursued evaluationof various mineral deposits,not all of which
will result in viable projects. It would be more logical to treat explora-
tion expensesas investmentcosts.

2.12 A second problem is the impact of the tax regime. Taxation legis-
lation for public enterprisesrequiresthat operatingenterprisessuch as
the AGDE are taxed as separateentities. Profits generatedby the gold
mines are taxed at 501. After allocationof 101 of after tax profits to
the EHRDC's general reserves,the balance or residualsurplus is
 - 7 -

transferredto the Ministry of Finance (MOF). In addition, the EHRDC is

requiredto pay a 5Z annual charge on its capital (comparableto a return
on equity) to the MOF. The EKRDC thereforefinds itself in a position of
paying income and other taxes and charges on its gold operationswhile
incurringlosses at a corporatelevel. The Corporation'sfinancialposi-
tion has deterioratedsince its creationand this situation can be expected
to continue. DODC will not be able to operate effectivelyif it continues
to be starvedfor cash. The impact of each project on EMRDC's financial
situationalso requiresexamination. Recent projects, such as the crushed
stone quarry and the Lakes Soda Ash DevelopmentEnterprise (LSADE)have
been largely financedwith debt. When these projectscome on stream, the
EMRDC will face debt servicepaymentswhich may not be covered by cash
flow, at least in the case of the crushed stone quarry. In its project
evaluation,the DMRDC calculatesa before tax return, since the after tax
return is negligiblein any event. Nevertheless,assessment should be
undertakenof the after tax cash flow as well to establishthe debt service
capacityof the project and to fully assess its impact on EMRDC's financial
position.

D. Others

2.13 The only entity with a foreign investorplaying a role in mineral

developmentis the Ethio-LibyanJoint Mining Company (ELMICO)in which the
Libyan Arab InvestmentCompany holds 492, and the Governmentthrough the
MOF, 51Z. Establishedin 1981,with capital in cash and in kind of Birr
20.7 million (US$10million), ELMICO has focussedits activitieson deve-
lopment of decorativestone quarries (para. 3.43) and explorationof the
Dallol potash deposits (para. 3.32). In FY1985, ELMICO incurred a loss of
Birr 1.8 million (US$0.87million). With its investmentsin marble and
granite quarryingand processing;potash studies;and the operating losses,
ELMICO has exhausted its paid-in capital. The status of further equity
contributionsfrom the Libyan partner is inclearand ELMICO's ability to
pursue developmentof its projectsmay be hampered.

2.14 As shown in the followingtable, there are a significantnumber of

private operatorsproducing a wide range of quarry substancesand
industrial minerals:
 - 8 -

ETHIOPIA

OrganizationsHolding Mine Licenses

Manpower and Production
YY 1986
Approzimate
Annual
Number of Production
Material Organizations Man Power (Cu. m.)

White sand 27 1,164 314,164

Red Sand (Scoria) 9 164 51,858
Red Soil 6 36 12,213
Basalt
- Uncrushed 18 207 48,655
- Crushed 21 566 155,037
Clay 4 190 42,726
Lime 16 33 20,547
Trachyte 55 1,271 378,698
Pumice 6 29 10,000
Gypsum 2 40 1,104
Marble 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. InstitutionalDevelopmentand TraininR

2.15 While the role assigned to the institutionsin the mineral sector
seems appropriate,and their performance,for the most part, must be
consideredgood, there is a need to build on the strengthsof these insti-
tutions and to re-evaluateongoing and planned institutionbuilding efforts
from the perspectiveof current priorities. One issue which needs to be
addressedis the skill balance requiredfor optimal sector development. In
the past, the emphasis,understandably,has primarilybeen on developing
geologists;the Universityof Addis Ababa is currentlyproducing about 30
geology graduates a year. EIGS and EMRDC, which constitutethe main source
of employment,will not be able to continueto absorb all of these
graduatesand use them effectively. At the same time, there is a shortage
of experiencedmining engineers,which is particularlycriticalas increas-
ing emphasis is placed on project developmentand execution. Other impor-
tant skills in short supply include financial/economicanalysisof proj-
ects, accounting,inventorycontrol,maintenanceand, in general,project
management. In most fields, there is a shortageof mid-level technicians.

2.16 Several trainingand institutionaldevelopmentefforts have been

initiated. A UNDP-financedprogramwas begun in 1984 to train 30 geolo-
gists per year over a three-yearperiod; it focuses on providing practical
field training for young geology graduateshired by the EIGS and EMRDC.
After four months of classroomorientation,the trainees are given field
assignmentsfor 7 months under a 1-year trainingprogram; about half are
granted fellowshipsfor post graduate study abroad,mostly in India. The
Governmentrecentlysubmitteda proposal to UNDP to finance a second three
year phase. In addition,a proposalwas prepared for an institutionbuild-
ing program in the MME, directedat increasingMME's capabilitiesin policy
formulation,project analysisand monitoring,investmentplanning,promo-
tion of small-scalemining and adoptionof safety regulationsbut this was
not approved. Finally,under the aegis of the LIGS, a project to establish
a technicalschool at Mekele, Tigray is under development. The school
would offer three-yeardiploma courses, initially,to train geological
technicians,as veil as mining, mineral processing,maintenance
technicians,surveying,geochemical,and other miing assistants. While
the school has been located at Mekele to take advantage of existingunuti-
lized facilitiepand long-termresourcedevelopmentpotential of the area,
it might be better situatedclose to an active mining area such as Sidamo.
In any event, the school would fill a need for technicians;its future
orientationshould be towards expansionof courses to train a broader range
of technicians,rather than creationof a degree-grantinginstitutionfor
the mineral sector.

2.17 These efforts are in the right direction. However,before launch-

ing further technicalassistanceefforts, it might be useful for the
Governmentto undertake an assessmentof manpower needs for the sector for
the next 10 years. This should be done in conjunctionwith a mining
investmentprogram review (see paras. 4.15-4.16below) and might be best
carried out by a small task force with representativesfrom different
mining sector and educationalinstitutions. The objectivewould be to
roughly quantify the skills gap in the sector (includingprivate operators)
and to develop a strategyto fill it. This strategymight serve as a
framework for training,technicalassistance,and institutionalstrengthen-
ing efforts and would need to be updated periodically. Within this
context, the MME proposalmight be expandedto address EIGS and EMRDC
requirementsas well in an integratedway. Overseas trainingwill however
still be essential in the short to medium term.

CHAPTER III

PRINCIPALMINERALS: PROSPECTSFOR EXPLORATIONAND DEVELOPMENT

A. GeologicalMapping and Mineral Exploration

3.01 Mapping. An assessmentof the mineral potentialof a country

depends on adequategeologicalinformation;both manpower and financial
constraintshave preventedEthiopia from establishinga completegeological
informationbase. A geologicalmap on a scale of 1:2,000,000was compiled
in 1975 from more detailedmapping,aerial photographs,and other sources
of information. Its accuracyconsequentlyvaries from area to area depend-
ing on the data base, but it does provide a broad overview of the country's
geology. Only about 20% (about 215,000 square km) of the country has been
mapped at a scale of 1:250,000,the minimum necessary for an adequate
assessmentof mineral developmentpotential. Until very recentlymost of
what had been mapped has not been published. There was, therefore,a long
gap during which informationwas not widely available. The Governmenthas
correctly focused its efforts on the promisingPrecambrianareas in Sidamo,
Welega and Eritrea, althoughmapping in the latter has been curtailed
because of the disturbed securitysituation.
 - 10 -

3.02 The Government's10-year plan (for the period 198415-1994/5)ori-

ginally foresaw the com=letionof 35 geologicalmapsheets. (Eachmapsheet
covers about 18,000 km' and requiresabout 15 professionalstaff-yearsto
complete). Under ideal conditions,this would be reasonable;however,EIGS
is not funded to achieve this target,which would require a sevenfold
increasein qualifiedmapping staff and comparableincreases in budget
allocation (expenditureson mapping totalled about US$1,000,000 during the
past four years). If funds were made available,it may be possible to
identify sufficientstaff to carry out an expandedprogram but not at the
targeted level. Presently only eight teams can be financed from a
requirement of 40 teams.

3.03 Given these constraints, the Governmenthad modified its mapping

goals downward substantially in the draft three-year plan (1986-89) to an
average of about three-quartersof a map sheet per annum. This downward
adjustmentappears excessive;it should be possible to acceleratethis rate
in order to produce about 15 map sheets by 1994/95. To accomplishthis
goal and strengthenthe mapping effort,which is criticalto maximizingthe
long-termprospects of the sector,the Governmentmay wish to consider
several steps. At present,1:50,000 scale base maps are used to produce
1:100,000scale working sheets from which the 1:250,000 scale map sheets
are produced. The Governmentmay wish to consider in reducingdetail by
50Z through working on 1:100,000scale sheets for rapid coverage of the
country. Accuracywill be reduced. This should, however, be able to iden-
tify areas of potentialwhich could then be subjected to a parallel system
(using different teams) of 1:50,000 scale mapping. With this approach, it
seems reasonableto target a completionof some 10 to 15 map sheets at the
1:250,000 final scale by 1994/5 whilst regular coverageat 1:50,000 scale
of targetedareas is implemented. This would not only entail an increase
of availableresourcesfor the mapping effort but also some strengthening
of support servicesin EIGS--cartography, petrology,report preparation.
In addition, field data and maps should be published as expeditiouslyas
possibleto ensure that the informationis easily accessible.

