Afghan Riches: Not So Fast

The New York Times recently ran a story claiming that $1 trillion worth of mineral wealth lay under the soils of Afghanistan, and this war-ravaged country could become “one of the most important mining centers in the world.”

It’s an interesting thought, but let’s slow down a bit.

We often refer to “delays and disappointments” when discussing new discoveries of gold, copper, oil, etc. It’s easy to announce a big new discovery, but incredibly hard to turn it into actual production.

After discovery comes a lengthy period of additional exploration and other geological work to determine the size of the prospect. Then there’s engineering, a sequence of feasibility studies, budgeting, permitting, capital expenditure on roads, power and other infrastructure, and much more.

For this reason, most discoveries never even get close to reaching the development stage. And this is in countries with stable political systems, solid property rights, an experienced work force and no bullets flying. Imagine the additional complications in a war zone like Afghanistan.

Afghanistan could defy the odds, and its subsurface riches could put it on a successful social and economic path similar to that of Chile. Or it could devolve into a warlord-driven situation akin to the Democratic Republic of the Congo.

Much work still has to be done before anyone starts throwing around 13-digit numbers.

Louis James from Casey Research wrote a very good commentary that goes into more detail on the challenges ahead. Louis spends a lot of time out kicking rocks in the field, so his perspective is a knowledgeable one. Click here to read his thoughts on the discovery.

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About Frank Holmes 282 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

1 Comment on Afghan Riches: Not So Fast

  1. Minerals are a fine substitute for Opium – which is grown in huge amount in Afghanistan. Oil drilling and mineral extraction are not un-Islamic, unlike banking (usury?), women's education etc. So, there should be no resistance from the Mullahs, Jihadists and religious fanatics over the mining and sale.

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