DTIC ADA545347: Mineral Resource Team 2010 Activities Summary

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Mineral Resource Team 2010 Activities Summary

Task Force for Business and Stability Operations
January 29, 2011
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Table of Contents
Executive Summary................................................................................................................................3

Acknowledgements.................................................................................................................................7

Introduction.............................................................................................................................................8

Badakshan.........................................................................................................................................................................11

Copper and Gold Porphyries.............................................................................................................12

Zarkashan..........................................................................................................................................................................13

Kundalan...........................................................................................................................................................................18

Dusar-Shaida....................................................................................................................................................................20

Chaigai Hills....................................................................................................................................................................22

Balkhab..............................................................................................................................................................................23

Sedimentary Copper............................................................................................................................29

North Aynak.....................................................................................................................................................................29

Rare Earth Elements............................................................................................................................35

Carbonatite......................................................................................................................................................35

Khanneshin.......................................................................................................................................................................35

Iron...........................................................................................................................................................40

Haji Gak.............................................................................................................................................................................40

Lithium....................................................................................................................................................41

Coal..........................................................................................................................................................44

Balkhab..............................................................................................................................................................................44

Appendix 1: 2009 In-Ground Value Estimate of Afghanistan’s Mineral Wealth..................50

Appendix 2: 2011 In-Ground Value Estimate of Afghanistan’s Mineral Wealth..................51

Appendix 3: Comparison Table of 2009 and 2010 In-ground Value Estimates of
Afghanistan’s Mineral Wealth...........................................................................................................52

List of Figures........................................................................................................................................53

List of Tables..........................................................................................................................................54

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Executive Summary

The Task Force for Business and Stability Operations was formed by the U.S. Department of
Defense in 2006 to leverage American and international economic power as a strategic tool for
promoting economic stabilization. Since then, the Task Force’s mission has been to reduce
violence, enhance stability, and restore economic normalcy in areas where unrest and insurgency
have created a synchronous downward spiral of economic hardship and violence.

The Task Force initiates every new program and project with the assumption that the absence of
a viable economic base is one of the primary factors which has historically led to state failure.
When starting operations in Afghanistan in 2009, the Task Force began by asking the question:
What are the indigenous resources the Afghan people can use to create such a viable economic
base, thereby ensuring Afghan economic sovereignty?

With a nominal gross domestic product of just over $10 billion, much attributed to foreign
assistance, Afghanistan needs industries that produce sustainable wealth, create jobs, and reduce
the country’s overreliance on international donors to fund its treasury and armed services.

In the summer of 2009, the Task Force assessed many critical sectors of the Afghan economy.
One of the Task Force assessment’s key findings was that the untold mineral wealth lying
beneath the ground in Afghanistan could provide the very foundation needed for modern,
thriving communities above it.

Using the quantities of known and undiscovered resources in the United States Geological
Survey’s Preliminary Non-Fuel Mineral Report (Stevens et al, 2007), the Task Force calculated
the gross in-place value of minerals in Afghanistan at more than $900 billion. By leveraging the
power of the market—as opposed to simple foreign assistance—the Task Force works differently
than many other international governmental and non-governmental organizations. One of its
primary methodologies first identifies investment opportunities, then hosts private sector
investors in the regions where the identified opportunities are located, and, finally, works to
ensure transparent business transactions between the investors and the local community. In order
to make this mineral opportunity into a revenue-generating capability for the Afghan government
and a positive source of livelihood for Afghans, the Task Force worked in this same manner to
accelerate the power of the international natural resource market in Afghanistan.

After the initial simple calculation of gross in-place dollar value, the Task Force recruited
private-sector exploration geologists to join the United States Geological Survey and the Afghan
Geological Survey to analyze 1970s and 1980s Soviet geological data and maps to identify and
assess high priority areas for further exploration. The Task Force then coupled the troves of data
collected by the USSR with cutting edge remote sensing work and on-the-ground sampling work,
thereby creating the multi-dimensional construct required by international investors before
entering an emerging market like Afghanistan.