3.04 Exploration. Mineral explorationhas taken place in Ethiopia

since before the turn of the century,by both foreign and local entities.
In recent years, however,an increasedcommitmentto systematicexploration
has been in evidence;an estimatedUS$7 million has been spent on mineral
explorationactivitiesduring the last four years. Ongoing exploration
work includesa USSR-supportedmetallicminerals program in the Bulbul-
Hagare Mariam area of Sidamo,which will be completed in three years; a
UNDP-assistedexploration/training project, recentlyrelocatedfrom Welega
to Sidamo (see para. 2.16); two regionalexplorationprograms in Welega
which have identifiedprimary gold showingsrequiringdiamond drilling
follow-up,a small Czechoslovak-supported project also in Welega and 6
industrialmineral projects in various areas of the country.

3.05 The explorationprogram could be improved if it were better inte-

grated with the regionalmapping program, and gave greater priority to the
evaluationof availablegeologicalinformation. Priority should be given
to gold and other mineralswith the best economicpotential; mineralswith
less economicpotential (like iron ore) are being given disproportionate
attention. In addition,explorationmethodologiescould be updated and
made more cost-effective. For example,multi-elementanalysis of samples
 - 11 -

is employed,with each sample typicallyassayed for copper, lead, zinc,

arsenic,nickel and cobalt; arsenic is assayed as a pathfinderfor gold.
This approachcould be made more cost-effectiveif the initial sample
analysiswere to be reduced to gold, zinc and possibly copper only. Such a
program would be just as effective for exploration,would be les costly,
and would reduce th' burden on the geologicallaboratory. In addition,
heavy mineral samplingwork is carried out in conjunctionwith both
regional and follow-upwork. More selectiveand flexiblefollow-up
procedurescould be adopted to maintain effectivenesswith reduced costs.

3.06 The Governmentis proposingan expandedexplorationeffort for the

next three years (FY's 1986/87/88)amountingto Birr 30 million (US$14.5
million) for minerals (see Table 3). This program includeslow priority
work on iron-ore (292 of minerals explorationbudget and 102 of total
explorationincludinggeothermal,hydrogeologyand hydrocarbons). At the
same time, hydrogeologicalexplorationwork, given the country's
difficultieswith water supply, appears underfundedat Birr 1.4 million
(US$628,000). Since explorationis a high risk activityand constitutesa
drain on the Government'sscarce resources,ideally,EIGS should focus only
on early-stageexplorationwhich is integratedwith the mapping program,
while more detailedexplorationwork is undertakenby private sector
entities,who would bear the risk and provide expertiseand financing. In
order to encourage such investmentin petroleum exploration,the Government
issued new legislationin 1986; a similar effort in mining is underway (see
Chapter IV). The establishmentof an appropriatelegislativeenvironment
and a promotionalprogram to attract investorsare essential steps to
strengthenthe explorationeffort. In the meantime, the Governmentmight
wish to consider limitingits expenditureson later stage exploration,
focusingon areas with strong economicpotential (i.e., gold development)
and seeking foreign assistanceand/or partnerswhenever possible.

B. Gold Development

3.07 Lega Dembi, one of the primary gold occurrencesidentifiedin the

area of the Adola alluvialgold field near Shakisso,was discoveredin 1979
and selected in 1981 for more detailedexplorationas part of the program
and is the most promising site to date for commercialproduction. The Lega
Dembi structure,which has been traced over 1.8 km on surface,consistsof
steeply dipping parallelquartz zones. Within the structure,three areas
carry ore grade gold values. Most of the explorationthus far has focused
on the northern area, where surface trenchingand pittingwas followedby
diamond drilling. An EIB-financedprefeasibilitystudy was undertakenin
1985 for Lega Dembi North; its recomnendationsincludedunderground
developmentto provide additionalinformationon the deposit.
Consequently,an adit was driven in 1986, some 110 m below the top of the
ore zones; some 1480 m of driftingand crosscuttinghave now been
completed. The Lega Dembi North ore deposit has been extensively
investigatedto the 1920 m. above sea level elevationas a result of this
exploration. A diamond drillingprogram is being undertakenbetween Lega
Dembi N. and Central as well as extensionto the north - to prove mineral
continuity. Surface trenching,pitting, and initial diamond drillinghave
been completed on Lega Dembi Central,and Ethiopian Mineral Resources
DevelopmentCorporation (EMRDC)is planning to drive an adit at the same
elevation. The results thus far have reportedlybeen encouraging.
 _ 12 -

3.08 A feasibility study based on the exploration results for Lega

Dembi North was completed this year; only draft sections of the study were
available at the time of the mission. The African Development Bank has
agreed to provide Birr 45.2 million in foreign currency equivalent (US$21.8
million) And EIB Birr 49.8 million in foreign currency equivalent (US$24
million). Local costs are to be financed through a Birr 58.9 million loan
from AIDB (US$28.5 million equivalent) and Birr 26.1 million (US$12.6
million equivalent) from the Government budget. Total financing of close
to US$87.0 million appears high for the size of the project but exchange
rate distortions (overvalued birr) must be taken into account as well as
infrastructural development which it appears is also being fully charged to
the project. The mission noted some areas of weakness in the feasibility
study which suggast some additional geological work would be valuable
before defining the mining plan and beginning construction. Mine
development is, however, now underway and hopefully, these apparent
weaknesses will be addressed.

3.09 The feasibility study did not examine the nature of the gold
deposition in detail. As is typical of gold bearing quartz deposits, the
gold values occur erratically within the quartz zones (or extremely close
to the contact). It may be that the gold values occur in smaller high
grade lenses or stringers. Only detailed study of the quartz zones
encountered in the adit could provide a better understanding of the nature
of gold deposition and of the geologic controls--whether structural or
other. Since the lenses could be quite narrow, the sample length (one
metre) used in evaluation is too long to permit a thorough examination of
the 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 deposit
quality. Such a program would require some four to five man-months of
additional work by geologists with experience in gold quartz deposits.

3.10 A related problem is that the ore reserve estimate (3.14 million
tonnes with a grade of 8.6 g/tonne, 2/g/t cut-off) did not take available
information on the geology of the deposit into account. Only statistical
data from sample assays has been used, and consequently there may be sub-
stantial errors in reserve estimation. The uncertainty extends to the
estimate of mineable reserves as well, which the study states are some 4.18
mt of 6.47 g/mt grade. The latter estimate assumes an open pit mining
method with a pit bottom at the 1870 m level whereas the study proposes
2000 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 mineable
reserves 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 (Australian
type wDitchwitchingw),and utilization of the assay results in a mine
planning computer program to determine the blocks mined as ore or waste
would be necessary. The pit design must also provide for multiple faces to
ensure sufficient flexibility in supplying a regular feed to the concentra-
tor. Consideration should also be given to stockpiling, say, 0.5 to 1.0
g/t material for future heap-leachilLgpotential.

3.11 Several other areas of concern include:

(i) The reasons for major differences in the gold content of

samples taken from opposite walls of the underground work-
ings need to be investigated and understood. This will be
 - 13 -

particularlyimportantfor future possible undergrounddeve-

lopment.

(ii) There was no review of samplingerrors or assaying bias and

precisionin the draft study, although samples had been sent
abroad to control local assays. These should be reviewed
before finalizingthe project design even though
considerablecheck samplinghas been carried out.

(iii) The mine productionrate in the study is based on an assumed

annual gold productionof three tonnes. The final feasibi-
lity study should have establisheda mine productionrate
based on technicaland financialcriteria.

3.12 It was not possibleto arrive at a conclusiveassessmentof the

economicsof the project at the time of the mission, given the concerns
addressedabove. However,based on availableinformation,the project is
attractive,with cash operatingcosts in the order of US$150/troyounce.
Assuming productionat the rate of 3 tons per year, and at today's gold
prices (US$450/oz),the mine could net about US$30 million per annum in
operating revenues. Any change in the assessmentof the quality and extent
of the ore reservescould sharply alter these prospects,affectingmine
design, productioncosts, and output.

3.13 A major challengefor EMRDC will be managementof the operation.

This is the first mining operationof its size to be establishedin
Ethiopia. The EMRDC has recentlyawarded a contract to an international
engineeringconsultinggroup (DavyMcKee) for project design, procurement
and start-upand independentconsultantsare being made available by EIE to
superviseand assist in this work. In additionto project implementation,
managementassistancewill be essentialdurlag the first few years of mining
operations,in particularto strengthenmine productionplanning, grade
control (relativelycomplex,since visual controlwill not be possible and
assay controlwill be required),operationof the processingplant, equip-
ment maintenance,supply management,and cost accountingand control. Since
Ethiopia lacks experiencein this type and size of mining operation,the
other alternativeto the management/consultant approachbeing adopted would
have been a joint-ventureapproachin which the experiencedforeign equity
partner would have managementcontrol. The second best arrangementin place
should be based on performanceincentivesto maximize cost-effectiveness
through project design into operation.

