By Mekuria Gize
Acquisition of the Lega Dembi Gold Mine by MIDROC
The Lega Dembi Gold mine is the single large-scale operating mine in Ethiopia until its closure on May 30th, 2018 as a result of in street protest in Shakisso town that was led by Oromo fundamentalist activists like Jawar, Tsegaye Ararsa, and Prof. Eskial Gabissa. Ownership of the mine was transferred from the Government of Ethiopia to MIDROC in 1997. MIDROC acquired the property for US$172 million following an international bid announced through the Ministry of Mines. Companies that were shortlisted following the bid were: MIDROC, South Africa’s Gold Fields and JCI. MIDROC won the bid beating these two companies fair and square. Information close to the sources indicates that the second competitive offer given to the mine was less than MIDROC’s by about 35-40 million US dollars. There is often a rumour after rumour, particularly in the social media, that MIDROC bought Lega Dembi Gold Mine at dirt cheap price because Shek Al Amoudi, the owner of MIDROC, has close ties with the ruling party, TPLF-EPRDF. In fact, people who have information from the bidders indicate that it was somewhat a surprise for the other bidders to see Al Amoudi giving such an inflated price for the mine (according to the these bidders, the mine does not worth 172 million).
Until 2005 Shek Al Amoudi as such has no close relationship with the ruling party or the Government of Zenawi. Shek Al Amoudi in fact used to hire technocrats fired by Zenawi’s government for alleged “Derg supporter/officials.” TPLF and Zenawi probably have no good view of the Shek’s investment companies. Al Amoudi became a colleague to TPLF officials during the 2005 election season, where he was seen side by side with Mayor Arkebe Equbay in support of EPRDF.
Lega Dembi’s worth
When people talk of the Lege Dambi Gold Mine, they make it look like you take a shovel and come back full of gold, something former Prime Minister (Haile Mariam Desalegn) once said inside parliament when he explained how young people can overcome poverty. The overall proven contained gold reserve of the mine, at the time the time of sale, was about 1 million ounces. MIDROC Gold started Gold production in August 1998. At that time, the price of one ounce of gold was around 300 US dollars. You do the maths for total money you could get out of the total reserve. To that, add operating costs. If I put a 15% modest profit before tax, and all the gold is recoverable (which is not the case) the total money MIDROC could generate is no more than 45 million dollars. The government’s tax at the time was around 35%, and a royalty of 5%. The net income after tax and royalty will be about 28 million over the mine’s lifetime (over a period of 30 years). That is the reason the other bidders (JCI and Goldfields) wondered Why Al Amoudi bought it at such an exaggerated price. Since MIDROC started mining in 1998, the price of gold has dipped in the world market as low as 250 US dollars per ounce as a result of the Bre-X scandal, and the sale of gold reserves by banks in Europe, Australia, and the USA. Gold price remained below 275 US dollars up until 2003. Since 2003, gold price started to climb to more than 400 per ounce, reaching over 1000 per once in 2009, and peaking as high as 1700 per ounce in 2012. Gold price is now steady at around 1300 US dollars with some ups and downs. So, the first 5 years for MIDROC was probably a loss or a very low profit, and it is during this hard times MIDROC braved to acquire Lega Dembi mine. However, the last 15 years have been great for MIDROC as a result of a surge in gold price. During these times Shek Al Amoudi’s MIDROC’s wealth increment has been one of luck.