The Task Force integrated three primary sources of data to complete these investment packages:

1. Soviet-Era Geologic Maps

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The Soviet Union spent decades and untold millions sending some of its best and
brightest geologists to survey Afghanistan. Many of the resulting reports existed only at
the Afghan Geological Survey in single paper copies - and the majority of the documents
had never been digitized or translated from Russian into English. The Task Force
digitized and translated hundreds of these previously overlooked reports. This data
allowed the Task Force team to leapfrog several traditional stages of mineral exploration.
Instead of starting from scratch, the geologists could then use this data and deposit history
to pinpoint areas of high potential for investors, providing incentives for, as well as
lowering the risk of, investment.

The Task Force also reinterpreted some of this legacy data to reflect current global
demands and market trends. For example, gold exploration during Soviet times was based
on the economics of gold at about $35 per troy ounce. With the price now soaring above
$1,000, investor appetite for risk and larger, lower grade deposits has increased. Rare
earth elements were also not considered important by the Soviets whereas now they are a
strategic resource, critical for high-tech consumer and industrial products like hybrid car
batteries and mobile phones.

2. Remote sensing techniques used by the scientific and private sector exploration
communities.

Thanks to USGS’s cutting-edge work in remote sensing technology—including
hyperspectral, ASTER, and geophysics—more data is now available on the surficial
geology of Afghanistan than for probably any other country in the world, including the
United States. The Task Force commissioned private sector remote sensing experts to
pour through this data on the hunt for new mineral rich zones in areas not previously
studied by the Soviets. This high-tech data yields new areas of interest needing ground-
sampling and other analysis, and will focus the Task Force’s exploration activities in
2011.

3. New ground samples.

The Task Force has teams of private sector exploration geologists, USGS geologists, and
AGS teams collecting rock and water samples throughout the country. The purpose of
these ground missions is to validate the Soviet data and update the findings with modern
exploration and analysis techniques. Our “ground-truthing” and extensive review of
previously unknown Soviet reports has also allowed the Task Force to more accurately
quantify deposits about which little was previously known. The result is a clearer, more
accurate and compelling assessment of Afghanistan’s mineral resources and economic
potential.

This overall strategy reduces risk for investors because they know the data is of the highest
quality, from a reputable source, and complies with standards financial backers require. Through
this effort, many of the deposits analyzed over the last year have turned out to be more
compelling, more valuable, and more attractive to international investors. The following key
findings are selected from among 27 total sites surveyed or analyzed across Afghanistan this
year, each of which demonstrate economic potential for development as discussed in the report.

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Selected 2010 Findings

• Zarkashan (Ghazni Province)
When discovered by Soviet and Afghan geologists in the 1970s, the Zarkashan gold and
copper porphyry deposit was thought to have minimal value based on the economics of
the time. After conducting field missions, remote sensing, and additional analysis of
Soviet data, Task Force mining experts now estimate this deposit to be worth up to $30
billion and could become one of Afghanistan’s largest mining operations. With the right
development partner, Zarkashan could begin small-scale open pit heap leach gold
production in one to two years. Within five years, Zarkashan could have a large-scale
open pit copper mine in production.

A model for this type of development is the Collahuasi mine in Chile, which is now the
world’s third largest copper mine. In that deposit, a consortium led by industry
heavyweights Anglo-American and Xstrata made an initial investment of $1.8 billion that
will keep the mine operating for 50 years, providing stability and long term economic
growth for the region. This type of investment could similarly revolutionize
Afghanistan’s Ghazni Province. While Afghanistan poses many challenges to an investor,
Zarkashan is located in an area not nearly as remote or forbidding as Collahuasi, which is
surrounded by the barren Atacama Desert at 4,800 meters (15,748 feet) above sea level in
the Andes Mountains.

• Lithium (Herat, Ghazni, Nimruz, and Farah provinces)
Afghanistan is uniquely positioned to become a world leader in the production of lithium.
After field missions to five locations, Task Force geologists estimate the country has
upwards of $60 billion worth of lithium in its many evaporite lakes. These resources also
have tremendous advantage over both Chile and Bolivia due to higher evaporation rates
that lead to faster and more efficient production. Small-scale lithium production could
begin within one year with large-scale production two to four years later. Lithium
production also produces fertilizer ingredients and salt products that could be used by
local communities.

• Khanneshin (Helmand Province)
Discovered in the 1970s by Soviet geologists, the Task Force estimates the ancient
volcano of Khanneshin to hold more than $89 billion in minerals strategic for high tech
and industrial industries. While rare earth elements and niobium were not a priority for
Soviet geologists, today they are crucial to the development of steel alloys, lasers, and
super magnets. The heavy rare earths in Khanneshin are found in few locations around
the world, and currently 99 percent of the world’s supply is solely produced in China.
This deposit could represent a long term development opportunity for Helmand Province
that would create jobs across the spectrum from low skilled laborers to chemists,
physicists, and engineers.