3.14 Mineral processingtests have been conducted,on a bench scale in

France and the USSR. These tests indicatea possible952 recovery rate of
gold using a combinationof gravity and cyanide leach/CIPtreatment. The
EMRDC has acquired a 50 tonne per day (tpd) concentratorto test ore from
both surface and the adit. The plant was put into operation in November
1987. An on-site assay laboratory(AA and fire-assaymethods) has also been
recentlyestablishedto provide rapid sample results;essential during the
productionphase when daily turn-aroundwill be requiredof hundreds of
samples to maintain grade control and mining patterns. A small mineral
processinglaboratorywill also be necessaryto test adjustmentsin the
process flowsheet. The pilot plant trials are importantto ensure that the
bench scale tests are achievablein an actual plant, to optimizethe unit
processes,and to enable EMRDC to train its personnel.
 -14 -

3s15 Infrastructurerequirementsare moderate. The 132 kv electric

transmissionline, has Deen extended to Shakiso and road access is under
improvement. Maintenanceshops, administrative,and social facilitieswill
be requiredfor the mine.

3.16 Cash operatingcosts are estimatedto be $150/troyounce based on

recent estimates. This appears to be rather low by world standardsfor this
type of operation and it is more likely to be closer to US$200-250/oz. The
potentialnet revenues suggestedpreviously (3.12) are, thereforeexpected
to be lower. The complex geology and the lack of other than small scale
gold mining experiencein the countrywill provide a substantialchallenge
to the implementingagency. While present prices of gold ($430-$450/oz)
provide an attractivemargin, it seems prudent to plan, as the Governmentis
doing, on medium to long term prices in the US$350/oz range. It will be
critical to ensure that the project has adequate initial capital and that
the internalprice of gold (paid to the newly formed operatingunit within
EHRDC, the Lega Dembi Gold DevelopmentProject ImplementationUnit), is
comparableto market prices at the shadow exchangerate. Otherwise,
EMRDC/LEDPIUwill suffer cash constraintswhich could affect production.
Similarly,since about 602 of operatingcosts will be foreign exchange,
ready access to foreignexchangewill be necessary for successfulmine
operation.

3.17 Under the regionalexplorationprogram in Sidamo, explorationfor

alluvialgold depositswas undertakenin three areas - the Genali basin, the
Awata/Mormorabasin and Dawa/Aflatabasin. With completionof the regional
explorationprogramme,the EMRDC has concentratedits efforts on evaluation
of known depositsas well as tailings from previousmining. From past and
current explorationwork in Welega, a compilationof gold occurenceswas
undertakenlast year by the EIGS and EMRDC. This compilation,which also
took into account previous explorationlargely funded by the Governmentwith
UNDP assistance,outlineda number of possible alluvialand hard rock gold
occurrences,some of which might be suitable for small scale mining and
others for mechanizedmining.

3.18 The AGDE is currentlyoperatingat a profit, producing about 1,000

kg per annum with a total value of about US$16 million. Hining of the
alluvialdepositsby AGDE involvesthe removal of an average of 5 metres of
overburdenwith bulldozers. Once the gravel is exposed, it is moved by
bulldozersto a washing station. Hydraulicmonitorswash the gravel over a
wire mesh screen. The oversizeare rejectswhile the undersize flows onto
an amalgamationpad, followedby a steel sluice. The amalgam concentrateis
separatedwhile the sluice concentrateis hand panned to recover the gold.
While the operationis fairly straightforward, it has been hampered by lew
availabilitiesof bulldozers,and other equipmentwhich can be attributedto
a shortageof foreign exchangesince the allocationsystem requiresa long
lead time for acquisitionof spare parts and supplies;weak stores manage-
ment, and inventorycontrol system;and poor maintenancepractices--equip-
ment life is only 40-70Z of the life achieved in other mining operations.
With the gravity concentrationprocess used by EMRDC, the fine grained gold
is lost in the tailings. Gold recoveryprobablyvaries between 55Z and 85?.
Considerationshould be given, after appropriatetesting,to installationof
gravity separationequipment at the end of the sluice. Watson washers,
similar to those being tested for small scale mining, but with a larger
capacity,might be a solutionto improve recoveries.
 - 15 -

3.19 Some 115 to 125 kg of officialgold productionis purchased from

small scale miners in the Adola area. There are two types of small scale
operations:

(i) The traditionalsmall mine where the miners sink a 1.0 m

diameter shaft 1 to 15 m deep to the gold beari.iggravel and
then mine the gravel. Gold is recoveredby hand panning the
gravel at a nearby water source. The miners are paid birr 4
(US$1.93)per gram (g). equivalentto about $60/ounce;

(ii) Mining cooperatives:after suitabledepositsand/or old

tailingsare identified,miners dig the gravel and transport
it by wheelbarrowto a 10 tonne per hour capacityWatson
washer, a gravity separationunit. The final concentrateis
hand panned to recover the gold. The groups consist of some
60 persons on two shifts. Some difficultywas encountered
is getting miners to work scheduled shifts on a daily basis,
but this situationis graduallybeing improved. Most of the
miners are not native to the area, having been sent to the
region when it was used as a penal colony in the fifties,
and their average age is quite high. The miners are paid on
a sliding scale, startingat Birr 4 (US$1.93)per g on the
first 14g per man-month,and increasing1 Birr per g for
each 7g per man-month incrementto a maximum of Birr 8
(US$3.86)per g.

3.20 In additionto the 700 small scale miners at Adola, there are
reportedlyseveral thousandpart-time artisans- farmers operating on
similar alluvial deposits in Welega province. Numbers vary depending on
growing seasons and there is little informationavailableon their activi-
ties and production. Mining and gold recoverywork is similiarto the
small hand operating in Adola. Most of t;eir productionis sold to traders
who use the gold to acquire consumergoods in Sudan for resale in Welega
administrativeregion. Some is sold to jewelers in Addis.

3.21 There appears to be considerablescope to increase small scale

gold mining production,foreign exchangegenerationand employment,with
relativelylow levels of additionalinvestment(comparedwith, for example,
developmentof a primary gold deposit).Such developmentwould require two
basic policy changes as a minimum:

1) Enacted legalizationrather than tolerance of traditional

gold mining. AGDE mining under the auspices of the EMRDC is
legal, however, all activityin Welega and other areas in the
west and south-westof the country is illegalunder the terms
of the existing legislationwhich reservesgold mining for
the Government;and

2) Establishmentof a realisticprice based on the international

price for gold and a reasonableexchange rate. In other
countrieswith significantsmall scale gold mining develop-
ment, maintenanceof an internalprice equivalentto the
internationalprice of gold has been a key factor in minimiz-
ing smuggling and maximizing foreign exchange inflows.
 - 16 -

3.22 Given these prior actions,a developmentprogram directed at pro-

moting small scale mining would be worth examining. Such a program might
include:1) identificationof suitabledeposits;2) removal of overburden,
since mining under uuconsolidatedoverburdenis hazardous and difficult;3)
equipment lease; i.e., shovels,wheelbarrows,and manual jigs; and 4) pos-
sibly credit in the future (presentdemand for credit from banking sources
is negligiblebecause of the informalityand illegalityof the subsector).
Some of these approacheshave been tried successfullyin other countries;
however, the practicalityof these measures is heavily dependent on local
circumstances,and a thorough feasibilitystudy is proposed to determine
the optimal form of assistancein the varied Ethiopian environment. It is
envisagedthat an economic evaluationwould be undertakenof each deposit
and a system of charge-backto the miners for costs of servicesand equip-
ment would be evaluated. The resultingpromotionalprogram would need to
be meticulouslydesignedand would require considerablepreparationeffort,
given limited existingknowledgeof the resourcebase and present modus
operandiof the sector, culturaland languagediversity,and the special
problemsof the small-scalegold miners. Anthropologicaland social
aspects would need to be carefullyconsideredin the design of the promo-
tional and implementationprograms. At this stage, it is difficult to
quantify the possible impact as far as productionincreasesare concerned.

C. Base Metals

3.23 The most promisingregion for base metal deposits is the Asmara
belt in Eritrea and Tigray. Explorationduring the late sixties and early
seventiesoutlined severalprospects,but the informationavailableon
these is incomplete. The best known of the depositsare:

Debarwa, located 30 km south of Asmara, is a massive sulphide

copper depositwith minor zinc, silver and gold--witha secondary
enrichmentzone some 80-100 m in depth. While the copper grade
can be quite high (7-82) in this secondaryzone, the underlying
primary mineralizationis only 1.5X Cu. In the late 1970s, the
Ethio-NipponMining Co. did some diamond drilling, sank a 136 m
vertical shaft, and mined a 2000 tonne bulk sample from lateral
developmentfor processingtests in Japan. Given the small size
of the secondaryzone, the low grade of the primary zone, and
prospects for copper prices, the deposit must be consideredmar-
ginal.

Adi Nefas, located 6 km north of Asmara, is a massive sulphide

deposit--zincwith silver and minor gold. The Ethio Nippon Mining
Co. drilled some 27 holes but the results of only 12 holes are
available. The incompletedata and wide spacing between holes
makes assessmentof the deposit difficult. The known results are
sufficientlyencouragingto justify additionalexploration.

3.24 There has recentlybeen renewed internationalinterest,of sorts,

in the Asmara belt. Early in 1986, a Yugoslav group presented a proposal
for a Birr 20.1 million (US$9.7million) explorationprogramme on three
prospects--Debarwa, Adi Nefas, and Adi Rassi (a low grade copper/gold
 - 17 -

prospect 37 km SE of Asmara) togetherwith some regionalexploration. The

proposal also outlineda second phase of undergroundexplorationfor Adi
Nefas and Debarva at an estimatedcost of Birr 15.3 million (US$7.4
million). Financingof this programmewould be through payment by GOE in
cash or by barter arrangements;or through negotiationof a joint venture
agreement.

