Morocco: On track with policy reforms cycle

October 27, 2020 12:26 PM

Realizing that hundreds of prospecting area licenses is essentially “inactive” the government is moving through a process of rétribution.

Morocco is blessed with extensive base metal deposits of copper, lead, zinc often with decent silver contents.

By Dr Amit Tripathi

Mining policy reforms in almost all jurisdictions follow a similar trajectory. As states ease-out licensing requirements and procedures to promote investment in the mining value chain, they experience a sudden spurt of activity in the sector. There are several components to this sudden spurt. The first part of this is by existing miners and operators that start acquiring additional areas for expanding operations. The second part is overseas by junior miners and explorers looking to explore and develop targets in traditionally known mineral bearing areas.

Another significant part is domestic speculators laying claims to areas hoping to make a profit by joint venturing these areas. Foreign entrants also prefer such deals as they get to use the liaison and social connects of the domestic partner. As the initial speculators succeed and the stories of their success percolate through the local grapevine a floodgate of activity starts. Everyone who is someone starts acquiring licenses all over the place hoping to replicate the model. Government officials also encourage such trends as this helps highlight the rapid success of the new policy reforms. Many of these second-wave speculators don’t have adequate skills to identify and develop prospects and are not even willing to invest in systematic exploration to make their prospects interesting to a foreign junior. They often hire local geologists and non-accredited consultants to prepare reports and “reserve calculations”. Most of these reports are junk status advertisements with colourful maps prepared without adequate and appropriate data.

Many geologists also lead on the speculator and play along with them to continue their employment. The speculators and their teams go on a sales overdrive and peddle their property as the next major discovery of the decade. These reports lack a Competent Person or Qualified Person’s certificate (Qualified Person or QP and competent Person or CP are legal terms in major mining jurisdictions and require certain education, experience and accreditation). QPs or CPs would not sign off on such reports as these would not be compliant to reporting standards like NI43-101, JORC etc. Such reports are routinely ignored by investors, junior miners and exploration businesses as there are thousands floating around in every jurisdiction. The only useful purpose these speculators serve is to highlight ongoing mining reforms in that jurisdiction to the overseas audience.

The downside to it is balkanization of mineral-rich areas and blocking off prospects for serious investors. After a while, the government realizes that despite an easy licensing policy and issue of several licenses, investment in the sector is not growing at the expected pace. Realizing the problem officials routinely move to overcompensate. Prequalification criteria are enhanced, financial qualifications are introduced, license fees are increased area restrictions imposed, non-tariff barriers introduced etc. In some jurisdictions, the government officials also get lured by the speculative profits and look to increase the government’s share in the deals and move to the extremist position of resource auctions. Most of such government measures fail to boost investment and the jurisdiction risks regressing back to becoming “uninteresting” to foreign capital. Successful jurisdictions have policy moves that are subtle and well-calibrated to the requirements and suitable to local condition.

Morocco is just now entering this critical policy reform phase. Realizing that hundreds of prospecting area licenses is essentially “inactive” the government is moving through a process of rétribution. Idle license and permits are proposed to be annulled to be reissued to serious explorers. The prequalification process is on and the criterion for identifying serious investor is being worked out. Several Moroccan companies that are have been working well, have demonstrated track record and reliable balance sheets have gained an advantage and would suddenly see prime areas opening up and becoming available for them. These companies would become able to secure licenses in prime areas that have been so far blocked by speculators asking for obscene upfront prices. The financial and technical capabilities of Moroccan companies for such rapid expansion, however, are limited as formal local financing for exploration is all but non-existent.

Even technical capability to prepare NI43-101 or JORC compliant reports of prospects suitable for investors is extremely limited and contained within a few large mining companies or listed explorers like Managem, Maya gold and silver, OCP and Compagnie Minière de Touissit (CMT) to name a few. Most other smaller Moroccan companies rely on ninja mining techniques where the grade estimates are made on a few selected samples and resource are the visual estimations of the thickness of ore bodies. Many Indian companies would be familiar with this process where grade and thickness are often presumed, and areal extents of visible ore would be taken as size. This process although often used for quick area selection of bulk commodities like iron ore, bauxite, coal etc, becomes progressively more unreliable up the mineral value chain.

Morocco is blessed with extensive base metal deposits of copper, lead, zinc often with decent silver contents. Using such ninja estimation method for base metals would be considered horrifying for formal reporting but within Morocco, this is a routine practice and is even used for taking mining investment decisions. In absence of a reliable geological model of such non-compliant estimation, Moroccan miners are not able to expand production capacities and very quickly hit a production glass ceiling and remain below a critical threshold of size. They are not able to raise any formal financing as in absence of geological model; the size of resources cannot be reliably demonstrated. Equity deals also become tough to negotiate as the concession owner’s belief of their mine resource does not match their ability to demonstrate compliant resource. In absence of such demonstrated resources, the usual investment practise is to significantly discount the resource value. The consequent equity dilutions become unpalatable to the concession owner and the deal falls through. Under sustained financial pressure, the concession owners and miners resort to raising the cutoff. This further reduces the size of the resources making the mine even more unattractive to investors. Several lead-zinc projects in Morocco operate with two to three times(!) the cutoff of similar size project in say South America is therefore never able to attain their full potential. This practice also runs contrary to the established parameters of mineral conservation. Just extracting the high-grade ore massively reduces the average mine grade and the residual resources become uneconomic. It is surprising that Moroccan authorities permit such blatant erosion of national assets.

Therein also lies the business opportunity. Base metal projects with obscenely high grades, stable and reliable jurisdiction, transparent permitting process, and strong infrastructure are the strengths of the Moroccan mining sector. Businesses who would be willing to operate hands-on, secure deals and develop projects, Morocco presents a wonderful opportunity. Major opportunities exist not only in aiming for production but also in the project generation space. Identifying and acquiring decent prospects, exploring them and preparing compliant reports for a joint venture with serious junior miners would also be a rapid turnaround generative business.

Traditionally exploration is a business with a gestation cycle. However, there are times when some countries pass through phases of sudden spurt of opportunities due to change in policies and rules. Morocco is all set to enter one such cusp of policy change phase. This phase would possibly be short, and the best deals would be closed within a two to three-month window. This is therefore an opportune time for entrepreneurs with access to investible capital, technical expertise to rapidly reconnoitre large areas and management acumen to take quick decisions.

(The author is a Director of MPXG Exploration and has spent years exploring Morocco. He can be contacted on Views expressed are personal.)

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