• North Aynak (Logar Province)
The recent $43 billion Aynak copper deposit award to China Metallurgical Group
Corporation has gained much international attention. Thanks to on-the-ground sampling
and remote sensing, Task Force geologists infer there could be an equal or larger copper
deposit located north of the Chinese plot. Aynak North could begin as a small
underground cobalt mine in one to two years that would then support the development of
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a large-scale open pit copper mine within five years. The deposit is believed to be a
sediment-hosted copper deposit, which is one of the world’s major sources of copper and
cobalt. Situated 30 km south of Kabul, North Aynak is strategically located to take
advantage of future rail infrastructure planned for the region.

• Dusar-Shaida (Herat Province)
In the 1970s, Soviet and Afghan geologists thought this copper deposit was scientifically
interesting but not economically significant. Upon gaining access to additional Soviet
data that calculates reserve estimates and then checking that data with sampling missions
and modern geochemical assays, Task Force geologists now estimate the deposit could
contain up to $29 billion in copper alone – far more than was previously supposed.

• Balkhab (Balkh Province)
A new discovery, this high-grade copper deposit located in a stable area in the Balkh
Province could become a significant mining operation in less than five years. Balkhab,
which has been surveyed by the AGS under mentorship by Task Force geologists,
appears to be a volcanogenetic massive sulfide deposit. This type of deposit supplies
much of the world’s gold, copper, lead, and zinc. The Lisheen Mine in Ireland is a
possible model for the development of Balkhab. That underground lead and zinc deposit
took less than five years of active work from discovery to production and now employs
hundreds of skilled workers.

Even if only one of the aforementioned projects is successfully brought to production, the impact
to Afghanistan’s economy would drastically change life for the Afghan people. It is reasonable to
assume both Zarkashan and North Aynak will attract upward of $1.8 billion in investment each,
with construction employment rates at 12,000 to 20,000 people per mine and direct long term
stable employment at the mine of roughly 6,000 people each. A medium-scale copper mine like
Balkhab could attract $400 million in investment, 2,000 to 5,000 jobs during the construction
phase, and direct long term employment of up to 1,200 people.

Each small scale operation—whether that be the initial phase of development of the gold and
copper mines or each lithium production initiative—has potential to attract upwards of $20
million in investment within two to three years, construction employment of up to 400 Afghans,
and direct long-term employment of more than 100 Afghans. If all potential lithium deposits are
put into production, that economic activity could result in up to $1.2 billion in additional annual
revenue for the government of Afghanistan. These figures alone do not account for those people
employed by the related industries necessary—the lab technicians, sampling crews, truck drivers,
and hospitality industry workers—to support the mining towns.

It is no longer a question whether or not Afghanistan will have a mining industry. The question
that remains is what this industry will look like. We have the opportunity now to position
Afghanistan so its people can benefit from its vast mineral assets. These crucial assets—so
essential to Afghanistan’s future—hold the promise of thousands of jobs for Afghans, many of
whom have known only poverty and subsistence. The potential for long term employment and
job growth in this transformational economic sector cannot be overstated and the potential
benefits for foreign investors shares the same potential upside. Of equal importance are the
ancillary benefits that Afghanistan’s mineral sector will provide the economy. Royalties and fees
paid to the government will not just pay for police and military personnel, they will lead directly
to the construction of roads, schools, hospitals, and public facilities – the very bricks and mortar
of a successful society.
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Acknowledgements

The Task Force for Business and Stability Operations would like to extend its sincere gratitude to
Minister of Mines Wahidullah Shahrani, ISAF Commanding General David Petraeus,
Ambassador Karl Eikenberry, and President Hamid Karzai for their leadership, vision, and
determination to help Afghanistan become an economically sovereign nation. We also thank all
of their teams as well as our partners at the United States Geological Survey and the Afghan
Geological Survey. While we remain optimistic about Afghanistan’s ability to become a socially
and environmentally responsible center for natural resource development, we are realistic that
Afghanistan’s journey will be a long-term endeavor that will require coordinated investments in
infrastructure, transportation networks, and human capital. Through concerted and focused long
term effort across the full spectrum of participants—from government leaders to private sector
investors—Afghanistan can leverage its natural resource wealth into a tool of good for all its
people.

