Analysis: Madagascar faces struggle to restore mining industry – by Alain Iloniaina and Richard Lough (Reuters India – December 2, 2013)

ANTANANARIVO – (Reuters) – Madagascar’s next president will struggle with low metals prices and distrustful companies as he seeks to revive a mining industry that was the main source of foreign investment until a 2009 coup cut flows to a trickle.

The primary risk is that neither of the two candidates clearly wins a mandate on December 20, prolonging political turmoil. But both say they aim to restore mining, which five years ago attracted $8 out of every $10 in foreign direct investment to the Indian Ocean island.

“The mining sector is sick,” Mines Minister Rajo Daniella Randriafeno told Reuters. “It’s like a person who is slowly losing the blood that keeps him alive.”

Madagascar’s deposits of nickel, titanium, cobalt, iron, coal and uranium as well as its hydrocarbon prospects had previously encouraged foreign firms to queue for deals. Among them, Rio Tinto (RIO.L) began mining ilmenite, an ingredient used as pigment in paints, paper and plastics.

The political turmoil that has followed the 2009 power grab by President Andry Rajoelina, however, has choked off the issuance of all but a handful of new mining permits.

The army-backed government, faced with a cash crunch that became acute when foreign donors cut aid, also failed to pay tax refunds for exploration and alarmed investors by threatening to hike royalty fees.

“Madagascar went from flavor of the month to ‘wouldn’t touch it with a stick’,” said one mining expert with detailed knowledge of contract negotiations.

The government says the freeze in new permits was a condition of a 2011 deal to end a crisis that left Rajoelina struggling to secure international recognition.

A few permits have been issued. Wuhan Iron and Steel Co (WISCO), China’s third-largest steelmaker, paid $100 million for a permit to explore for iron ore in 2010, shortly before the pact to halt such licenses was agreed.

Firms in Madagascar need to obtain licenses for everything from initial research to final production, which has meant that most existing miners have been unable to extend their operations.

The Madagascar Chamber of Mines said the suspension should have applied only to newcomers. The mining minister said it has drained the life out of the industry.

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