The remarks about mining policy reform made last week by Minister of Petroleum and Mineral Wealth Tarek El Molla at an event hosted by the American Chamber of Commerce, were extremely encouraging to us in the industry.

The Minister was very candid in stating that for too long, the fiscal terms used to commercially regulate mineral exploration and mining have been wrong, but that the government is going to fix this. He said they were going to create an investment-friendly environment to attract much needed capital into Egypt’s nascent mining sector so as to develop Egypt’s potentially vast mineral wealth in precious and base metals.

We in the mining sector were also extremely encouraged by the minister’s public recognition that oil & gas and mining have fundamentally different business models, and that their economics do not correlate in any way. The only relationship to be found between the two sectors is that they are extractive industries. To compare the two industries would be like comparing an airline to Uber just because they both get you from point A to point B.

The global mineral exploration and mining industry has its own set of industry standards and norms, and as such, mining companies go to countries where they are welcome.  These are countries with well-developed terms and conditions designed to attract international capital. Investors make very high-risk and long-term investments and are inevitably drawn to countries whose governments firmly understand the sector and its needs, and that seek to engage into meaningful and long-term partnerships. These are businesses and though the geology may be great in country, if companies can’t ultimately bring a return to their stakeholders, they won’t come.

Egypt has taken some bold first steps to make investing in the sector more attractive. The government hired a globally recognized, resource consulting firm at the beginning of the year to identify the problems with its mining terms and conditions and to critically answer the questions: why has only one new gold mine been developed in the last 90 years, and why are there only three international exploration and mining companies working here (despite having held multiple bid rounds)? As we understand it, the last time this consulting firm assisted a government (Ecuador) in unlocking its mineral wealth potential, which like Egypt had an oil & gas focused framework, it almost immediately attracted 400 companies to invest. This too could be Egypt.

It must be remembered that mineral exploration and development is a much longer and riskier endeavor than in the oil & gas business, and that globally the average time it takes from the start of exploration to having an operating mine is 10-15 years. Exploration companies are the key because of these long lead times. These are small companies, which represent the venture capital arm of the industry. They make their money by taking on very high levels of risk to identify an economic deposit.  Thereafter, they either sell the company or its project to a larger mining company.

The government recognizes the main areas that must be reformed to achieve this, which are actually quite simple and have been adopted by every country in the world that has a robust mining sector. The absolutely critical changes that appear to be taking shape in Egypt, are 1) eliminating the oil & gas production sharing agreement and moving to the international standard framework of tax, rent and royalty 2) losing the mandated revenue split between the investor and the Egyptian Mineral Resource Authority (EMRA) thus no longer requiring  a joint venture (JV) company – an unnecessary bureaucratic nightmare 3) adopting globally accepted royalty rates 4) doing away with bid-rounds and allowing exploration companies to choose their own exploration ground 5) most importantly, recognizing that the real income that mining provides to nations comes in the form of tax and economic stimuli.

As an industry, we cannot stress enough that the 50:50 joint venture is a real killer to attracting investors, as it does not allow room for exploration companies to ultimately JV with larger companies to assist it in developing the project. Major mining companies do not engage in greenfield exploration.

Egypt’s policy makers will continue to be well served by accepting that there are no half-measures when it comes to policy reform.  The benefits for Egypt of developing a large and robust mining industry are immense and will certainly contribute to Egypt Vision 2030.  Outside of bringing in large tax receipts for the country, it would do something that Egypt desperately needs and that is job creation. Mining is a labor-intensive business built on non-exportable jobs. Many additional jobs are also created by the ancillary businesses that support a mine and which also support entire communities.  The rule of thumb is for each job directly at the mine site, another 5 related jobs are created within the surrounding area. This also brings in tax revenue, both from individuals and businesses. Thus, by making these simple changes to the mining terms and conditions, the country could see hundreds of thousands of jobs created by 2030. But given the long lead time in mineral exploration, the longer policy makers wait to make the changes, the longer it will take to create these jobs. The key is attracting exploration.

There is no prescription that is unique to Egypt. To implement some half-way, hybrid policy would accomplish nothing and set back mining in Egypt for a generation with no development of its mineral wealth nor job creation. As H.E. Tarek El Molla said, he has canvased the global mining industry, engaged them in dialogue and listened to their needs and concerns and that is why we have no doubt that we are on the cusp of great changes in the mineral exploration and mining industry in Egypt.