3.25 Later in 1986, a proposalwas submittedby Philips Barratt Kaiser

(PBK), a Canadian consultingfirm, for explorationof Adi Nefas. The work
programmeprovided for a first phase of diamond drilling followedby addi-
tional drilling, if watranted, "nd preparationof a pre-feasibilitystudy.
PBK would supply 35 m-m of s;ervi.s (presumablyfinancedby CIDA) while
E4RDC would provide drilling uimz ther services. On completionof 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) occurrences

have been under explorationsince 1984, at an approximateannual cost of
Birr 1.0 million (US$0.48million). Mineable reservesare being developed
in the weathered zone with grades of 250 g/tonne. Recent work has focussed
on mineral processingtests, with trial productionof 20 tonnes of a 10Z
tantalitepre-concentrateand testing of the pre-con in the UK and USSR to
define processing. These tests indicatean expected tantaliterecoveryof
60Z-65Z using a combinationof magneticand gravity separationmethods to
provide a 35Z tantaliteconcentrate. Design of a mining project is
underway and constructionof the first phase (pilot mine) is scheduled for
August 1988 at a cost of Birr 6.0 million (US$2.9million). While
evaluationthus far has examinedthe technicalaspects,preliminary
financialanalysisshould now be a priority.

3.27 Alluvial platinumdepositsat Yubdo, Welega have been worked on

and off for the last fifty years; however, in add4 tion to being low grade
(.03 to .1 g/m3), the platinum is fine grained,presentingrecoverypro-
blems. Tests are underwayby an Australianfirm to see if better
recoveriescan be attained.

E. IndustrialMinerals

3.28 Soda Ash. The EMRDC is presently implementinga project to pro-

duce 20,000 tonnes of soda ash (Na2CO3 ) per year from lake brines. Of
this, 7,000 tpy will be in the form of crude soda ash (96Z Na2 CO3 ) to sup-
ply local markets such as the glass factory;12,000 tpy in the form of wet
soda ash (972 Na2 CO3 .H20) for feedstockto a caustic soda [Na(OH)]plant
now under construction;and 1,000 tpy will be refined (99.5ZNa2 CO3 ) for
testing and developmentof export markets. Lake Abijata, like other lakes
in the Rift Valley, has a high sodium salts concentration,estimatedat
0.652 Na2 CO3 and 0.602 NaHCO3 . The project involvespumping lake brines
into a series of solar evaporationponds to concentratethe soda ash and
eliminate the other sodium salt impurities. The technologyused was
developedby Giulini Chemie, which is also providing engineeringand proj-
ect management services,and is expected to result in operating costs per
 - 18 -

ton substantiallylower than competing technologies. A processingplant

will be constructedto refine,dry, and size the productsand prepare them
for shipment. The project is located beside Lake Abijata near the town of
Bulbula. A 1,000 tpy refinery,presentlyunder construction,will test the
process flowsheetand the p-oducts,which will be used for market develop-
ment. Pumping of lake brine from Lake Abijata into the pre-concentration
ponds was targetted to start in mid to late 1987. Nine to fourteenmonths
of evaporation are required to obtain the first pre-concentrate from these
ponds. Production will build up over the followingtwelve months, with the
refining plant coming on stream towards the end of this period.

3.29 The plant is consideredto be a first phase in the developmentof

an operation,with a total investmentcost of about US$45 million, to pro-
duce 200,000 tpy of refined soda ash for the export market. It is expected
that such an expansioncould generateUS$4-S million per annum in operating
revenues. Financialviabilitywill depend, however, on a sharp reduction
of existingtransportationcosts. The plant is 950 km from the port of
Assab. The study by Giulini proposesbypassing expensive freight services
available in Ethiopiathrough acquisitionof a truck fleet (54 trucks and
113 trailers)to haul 49 tonne loads of soda ash, and return-haulgoods at
80 of capacityto achieve a net transportcost of Birr 31 (US$15)per
tonne of refined soda ash. Based on the present tariff establishedby the
Ministry of Transport (MOT), the transportcost would be Birr 145 (US$70).
Use of the rail line to Djiboutiwas examinedbut the rates were not compe-
titive with the proposed trucking. A detailed cost analysisof trucking
was not presented in the study; however, at first glance, a cost of
US$0.015 per t km under the conditionsexisting in the country would appear
difficult to achieve.

3.30 Another concernwhich will need to be addressed in project pre-

paration is the environmentalimpact of a 200,000 tpy industrialplant on
Lake Abijata, a nature reserveand tourist attractionwith abundant aquatic
life which acts as a food chain for a large number of bird species. The
projectwould requirepumping brine from Lake Shala to Lake Abijata, and
would use a portion of Lake Abijata as a pre-concentrationpond. The proj-
ect planners should seek assurancethat the projected 17 fold increasein
brine concentrationwill not have an adverse effect on the wildlife.

3.31 A central issue to the successfuldevelopmentof Phase II of the

soda ash plant is the developmentof an export market. The Government's
primary market focus is Western Europe, where it hopes to competewith
higher cost syntheticsoda ash producerswho may go out of productionand
to benefit from Lome preference. A secondarymarket focus will be Japan
where the Governmenthopes to have a cost advantageover U.S. and East
European producers. This marketing strategywill depend on producing soda
ash of a quality acceptableto the Japaneseand Europeanmarkets. The
Governmentintends to conduct market tests in Europe when productioncomes
on stream.

3.32 Potash. The depositsare located in the Danakil depression,some

90 km from the port of Mersa Fatma on the Red Sea coast in Northern
Ethiopia. They were discoveredafter the turn of the century,and have
been worked and exploredon and off since then. In 1981, an Ethiopia/Libya
 - 19 -

joint venture (ELMICO)acquiredthe deposit, and initiateda prefeasibility

review. The final version of the initial (Phase IA) report was issued in
August 1986, and consistedessentiallyof a review of existing geological
data, a recalculationof reserves,proposals for mining methods, and recom-
mendationsfor additionalfield work (Phase IB). A review of market
prospects for potash vas also completedby LCA in 1982.

3.33 Most of the explorationthus far has focussedon the Musley

orebody. It is comparativelysmall, irregular,and complex. It is in a
tectonicallyactive, highly faulted region, and there is a large aquifer
above the deposit,which led to floodingproblems during exploration
efforts in the 19709. It is, however, unique in that it is close to
surface,at depths ranging from 50 to 200 m. The potash bearing strata
consist of three units, of which the sylviteunit is of primary interest,
with variable thickness (6 to 46 m), and containingan average of 33Z KC1.
The intermediateunit is 3 to 20 m thick, and containssylvite on top and
kainite towards the base, with carnallitethroughout. A number of other
minerals are also present. The lower unit, 4 to 13 m thick, consistsof
752 kainite and 25Z halite.

3.34 The potash deposit has a number of attractivecharacteristics;

the depositsare close to surface,permittingcheaper open pit mining
and/or solutionmining. In additionto sylvite,kainite could also be
mined to produce potassiumsulphate. The deposit is close to the coast and
a reasonableharbour,which in turn is advantageouslylocated for markets
in Asia and Africa. On the negative side, the deposit is complex, and, at
present, there is no technicallyor financiallyqualifiedpartner.

3.35 Market prospects for potash are unpromising;demand and prices are
depressedand 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, the
economics of the project seem in doubt. The ECA marketing study proposes
that projectedproductionof about 1.5 mn tpy be primarilydirected to the
Asian/Oceanicand African markets. Penetrationof the Asian market, which
consumes about 2.8 million tpa, would be a major task; the project would
need to offer a substantialprice advantageas well as to establish creden-
tials as a reliable supplier. While well-locatedin relationto Africa,
effectivedemand in this market is small (roughly400,00Q-500,000tpa) and
is mainly in South Africa. Phase IB of the prefeasibilitystudy,
originallyscheduled to begin in 1986, was delayed because of ELMICO's
financialproblems. Given the deposits'complexity,and the variety of
options available for mining, processing,and products,the technicalwork
program will be quite extensive. Before investingfurther resources in
this work, it would be prudent to reassessmarket prospects.

3.36 Ceramic raw materials are under evaluationin Sidamo. A kaolin

deposit, discoveredat Bombawohanorth of Kebre Mengist, has proven
reservesestimatedto be 250,000 tonnes with a further 250,000 tonnes in
the probable category. Preliminarytesting,includingmineralogy,
granulometry,chemicalanalysis,green strength,plasticity,shrinkageand
whiteness as well as wet dressingand upgrading,indicatedpossible pro-
blems of purity, with mica and quartz as contaminants. With the variable
content of these minerals in the deposit,productionof a standardized
productwill require careful beneficiation. The iron and titanium dioxide
contentsare however low. The raw material (401 kaolin) was found to have
 - 20 -

a low bonding strengthbut could be used after dry dressingas a major body
component in sanitaryware and in utility porcelains. For better quality
white china and hard porcelains,considerableupgradingwould be required,
which may prove to be uneconomic. More recent work by British clay/ceramic
consultants (January1988) who were contractedby the Ministry of Industry
provided resultswhich were consideredpromisingenough to encourage the
design of a mining and ceramic operationwith the mine facilitiesand plant
to be installedon-site at Bombawohaand the ceramic plant at Avasa some
130 km distant. Economicsof this operationwhich will involve high
transportcost of raw materials are not available for review. Further
testing of productsand the engineeringdesign are scheduledto be done by
Italian consultants(US$160,000equivalent). Financing for this work as
well as future plant con3tructionhas not yet been secured. Estimated
productionis 4,000 tonne/yr;2,000 t for ceramicsand 2,000 t for an
aluminum sulphateplant.

