January 19, 2006

Madagascar gold rush attracts foreign interest

By Tim Cocks

MAEVATANANA, Madagascar (Reuters) - As Frederick Zakamana pulls his tray out of the water to reveal a smear of metallic yellow, the 16-year-old miner confesses he has no idea what people do with gold.

He just knows that the precious metal is worth enough to justify him spending eight hours a day breaking rocks and washing clay in stagnant brown puddles in Madagascar.

"I really don't know what the vahaza (white people) do with gold, but I think it has something to do with money," he says, as the sun flickers off his latest discovery.

"Or maybe they make jewelry?"

Though largely unexplored, mining experts think the Indian Ocean island has big untapped deposits of gold, platinum, sapphires, rubies, diamonds and emeralds.

Each year, thousands leave their villages to dig for gold and precious stones in a country where three-quarters of the 17 million-strong population lives on less than a dollar a day.

An increasing number of international mineral exploration companies are also setting up operations on the world's fourth-largest island. Interest has been boosted by soaring gold prices, which hit a 25-year high of $550.75 last week.

There are obstacles: Analysts say the mining sector is chaotic, underdeveloped and undermined by smuggling while some residents doubt mineral riches will ease endemic poverty.

Like other miners on the banks of the Betsiboka river in the arid Northwest, Zakamana wants to find gold to feed his family.

"It pays little but it's better than being a farmer earning nothing," he said, sitting beside a row of ragged thatched huts.


Gem dealers estimate that more than half the world's sapphires are mined in Madagascar, off Africa's southeast coast.

"The sapphire reserves in Madagascar are the largest known in the world. (It) is the major source of sapphires today," Earl Young, a director of diversified mineral exploration company Madagascar Resources, said.

Miners think there are also rich deposits of gold, although no major mines have yet been opened.

"Gold is abundant," Young said. "You can go to any river and pan a certain amount. But for that to be commercial, you need the right quantity in one location where you can invest in equipment to make larger recoveries."

Canadian company Pan-African Mining said in June that it had found high grade gold deposits after the first phase of drilling at its western Dabolava concession. Yields were 32 grams per ton of rock in some places, the company said.

It also says Madagascar may also have diamond deposits. Government officials said in October that there was a 90 percent chance that diamond ores are present in the country.

British explorer firm Jubilee Platinum has found gold near its nickel and copper concessions on the island.

""As soon as the weather clears, we'll bring in the geophysicists to determine target areas," company country representative Mike Green said.

Australian firms have also been granted big gem mining concessions in the south.


Most gold exploration concessions are on sites discovered by French colonists in the early 20th century.

"Prior to independence in 1960, Madagascar enjoyed a vibrant, colonial gold-mining industry, but then it died," said Australian geologist Brian Thiele, who has spent years looking for gold, armed with a rock hammer and plastic sample bags.

"With the change of government in 2002, there's been rejuvenation of the sector, but it is still in a juvenile exploration stage," he said.

President Marc Ravalomanana swept into office in a people power revolution in 2002 after a disputed election with longstanding former incumbent Didier Ratsiraka.

The previous Marxist administration officially controlled the mining industry. Corruption was rife and smuggling common.

The government estimates there could be hundreds of thousands of small-scale miners. Few have money to invest in equipment, but they can act as a resource for foreign firms.

At Maevatanana, northwest of the capital Antananarivo, locals found gold deposits that foreign firms are now eyeing.

"In this area there has been no scientific study, yet it is clearly gold-rich and has produced some tens of thousands of ounces already," Thiele said. "Full credit to the local miners -- they found this area, we simply followed them."

The Wild West-style small-scale mining is devoid of rules, safety standards or planning. The government is keen to regulate the sector and claim taxes on gem and gold exports.

It says a fraction of the estimated $100 million annual trade in gemstones is legitimate, since most are smuggled out. Officials believe much more gold leaves the country than the 22 pounds officially exported in 2003.

Energy and Mines Minister Olivier Donat Andriamahefamparany pushed a new mining law through parliament in August to cut red tape and make legitimate trade more attractive to foreigners.

But gold miner Paulin Razafy, 65, is unsure whether foreign investment in Maevatanana will help him.

"If they come to set up a big mine here, will we get any benefits? Or will they tell us to go away somewhere else?"