Environmental and Health Impacts, Community Accusations
Expected impacts due to gold mining at Lega Dembi are air pollution, landscape degradation (aesthetic loss), soil erosion, deforestation, surface & groundwater pollutions. Air pollution is mainly around the mine site and the effect is on the workers and not to residents at Shakisso (the town protestors came from). Erosion and landscape degradation is expected, and can only be mitigated by mine site reclamation when the mine operation ceases. Soil erosion and landscape degradation started when the government owned the mine and is not a new phenomenon. The only mechanism to restore it is when mine operation ceases and reclamation starts. To prevent surface water pollution, the company by law is required to take mitigation measures such as preparing tailing pond/dam and controlling mine effluent limits. The mine will have an environmental monitoring unit that will check for any possible contamination into the drainage system from time to time. When MIDROC is given license to do the mining, the Ministry of Mines will make sure there is a measure to meet these requirements. Once things are in order, MIDROC’s primary responsibility is paying taxes and royalty to the government and these obligations are clearly known in the mining act of the country. Usually, mining companies help communities in the area of education, health centers, recreations facilities to foster good relationships with the communities. Unless stated in the agreement the government or community leaders cannot force companies to get everything they want. Mining companies are on site to make profits. Government is to take advantage of taxes and employment of workers, and in turn support communities. What the people in Shakisso did is a total transgression of the law. They have no right to stop the mine operation once a license is granted. If they want to reject the project it should be at the consultation stage. Moreover, Shakisso town was established by the government for the sole purpose of supporting mining operations in the area. When the government was recovering gold from placer gold, shakisso was a site of the revenue and police post. Even prisoners used to be sent to Shakisso to do artisanal gold mining activity long before the Lega Dembi gold was discovered.
Between Shakisso and Ageremariam, (approximately 120 km to the south) there is no legally established permanent settlement when MIDROC owned that property except placer gold mining camps and police posts. Any settlement that came to existence since 1997, are sudden settlements without title deeds that happened to be founded due to artisanal mining activities and without licenses. These mining activities often use mercury to recover the gold; as a result, pollution of a stream, soil, and rivers is highly likely which continued to this date unhindered by the so-called protesters. The accusation by activists and village protesters that MIDROC Gold affected their safety is a wild generalization. They have no data that contaminants went to the waterways and from there to the people from MIDROC’s operations. That the Shakisso medical doctors confirmed the seriousness of the mining contamination is bogus, to say the least. These doctors are BSc holders in Medicine and their best experience if at all is probably in tropical diseases. The level of accusation raised requires confirmation by expert toxicologists with many years of experience. Cyanide becomes dangerous when there is a tailing pond/dam breach which we have not heard so far in the area. I am not implying here that there exists no impact from the mining operation at all, but I am saying there is no confirmation either.
Whenever mining companies come to Ethiopia they need a calm atmosphere to operate, and every villager cannot come and protest whenever they feel they own the resources. Such things are resolved by talking between the federal and the regional governments and not by mobsters. It is a very dangerous precedent for investors. Ethiopia should be firm in protecting investors whatever feelings there may be out there.
Lega Dembi is the only large scale gold mine that generates more than 90% of the mineral revenues of Ethiopia. The foreign currency from a gold sale is locally used, an additional advantage for the government of Ethiopia. Such an operation should not have been blocked for such an extended period, nearly 9 months now. It is high time now the government sits down with community leaders and MIDROC representatives and solve differences and get the mine back into operation.
The protest by villagers instigated by oromo fundamentalists like Jawar mohammod, Tsegaye Ararsa, and Prof Eskial Gabissa is simply out of a sentiment that the gold resources belong to them. Such tendencies were manifested in North Shewa Oromia Zone when villagers attempted to seize Dangote’s quarry site in earlier years. Activists, you just cannot like one part of the constitution and dislike the other. You like ethnic federalism entailed in the constitution because you think your tribe has better resources. But the constitution also puts mineral resources under the jurisdiction of the federal government. Accept it and stop being noise makers.
There is no proof Lega Dembi Gold Mining impacted the health of villagers, whereas there remains a danger from mercury pollution in the area by artisanal miners. The government must not yield to every protest without adequate proof.
Ethiopia ’s ministry of mines must put a mine inspection unit, if it does not already have one, to monitor environmental impacts, do the onsite investigation, as well as acquire and document periodic reports from mining companies. It could seek the help of foreign governments (e.g. Canada, Australia) known for good mining practices.
The accusation that Lege Dembi Gold Mine was acquired by MIDROC in 1997 at dirt cheap price because MIDROC’s owner Shek Al Amoudi has a close relationship with the ruling party (EPRDF) is baseless. MIDROC won Lega Dembi Gold mine fair and square with a wide margin of the purchase offer. Al Amoudi’s closeness to TPLF started only in 2005; Fault finders must sharpen their memory of chronology before making wild accusations. I cannot conclude that Shek Al Amoudi has not been favoured in business dealings after 2005. However, the evidence is required when we throw accusations.