3.37 The other principalbody component for the productionof sanitary

ware and tablewareis feldspar. A pegmatitedeposit is under evaluationat
Kenticha. The purity of this material is satisfactorybut handsorting
would be requiredto ensure product standardization. Pilot mining and
furtherproduct testingwill be requiredto assess the economic viability
of the operation. A productionof 4,000 tonne/yris foreseento supply
both the developingglass and ceramics industriesas well as 4,000 tonne/yr
quartz from the same area.

3.38 Explorationfor sheet glass raw materials has been carried out by
EIGS since 1984/85 at the request of the Ministry of Industry. Evaluation
for quantityand quality of silica sand, dolomite, feldspar,limestoneand
soda ash (para. 3.28) has been completedand encouragingresults have been
obtained. A final report is to be prepared in the near future.

3.39 Most Ethiopian soils are deficientin phosphate and exploration

for suitableraw materialshas been going on since 1986/87 also at the
request of the Ministry of Industry. Parts of the sedimenvaryterrains of
the Ogaden Bain (easternEthiopia)and some magmatic rock units in central
Wellega have been investigated. In the Biklal area of central Wellega,
phosphate occurs in the form of apatitewithin a gabbro-hornblendite
complex severalkilometersin length,having an average value of 4 to 51
P205 . Detailed investigationsare underway to evaluate the possibilityof
discoveringhigher grade concentrationswhich could be worked economically
as a phosphatesource.

3.40 The other major industrialmineralswhich offer possibilitiesfor

developmentfor local use are bentoniteand diatomite. Apart from the
Gewane bensonitewhich has been tested for use as body mixes in ceramics,
the best developmentpotentialwould appear to lie with diatomite. Further
product testing to complementwork performedwith the assistanceof
Czechoslovakiawill almost certainly result in defining sufficienttonnage
of quality material for the filler industryas well as for use in filters
and for other specializedindustrialrequirements(binders,bricks,
insulatingmaterials). A micronizationfeasibilitystudy using bentonite,
kaolin, diatomite,quartz and feldsparhas recentlybeen completed. For
the foreseeablefuture, the developmentof ceramic and other raw materials
will be limitedto supply of local industrialneeds. Since the local
 - 21 -

market is extremely small for most existing industrialminerals,

developmentwill need to be integratedvith that of small industry as is
being done vith respect to the Bombawohahkaolin. This might be supported
more effectivelyif the Governmentmade developmentfinance available for
mall scale mining (fundingis already provided for small scale industry)
through the Agriculturaland IndustrialDevelopmentBank. The private
sector could potentiallyplay a more active role than at present in this
area.

F. ConstructionMaterials

3.41 Crushed Stone. At the request of the GOE, the EMRDC is implement-
ing a project to provide sized crushed stone for the constructionindustry
in the Addis Ababa area. The requestwas motivated by a desire to reduce
the price for crushed stone in the local market. Initial assessmentof the
basalt deposit (a fine grainedvolcanic rock) which is 4km from the Addis
Ababa airport,was undertakenby the EIGS. This was followedby a
technico-economicstudy and a review of the market by the EHRDC. Design of
two identicalcrushing-screening plants, procurement,and construction
supervisionwere providedby a firm from East Germany. The first crushing
plant with an annual capacityof 297,000 tonnes started up in February
1987. A few start-upproblemshave been encountered,in particularthe
handling of oversizedbouldersat the jaw crusher,and the design of the
transferchutes. In addition, the whole operation is rather dusty. Siting
of the present quarry face in an area of sloping overburdenis also not
ideal due to a high percentageof fine waste as well as large erratic boul-
ders.

3.42 In the assessmentof 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 accountingfor an increasein constructionof public housing which is
governmentpolicy, this growth rate seems optimistic. On the supply side,
the capacityof the quarry operatedby the Ministry of Constructionis
projected to increase402 to 151,000 tpy.

3.43 DecorativeStone. ELMICO obtaineda mining lease in 1985 on a

marble area in Welega. Pure white as well as variegated rose, green and
grey marbles are being produced from four quarry faces and the intentionis
to produce facing slabs and tiles as well as small and large blocks. A
processingplant for small blocks (less than 1.5m) is planned on site and
constructionof a plant is underwayfor large block processing (3m x 2.5m x
1.5m) near Harrar, where rose, black and pale-coloredgranitesare under
exploration. Productshave been exhibited at European fairs, trial blocks
have been exported to Kuwait and Italy, and finishedslabs and tiles to
West Germany,the Middle East, and Kenya. Planned productionis to reach
5,000 ms next year and 10,000 m 3 in four years. Productioncosts at Mendi
are expectedto be US$135/M3 (includingdepreciation),transport costs
US$250/ms from Mendi to the Red Sea port of Assab, and US$150/ms for sea
freight to Italy. The combinedfreight costs of about US$400/ms are 702 of
total cost.
 - 22 -

CHAPTER IV

MINERAL LEGISLATIONAND POLICY

A. Mineral Legislation

4.01 The basic law governingmineral activityis the 1971 Mining

Proclamationof Ethiopia,togetherwith the 1971 Mining Regulationswhich
define applicationof the law. Other proclamationshave since mu 'ified
som provisionsof the Mining Proclamation. The most significantof these
is the 1975 GovernmentControl of Mineral Prospecting,Explorationand
Mining ActivitiesProclamationwhich reservedpreciousmetals, nuclear
minerals and large scale salt mining for the Government. The 1983 Joint
Venture EstablishmentProclamationdefines the participationof foreign
investorsin projects in Ethiopia. The exclusionof preciousmetal mining
was eased somewhatby permittingforeign participationwith specific
approvalof the Council of Ministers;the Ethiopianprivate sector,how-
ever, continues to be prohibitedfrom involvementin these minerals. As a
consequence,all alluvialgold mining, except for that conductedby AGDE,
is illegal as far as present legislationis concerned althoughactually
tolerated. These umbrella documentsare technicallywell executed and
provide detailedprecise rules and regulations. However, review and revi-
sion is requiredin order to ensure optimal furtheranceof mining promo-
tion, investmentand development. Major issues which need to be addressed
include:

(i) the developmentof specificrules and guidelinesto be used

by the Ministry of Mining and Energy for the negotiationof
mineral developmentagreements;

(ii) encouragementto re-investthrough additionalexploration;

(iii) environmentalclauses and a review of 'closed area defini-

tions and limitations. Presently the law is potentially
extremelyrestrictiveand could be the subject of extensive
litigationand arbitration. The most restrictiveclauses
under legal Notice No. 396 are those which prohijit any
work on land under cultivation,land within 100 m of any
building,200 m of any historic or burial site or any land
which the Ministermay declare closed to prospecting,
explorationor mining;

(iv) the need to differentiatebetween the scale of mining

operations (small,medium and large). In particular,the
need to simplifyregulationsfor small (artisanal)scale
mining is required;

(v) relaxation of the pre-emptive right of Government to pur-

chase all mineral productionor to force sale to a desig-
nated person or persons;

(vi) completereview of the royalty and taxationregime (i.e.,

the requirementfor incentive,a promotionaland negotiable
 - 23 -

fiscal regime with flexibilitylinked to rates of return

and a work-incentiveadjustmentto land rental rates); and,

(vii) more clear and positiveassurancesthat mining rights will

be granted after successfuland properly implementedpro-
spectingand explorationactivities. Article 30 of the
1971 Mining Regulation (Legal Notice No. 396) presently
states that the Ministermay grant a mining lease after
applicationcompliance. Most investorswill require a
firmer assurancethan presently implied.

4.02 Mineral rights are vested in the state, and the Mining Proclama-
tion authorizesthe Minister of Mines to grant these rights to qualified
parties. At present, grantingof prospectingpermits, explorationlicenses
and mining leases is largely centralizedin Addis Ababa althoughprocessing
can be effected in Asmara and Harar; some regionalizationof this activity
might eventuallybe consideredto simplifyproceduresfor small miners.
Mining rights are presentlyconferredonly to a specificmineral within the
area of the '.icenseor lease. Most mining codes confer rights to all non-
fuel minerals found in the permit area. There are innumerableexamplesof
explorationprograms, geared to a particularmineral, which led to the
discovery of anothermineral. In addition,many depositsare polymetallic;
and the combinationsare not always immediatelyobvious.

4.03 The periods of validity for prospectingpermits (one year) and

explorationlicenses (two years) are adequate, to the extent that renewals
are grantedwithout undue difficulty,when predeterminedwork requirements
have been met. There is a long lead time between mineral explorationand
initiationof productionof an eventualdiscovery,and there must be a
reasonableassurance that high risk investmentsin explorationcan provide
a return from mining of discoveries. The size of areas which may be
granted for area covered by prospectingpermits and mining leases is not
specifiedwhile the area of explorationlicensescan range from one to one
hundred square kilometers (km2). Although the areas are supposedto be
rectangular,in practicethey are of all shapes. For example,the mining
lease granted to Elmico for marble is a nineteen side polygonwhich is pear
shaped. The reason given for the shape was the exclusionof land under
cultivation. For ease of administration,and to avoid potentialconflicts,
it would be preferableto have rectangularareas of a specifiedapproximate
size. Most mining codes allow for multiplepermits of a fixed size.

