Ethiopia’s mines ministry, in an effort to encourage production, has issued warnings to companies operating idle mines. Many mines sit unused or without active operations for years. The ministry was quoted: “Following a re-investigation, 27 mining companies that had been licensed to operate in the mining sector but failed to enter operation have had their licenses revoked, and three miners have been immediately warned to correct their mistakes.” Takele Uma, Ethiopian mines minister, was reported by Reuters as saying that the licenses will now be opened up to international tender.

The country has revoked 90 mining licenses, with 63 of those being revoked in December 2020. The mining companies involved failed to renew their licenses, or had not made royalty payments. Ethiopia would like to expand and develop its mineral and metal resources and needs committed partners to reach its goals. Mining will be a key sector for the country moving forward as it aims for economic growth and reform across every sector. 

Trying to Revive an Economy on Life-Support

A large trade deficit and lack of regular foreign exchange have left the country in an untenable position with stagnant growth for most parts of the country and recession for others. Ethiopia relies on many artisanal miners, but would like to lure more international miners into the region. Larger companies will be allowed to bid on the licenses available for international tender to build a more robust and consistent mining industry. 

The nation so far has exported gold valued at over $504.73 million in the last ten months. The metal accounts for the vast majority of the country’s mining exports, with over 90% being attributed to the yellow metal. Unfortunately, official figures and royalty payments have been on the decline for the past eight years as illegal trade and the closure of big plants have plagued the industry.

There is Hope for the Patient

December 2020 saw the government take its economic future in a new and more determined direction with a 10-year plan directed at bringing more foreign exchange through imports and exports. The goal is to grow the current import and export substitution of minerals from $265 million to $17 billion by 2030. The ambitious plan has its roadblocks, but the cancelling of the licenses is a solid first step in the right direction.

Investors may also be enticed by a 25% corporate tax rate and a 10-year loss carry-forward, royalties of 4% on industrial minerals, 5% on metallic minerals, and 7% for the all-important gold production. Mining companies obtaining licenses will also be pleased with their exemptions from customs duties and taxes for machinery, equipment, and vehicles that can be considered essential to operations. 

Some big companies already have a foothold in the country and will benefit from this accommodating 10-year roadmap. Kefi Gold and Copper, as well as US-based Newmont (NYSE:NEM) (TSX:NGT) have assets in Ethiopia, with ongoing operations.