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Lithium
25 Dasht-e-Nawar
Lithium
27
26 Godzareh
Lithium

Figure 1: TFBSO Team Project Areas

Introduction

Afghanistan possesses some of the most complex and diverse geology on the planet. Located at
the western end of the Himalayas where the Indian subcontinent collided with Eurasia, the
country’s unique geological foundation created thousands of mineral occurrences. Afghans have
always known their country contains vast riches; some of the world’s oldest known mines were
established in Afghanistan to produce lapis lazuli for the Egyptian pharaohs. Aside from
accidental discoveries by locals looking for gold and gemstones, most of what is under the
ground remained a mystery until relatively recently.

USGS began work in Afghanistan in the 1950s, followed in the 1960s by counterparts at the
British and German geological surveys. Beginning in the early 1970s, the former Soviet Union
conducted the first truly thorough geological survey of the country in partnership with the
Afghan Geological Survey. When the USSR left Afghanistan in 1989, their geologists left behind
thousands of pages of surveys, drilling logs, and scientific studies on the country’s riches. The
quality and quantity of these data demonstrate the abundant mineral resources distributed
throughout the country.

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USGS returned to Afghanistan with the support of USAID in 2004 to conduct two years of
capacity building in the Ministry of Mines and assessment work collecting and processing legacy
data. They also conducted regional geophysical and hyperspectral surveys. The Task Force
program was built on this foundation by using that previously collected data to prioritize and
identify areas with the highest potential for exploration and production and then by combining it
with newly acquired data.

The purpose of this report is to present a preliminary compilation of data collected and
synthesized by the Task Force since Fall 2009. While this review is not exhaustive, it presents a
summary of information known prior to Task Force involvement in the project, an overview of
present work, and a statement of current understanding of the commodities and deposit types
throughout the country. This report also provides references to the archival reports of Russian,
German, and British scientists recovered from the Afghan Geological Survey library by the Task
Force and its Ministry of Mines and Afghan Geological Survey colleagues. These additional
reports add depth and breadth to further understanding the geology of Afghanistan and, therefore,
the potential mineral wealth of the country.

Task Force geologists, in conjunction with USGS and AGS, divided Afghanistan’s vast mineral
wealth into 27 areas of interest (Figure 1). This calculation was based on security, scale, market
value, infrastructure needs and availability, and time to impact. These areas of interest are each
potential mining districts with one or more mineral deposits. The Task Force chose to focus on a
balanced portfolio of minerals—both metallic and industrial—that could build a broad based
mining industry in Afghanistan. By the end of 2010, Task Force geology teams had conducted
ground surveys in 10 of the 27 areas of interest, resulting in objective, first-hand assessments of
each area of interest.

A critical part of each team’s work included sampling of bedrock, soil, and water for
geochemical assays and petrographic analysis. Other teams used remote sensing methodologies
(Landsat, hyperspectral, ASTER, etc.) that provided a regional context to the analysis. While the
particulars of each area of interest are not known with certainty, this extra sampling increased the
general knowledge of deposit type and grade within each area. This sort of data is required by
potential investors and regulators who need to know grade and size of prospective commodities.
All data points are important for the financial and engineering models used to put a deposit on
the path toward development and production.

To convey the scale of potential economic development, the Task Force took the known and
undiscovered reserve and resource estimates provided in the 2007 Preliminary Non-Fuel Mineral
Assessment and augmented them with resource estimates obtained through the 2010 field survey
work by Task Force geologists to calculate a conservative estimate of the country’s mineral
wealth. This calculation of gross in-place value was made using December 2009 prices for
minerals and commodities sold on the London Metal Exchange and 2007 prices in the USGS
Mineral Yearbook. The Mineral Yearbook lists production quantities and average prices for the
two years prior to publication, but commodity prices are generally stable, so it was inferred that
the 2007 average prices were a good estimate to predict 2010 prices. The numbers do not take
into account infrastructure needs, production costs, taxation, or grade dilution. This table has
been updated in Appendix 3 with January 2011 values for those metals on the London Metal
Exchange and values from newly released Mineral Yearbooks, where available, for commodity
minerals.

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