4.04 Reflectingthe low prioritypreviouslyattached to the mineral

sector at the time, significantareas are excluded from prospecting,and
consequentlyexplorationand mining. These include land under cultivation;
historicaland holy sites; municipalities;buildings;dams, cemeteries;
highway, railway and pipelinesrights of way, among others. This provision
ignores the relativescarcityof economicmineral deposits. Such restric-
tions on prospectinglimit unnecessarilythe possibilityof discoveringa
deposit.

B. Taxation

4.05 Taxation of mining operationsdiffers dependingon ownership -

whether local privat?,joint venture with foreign partners,or state
 - 24 -

corporations. Local private operationsare taxed at a rate of 512 of net

income,with royaltiesdeductiblefrom income taxes. Exemption from pay-
ment of royaltiescan be granted to new operationsfor periods up to five
years, or longer if approvedby the Council of Ministers. Taxation of
'Joint ventures',which are in fact mixed companieswith foreign capital
and Ethiopian public capital, is covered under the Joint Venture Establish-
ment Proclamation. Income is taxed at a rate of 402. There is provision
for exemption from income taxes for five years for new projects and three
years for expansion,as well as exemptionsfrom customs and other duties
(i) on imports of investmentgoods and the first round of spare parts; (ii)
on imports of raw and other materials for specifiedperiods; (iii) and on
exports. Dividendsremittedabroad are taxed at 102. Taxationof state
owned corporationsis particularlyonerous (see Chapter II).

4.06 Royaltieson the gross value of mineral productionare payable by

all mining operations. The rates are negotiablewithin maximums set out in
the regulations,i.e.

Preciousminerals 152
Other metals and minerals 10o
Quarry substances 52

Royalties are a poor form of taxationfor commoditieswith cyclic market

prices, since they are a cost which must be borne during periods of low
metal prices. Considerationmight be given to a profit based taxation
system.

4.07 While the taxationof mixed companies can be regardelas generally

favorable,none of the fiscal regimesconsiders the particularcircum-
stances of the mineral industry. A mineral deposit is a depleting asset,
and explorationmust be encouragedto ensure that new discoveriesare suf-
ficientlynumerous to replacedepleted depositsand sustain growth in the
mineral sector. A high level of re-investmentis therefore requiredand
provision should be made in the fiscal regime to encouragethis. The
cyclic nature of many mineral commodityprices makes a fixed period of tax
exemption less desirable for mining projects since it can be a windfall or
of little value dependingon when in the cycle a project comes on stream.
A provision for r,cceleratedwrite-off of the investmentagainst profits as
they occur might be a more appropriateincentive.

4.08 In the high risk area of mining explorationand development,

Ethiopianeeds to maximize its use of foreign investor financing. Apart
from the obvious financialadvantages,the requiredmanagementand market-
ing skills will be an integralpart of such venture packages. Eventually,
it will only be through long-termon-the-jobproject involvementthat such
skills can be learnt by Ethiopiannationalsand corporatelyby EHRDC. The
Governmenthas made several positivesteps in this direction,including
issuanceof the joint venture proclamationin 1983, and, recently,
modernizationof petroleumexplorationlegislation.

4.09 Attractivemineral legislation,policy, tax laws and investment

codes are an essential startingpoint for rationaland cost-effective
mineral development. In this regard, a proposal to prepare comprehensive
 - 25 -

mineral developmentlegislationand a model mineral developmentagreement

financedby UNDP was recentlyapprovedand implemented. Whereas compara-
tive studieswith other mining codes has been completed and new consultants
are to be provided for drafting,the project has met with delays partially
due to a UNDP financingshortfalland is now not expectedto be completed
until 1988/89. Changes to existinglegislationmay not immediatelyarouse
investorenthusiasmbut are essentialfor providing a basis for discus-
sions. A considerableamount of follow-uppromotionalwork will also be
required. Regardlessof the foregoing,the key breakthroughwill be when
one or two major projectswith private sector investmentcan be brought on
stream and can be seen by the internationalmining sector to be progressing
smoothly in their relationshipwith Government. In effect, this means
long-term investmentstability,i.e.,assurancethat high risk investment
will be rewardedthrough freedom to export directly or sell mine products
at internationalprices, freedomof profit repatriationand external debt
servicingand freedom of managementcontrol commensuratewith the risks
taken.

4.10 The Governmentenvisagesan increasinglyimportantrole for mining

in the economy. Its major objectivesfor the sector are increasingmineral
exports and substitutionfor mineral imports,the latter largely through
developmentof mineral-basedindustry. Growth in mineral productionis
estimated by ONCCP to average 5.52 over the Ten-YearPerspectivePlan
(TYPP) ending in FY1994. This objectiveis a modest one, given the small-
ness of existingproduction;successfulimplementationof the N. Lega Dembi
project alone could triple exports and value added, even assuming that the
gold price averagesUS$350/ouncebetween 1989 and 1995. At the present
time, the best prospectfor acceleratedgrowth of the sector is the
developmentof gold through successfulimplementationof the N. Lega Dembi
project, encouragementof small scale gold mining, and further exploration
of areas which hold promise for primary gold deposits (e.g., the Adola
Area). Prospects for lower value industrialminerals are more problematic,
since the small internalmarket makes it difficultto find projects of
sufficientscale to be economic,and because of the major obstacleposed by
high transportcosts for low value products. What opportunitiesexist,
such as the soda ash development,will depend on finding a solutionto the
transport cost problem.

4.11 The potential economic impact of the mining sector is small but
significant(see Table 5). While mining value added is unlikely to exceed
1Z during the next eight years, if existingprojects come on stream as
scheduled,mining could account for about 6.6Z of total exports of goods
and non-factorservicesby the mid 1990s, comparedto about 2Z today. The
projected net foreign exchangecontributionfrom mining could cover 7? of
the projected current account deficit by 1990. These estimatescould be
considerablyhigher if small scale gold mining could be further accelerated
or if additionaleconomicprimary gold deposits are identifiedand brought
into productionwhich is quite likely to be the case in the Lega Dembi
area.

C. Financing

4.12 Investmentin the mineral sector until 1982 was extremely low.
Governmentcapital contributions,during the period from 1958 to 1982 were
 - 26 -

reportedlyonly Birr 40 million (USS 19 million). Foreign private invest-

ment over the same period was limited,and sporadic. The most significant
were outlays for explorationof the Dallol potash depositsby the Ralph M.
Parsons Co. prior to 1968, and explorationof the Asmara base metal
depositsby Nippon Mining during the late sixties and early seventies.
External assistancehas been contributedprimarily by the UNDP, which has
had an almost continuouspresence in the sector since 1967.

4.13 Over the past five years, there has been a gradually increasing
governmentcomitment to the mineral sector. Annual capital investmentby
the governmentin the non-fuelmineral sector (see Table 3) has averaged
some Birr 14 million (US$6.7million) during this period, and reached
almost Birr 30 million (US$11.0million) in FY1986. The proportioncom-
mitted to actual mineral developmentprojectshas increaseddramatically
over the last two years, includingthe EMRDC implementedprojects, such as
the crushed stone project, soda ash, and AGDE gold expansion. There has
been little foreign capital,other than the Libyan investmentin ELMICO.
Official externalassistancehas however increased. The largest contri-
butor has been the USSR with two credits totaling8.23 million rubles for
mineral explorationand for equipmentfor the AGDE. The UNDP has also
continuedits presence in the sector with expendituresclose to Birr 2.0
million (US$1.0million) per year. Other multilaterals(EIB) and
bilaterals (SwedishIDA) have started to contributesmall amounts. Over
half of the capital expendituresover the last five years have been for
mineral exploration;given the lack of developmentof the sector, this is
appropriate.

4.14 The EMRDC projectshave been largely financedby loans from the
Agro-IndustrialDevelopmentBank (AIDB). Thus far, loans granted include
Birr 2.3 million for the crushed stone quarry, Birr 7.0 million for the
soda ash, and Birr 64 million for the Lega Dembi N gold project. The AIDB
does not appear to mount an independentproject evaluationand has no staff
expertise in mining. As mentioned in Chapter III, the AIDB has not been
involvedin lending to small scale mining to date, and might play a useful
role by making funds availablefor this purpose.

D. The InvestmentProgram

4.15 The investmentprogram (see Table 3) was assembled from diverse

sources by the mission, and may include omissionsor inaccuracies. Based
on available information,however, planned resourcesallocated for invest-
ment in the sector are projectedto increasedramatically,with proposed
investmentduring 1986/87-1988/89of over birr 290 million, or about three
times the level of the previousthree years. The increasein part
reflectsimplementationof the Lega Dembi an4 marble/graniteprojects
(which account for about Birr 115 million of the program). The total
level proposedappears high relativeto implementationcapability. Given
the prospects for an accelerationin mining development,the Government
needs to give priority to undertakinga careful review of proposedcapital
spendingand the establishmentof economicand financialcriteria for pro-
viding public funds for mining projects. This functionwould be located
most logicallyin MME; however, MME would require strengtheningto carry it
out.
 - 27 -

4.16 The investmentreview should be directedat minimizing the use of

public funds without obstructingeconomicdevelopmentof the sector and
might address, inter alia, the followingissuess (1) identificationof
projectswhich could serve as vehiclesto mobilize external financing,i.e.
the soda ash project; (2) careful review of the AGDE investmentprogram;
(3) review of the geologicalmapping program,with a view to at least
doublingproposed allocations;(4) review of the viability of the ongoing
umarble/graniteand constructionmaterials projects;and (5) definitionof
criteriafor public fundingof explorationprojects.

4.17 The last objectiveis not easy. Many if not most mining companies
do not use economic criteria for exploration projects; they allocate a
proportion of revenues for explorationand cut back on explorationactivi-
ties during hard times. (A mining company may also not do the exploration
itself but purchase economicprospects from outside companies.) Some
companieshave adopted a methodologywhich calculatesan expected value for
exploration work based on historical experience in a particular
geographical area; the exploration budget is calculated according to the
minimum level of spending required to ensure a reasonable probability of an
economic find. This approach is, understandably, most effective in areas
with a track record on which expected value estimates can be based. Even
in places such as Ethiopia where this is not the case, however, such an
app:oach might be useful since it helps decision-makers clarify their
assumptions 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 adjustmentfor the relativedifferencein inflation. Since most
mineral productionis destined for export, the overvaluedexchange rate
overpricesdomestic inputs and decreases the Birr equivalentof interna-
tional market prices. Mineral import-substitutes must compete against an
artificially low import price.

4.19 Allocation of foreign exchange by the ONCCPfor capital investment

depends on the priority assigned to a sector. Distortions are created in
the economy as certain activities are favored by access to foreign
exchange. The low priority attached to the mineral sector in the past has
contributed to its relative under performance. The Government, having
awarded high priority to the mineral sector, should give due caution to
overcommitment in relation to the sector's potential role in the economy.
In addition, new capital investments should be protected by adequate
allocations for operating supplies and spare parts. As a consequence of
present inadequate allocations to meet the needs for operating consumables
and spare parts, operations are less efficient and equipment availabilities
are low. Equipment life can be adversely affected by the lack of spare
parts to ensure proper maintenance. Also the long lead time between
submissionof foreign exchangebudgets and actual placement of orders
requires that needs be anticipatedup to eighteenmonths in advance,which
is difficultto do accurately. Delays in LC processingoften leads to bid
cancellationsand the requirementto repeat the procurementprocess.
 - 28 -

F. A Strategy for the Future

4.20 Mining is intrinsicallya high risk activitywith a typically

medium to long term developmentcycle. Constrainedby limited skilled
manpower, foreign exchange scarcity,inadequatefinancialresources,and
the lack of an adequategeologicalinformationbase, the Government
agencies in the sector have neverthelessaccomplisheda great deal in their
few years of operation. The prospectsof the sector will obviouslydepend
on the existenceof economicdepositsand the Government'sability to iden-
tify them. Given the country'sfinancialand manpover constraints,the
Governmentwill have difficultdecisionsto make about allocationof
resourcesto high risk activitieswith long-ternpay-offs. The most rapid
route to sector developmentwill entail the cooperationof foreign
companies,which could supply technology,trainingand experience for
Ethiopiannationals. Areas of particularinterestmay be detailed
gold/basemetal explorationin the Adola, Wellega and Asmara areas. The
mission supportsthe Government'sintentionsto revise existingmining
legislationto increasethe sector'sattractivenessto invaators. At the
present time, there are few potentialprojects of sufficientscale and
profitabilityto attract foreign investors.

4.21 The promotionof small scale mining, particularlyof gold, but

also industrialminerals presentsanother opportunityto maximize the deve-
lopment of the sector. A program to support small scale miners has the
potentialof increasingsectoralemploymentsubstantiallyas well as diver-
sifying and strengtheningthe economicbase in certain regions. It might
be best operatedby the EMRDC, and could include technicalassis ence,
equipment rental and services, (overburdenremoval),delineationwork, and
financing. Its successwould require legalizationrather than jtst
toleranceof traditionalsmall scale gold mining, simplificationor the
legal environment,and a pricing policy for gold which would enable ths
Governmentto compete effectivelywith illegalmarkets.

4.22 With these concerns in mind, the followingactivitiesneed to be

emphasizedduring the next five years:

(i) the timely publishingof existingmapsheets and reinforcing

the regionalmapping effort in order to strengthenthe
geologicalinformationbase and broaden its availabilityto
interestedparties;

(ii) rationalizingthe explorationprogram by coordinatingit

more closelywith regionalmapping work, taking full
advantageof availableinformation,subjectingexploration
projects to economiccriteria,and identifyingpossible
explorationprojectswhich could attract foreign participa-
tion;

(iii) encouragingthe involvementof foreign expertise/equityin

gold/basemetal explorationand in the operationalmanage-
ment of mine developmentin general;
 - 29 -

(iv) on an urgent basis, rationalizingexistingmining legisla-

tion along the lines describedearlier in paragraphs
4.01-4.04,delineatingprojects suitable for foreign
investors,and designinga promotionalprogram to attract
the interestof foreign companies;and

(v) designingof an integratedprogram and institutional

mechanism or vehicle for developmentgnd expansionof small
scale mining.
 Table I - ETHIOPIA: OFFICIAL MINERALPRODUCTION
(BIrr 969)
FY 1i3WMI FY 1984 FY 1985 FY 19S
FuantitY
Value QuantiY Val" Quantity VYlue Quantity Value

Gold 488 kg 18,140 N6 kg 16,907 916kg 19,830 932 kg 22,U1

Platinum 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 1,119cu.- 18 625 cu.r 13 N.A.
Lim - - 48,427 T 589 4,229 T 645 N.A.
Building
atone 06,964 cu.m 4,181 740,679cu.m 4,8c 720,791cu.m 6,68 N.A.
Sand 23,817 cu.m 1,796 409,406 cu.m 2,541 U86,498cu.. 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 8,686cu.m 68 N.A.

Source: Ministry
of Mining andEnergy
w
 - 3] -

Table 2 - ETHIOPIAN MINERAL RESOURCES DEVELOPMENTCORPORATION

STATEMENTOP REVENUES AND EXPENDITURES
(millions of birr)

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

Revenues from Gold Sales 0.66 15.96 13.04 18.89

Less: Cost of Sales (0.60) (9.83) (6.88) (10.70)
Gross Profit 0.06 6.13 6.16 8.19
Other Income 0.07 0.06 0.07 0.43
Net Operating Revenues 0.13 6.19 6.23 8.62

Expenses: General Administrative 1.10 5.98 3.66 5.25

Amortization of Deferred Cost 0.22 0.59 0.47 0.38
F'nancial Costs 0.22 0.59 0.05 0.06
Other 0.04 0.02 0.02 0.03
Total 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 -4.05

Less: Capital Charge - - -1.39 -2.16
Less: ADEE - Income Taxes n/a n/a -.34 -0.58
Less: 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 stnMinin. Soctor.

-------- Projeated-------- Grnt.

Executing Actual Actual Actual Crant. A Actual Grant Actual Grant. A Actusl Grants A Grant. a 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

Exploration 6.2
Bllbul Mineral EICS 2.9 1.2 1.6 1.4 0.5 1.0 1.9 1.4
WEeleg 11 0.4 0 9 0.6 1 4 1.8 0.6 N
Adolgold DoC 1.7 1.7 1.6 1.8 2.7 1.7 . 8.4 8.6
Iron EIC5 0.6 1.0 1.1 2.9 1.8 2.2 6.9
Oth*r Metallic EIC5 O.O
re eZcous Stonu
Ps.cuatEI ENRC
BCS 2S0S02JS
2.28 0.8020.2 8.8
1.4
Hdrogoloical EICS 0.2 0.1 0.2 0.1 0.S 0.8 0.2 0 5 0.1 0.8
I^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 0L LA 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 Ovelogmnt
Gold: 2.8
N. lp DOA i*e eZC 1.9 25.0 25.S U.0 *
Adole oid Dev. Er ENC 7.4 0.7 8.6 5.6 5.0 9.0 9.6 10.6 29.4
Manual Prod. cc 1.6 1. 2 0 5.1
Soda AW% 3CC 0.2 2.4 5.0 4.0 4.0 18.0
Construction ftet al C 4.0 7.0 8 0 ace W
Industrial Mlineral, 5.00 S.0 S.0 9.0
Bikilal Iron Nin. of Ind. 0.3 0.9 1.0 2 2
Mnrble & 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 2.6
Poteb (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 Developent

Trasnin 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 16.1
Ore-Oreemin Lab -- -- _f - - - -

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

TOTAL MDININ 5ETOlt DfSTU1ENT L Z 1 4ILI

74 i7 31Q Li Imu 4.9 I.1 Q I S7 A au m2.

e Excludea ootherml work and oil and ga exploration

e Inveotm_ntadjusted donward from O estimates to conform with recent estimte.
SOUCE: OCP; EICS; ENc; WE
 - 33 -

Table 4: SelectedTaraets 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 18,000

Aditing (m.) 420 150 500 800
Geophysicalwork (km.) 272 200 350 300
Final design N. Lega Dembi complete
ConstructionN. Lega Dembi complete
Constructionof Soda Ash Project complete
Production:
Gold (kg.) 916 932 1,175 1,370 2,150
Platinum (kg.) 7 10 15
Jewelry Minerals (kg.) 150 150 400
Soda Ash (tons) 10,000
Crushed stone (tons) 150,000 720,000 720,000
Marble (cu.m.) 200 1,250 2,250

ELMICO

Marble in blocks (cu.m) 1,800 4,750 6,000 6,750

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

Source: ONCP
 of MininDSectorto Economy
TABLE5: Contribution

Estimate
1988/87 1987/88 1908/89 1989/90 1990/91 1991/92 1992/93 1998/94 1994/96 Coments/Assumotions

Mining Exports: Volum

(ox)
SmallScoloGold Froduetion 31,250 81,250 82,812 84,458 86,175 87,984 89,868 41,877 48,971 Assumd SS growth rate
N. Log Dnmbi - - - 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
MiningExports: Price
Gold USI/oz 800 450 460 400 360 360 860 850 860
Soda Ash USSi/t - - - 110 110 110 110 110 110 fob aeseb
MarbleUSS/m 600 00 500 500 500 500 500 600 500 fob aesab(tentative)

Mining ExportVolue (USlan)

SmallSc al Cold Production 9.4 14.1 14.3 1S.6 12.7 18.8 14.0 14.7 15.4
N. Lag Dembi - - - 13.0 82.4 82.4 82.4 82.4 82.4
Sods Ash - - - 0.9 0.9 0.9 8.8 11.0 22.0
Marble 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 ScaleOold Production 6.2 10.9 11.5 10.8 9.0 9.5 10.0 10.5 11.0 Assumesfx epersting costs
of 3100/ox
N. Lag Dembi - - - 11.1 18.1 18.1 13.1 18.1 16.1 Assumes fx operating costa
of 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 estimates
Projected CurrentAccountDeficit 290 880 860 80o 410 430 460 470 500 IBRD *etim_tes
Projected 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 Exports
as % of totalexports 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 8.2
Net Fx as X of CDP 0.1 0.2 0.2 0.4 0.5 0.6 0.5 0.5 0.5
Not 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 Cost

Note 2: Governmnt also informs at 3 nowprojoets are projected to comeon 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 exchange
of USS27.6million by 1992/93. The Bankhas not been able to verify this information.
 ORGANIZATIONAL
STRUCTURE OF THE
MINISTRYOF MINESAND ENERGY

(MINISTER) |PLICY AOVISOY

MINISTRYOF MINESAND ENERGY - - - - CONITTE
- - - - - - - - - - - - - -
SECRETARY
OFFICE

PUBLICRELATIDN LEGALSERVICE
SERVICE AUDITA INSPECTION AWDINISTRATION
SERVICE SERVICE

PLANPREPARATION
A RESEARCH
A DEVELOPMENT GANIUZATION
METHODS&
FOLLOW
UP DEP. FINANCE
DEP. PERSONNELAFFAIRS
DEP.
DEP.

VICE MINISTERt
FOR j VICE HMIISTERtfOR
MINING
DowX 1

-- T~~~~~~~~~~~~~~~~~~~~~~~-
PROJECTEXECUTION
FOLLOWUP MINESEXPLORATION
A
A LOGISTICS
COORDINATION PROJECTEXMCtTION
FOLLOWUP
. DEVELOPMENT A LOGISTICSCOORDINATION
DEP. _ CONTROLDEP. DEP.

ETHIOPIAN
[PRIONE
OIL A GAS
RRISE
TIPA
G
INSTITUTEOF
DEVELOPMENT
CORP.RP.
I
I ETIOPIAN MINERALRESOURCES IOPIAN PETROLEUM ETHOPIN DENERY TNOPIANELECTRIC
LIIRT
A-THIOTY Plll ALHM M
 OF THEETHIOPIAN
STRUCTURE
ORCANIZATIONAL
INSTITUTEOF CEOLOGICAL
SURVEYS

| OFFICEO H
G RA MANAER

AUDIT | NING AND ADMINISTRATIVE | AJO PRJECTS|

SERVICE MM
RORiING SERVICEDEPARTMENTI I FIE
* Oil a Csa (Ogoden) Project
* Geothermal Exploration
CHIEFGEOLOGIST Project
Pottrloul Exploration
Promotion Projoct

DRILLING CENTRAL
DATAAND EQUIPMENT/ENGINEERING AND
CARTOGRAPHY CENTRAL
GEOLOCICAL
SERVICE DOCUMENTATION
SERVICE SERVICE SURVEYIN SCE A

REGIONAL
MAPPING
| INERALEXPLORATION GEOPHYSICS HYDROCEOLOGY
ANDl HYDROCARDS|
DEPARTMENT DEPARTMENT DEPARTMENT DEPARTMENT
GIEOTHERMAL f DEPARTMENT

IBRANCHOFFICE=,7T*---
 ORGANIZATIONAL
STRUCtNJRE
OF THEETHIOPIAN
MINERAL
RESOURCES
DEVELOPMENTCORPORATION

OfFICE IJITvNne
OF 1 ----- -- -- EJNTEPRISES
THE
GENE39tL
MANACER

PLANNING
AND
PROCRhAMING

AUDIT LABORA PUBLIC

SERVICES RELATIONS
SERVICES

LEGAL MINE
SERVICES SECURITY

FINANCE
I KI
fRCHASING AND OAH I EXPLORATION
AND I TEO#4ICAL
SERVICESI
DEPARTUENT
| | PROPERtTY EMANPOWERt STUDIES
DEPARTENT| DEPARTMENT
DEPARTMENT APERSONNEL
DEPARTMENT
r ENTÆK
RSES |
 - 38 -
CHART 4
Page 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- dergroundexploita-
qualificationof bid- tion possible.Ad-
ders for design of ditionalwork needed
plant begun. Reserves in reserve estima-
estimatedat 3.14 tion and cost esti-
million tonnes with a mates. Deposit is
grade of 8.6 g/t (2 complex and adequate
g/t cut-off grade). managementat both
constructionand
implementationstage
is 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- Regionalexploration Exploitabledeposits

to/Mormora, program completed; will be developedby
and Dawa/Af- evaluationof known AGDE.
lata Basins, depositspresently
Sidamo underway.

Gold (alluvial) varied sites Compilationof possi- Difficultaccess and

in Welega ble alluvialand hard limited infrastruc-
rock gold occurrances ture in area.
suitable for small
scale and mechanized
mining in progress.

Gold (alluvial) Adola, Sidamo Ongoing alluvialpro-

duction from small
scale miners (emplo-
yees of EMRDC) and
mining cooperatives
(about 115-125 kg./
year)
 - 39 -
CHART 4
Page 2 of 3

MINERAL LOCATION STATUS OF DEVELOPMENT COMMENTS

BASE METALSI

Copper with Debarva (30 Japanese/Ethiopian .oppergrade is high

minor 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 in
vertical shaft, and underlying primary
mined a 2000 tonne zone. Deposit ap-
bulk sample for pro- pears economically
cessing tests in marginal.
Japan.

Zinc with sil- Adi Nefas (6 Same joint venture

ver 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 have
and wide spacing of expressed interest
holes make assess- in undertaking
ment difficult. The exploration.
known results are
sufficiently encoura-
ging to justify ad-
tional exploration.

Copper/gold Adi Rassi (37 Identified Yugoslav group has

km SE of expressed interest
Asmara in undertaking ex-
ploration

Tantalite Kenticha, Exploration work has Preliminary financial

Sidamo proven 1.6 mn cu.m analysis is a
with average grade priority
of 250g/cu.m in three
areas informed re-
serves of 7,2000
tonnes tantalite.
Recent work has on
mineral processing
tests with trial pro-
duction and testing
of a lOZ preconcen-
trate.

INDUSTRIAL
MINERALS

Soda Ash Lake Abijata Project to produce Transportation costs

20,000 tpa under im- and market access
plementation; second are critical deter-
phase expansion to minants of success.
200,000 tpa planned Technology is also
if first phase justi- untried and needs
fies. to be tested.
 - 40 -
CHART 4
Page 3 of 3

MINERAL LOCATION STATUS OF DEVELOPMENT COMKENTS

Potash 90 km from First phase of pre- Market access is criti-

Red Sea coast feasibilityreview cal constraint.
completed.Finan-
cing constraints
have delayed start
of second phase.
Solutionmining
approach under
consideration.

Ceramic Raw
Materials:

Kaolin Bombawoha Proven reservesesti- Pilot productiontest-

mated at 250,000 ing and sophisticated
tonnes. Preliminary bench scale testing
testingunderway; next steps
possibleproblems
of purity identi-
fied.

Feldspar Kenticha A pegmatitedeposit Pilot mining and fur-

is under evaluation. ther product testing
required
CONSTRUCTION
MATERIALS

Crushed stone Addis Project under imple- Project experiencing

mentation,first of some start-upproblems
two crushingplants Will substantially
began operationin increaseavailability
February 1987 of crushed stone in
Ethiopiaand may drive
down price to levels
that are unviable
financially.
Decorative Mendi, Welega Project under imple-
stone mentation;planned
productionto meet
5,000 cu.m next year
 IBRD20784

LISFABA OF i
F

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) hXlf ETHIOPIA
j
F02. t>)
S1' u D A s ,J NeAkEA 1.2 MILLION KM2
'ETHIOPtA'
01.1.., (, ^5 '-_ f /POPULATION 30.5 MILLION
\ -'iC^ N .,OW 7021 /*j[14
A I OFRA KIENPA I kdS... *8.2. _ Nfl., A . AtONal! All
Al..U0 w..F,h
M,FF*. MaFn PFOOb,y

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1UGANDA _ F8 V / /
JULY 1988