A lost struggle to mine Afghan gold

On Tuesday, shareholders in a private Guernsey-based company will meet electronically to discuss the likely end of a decade-long Sisyphean struggle to mine for gold and copper in the mountains of Afghanistan.

Centar, set up in 2011 by investment banker Ian Hannam, then at JPMorgan Cazenove, is almost out of money, according to a shareholders’ letter seen by the Financial Times.

Investors, who have injected $30m over the years, could replenish the company’s coffers. But then Centar’s heavy drilling and extraction equipment, hauled with much effort to the mountains of north-eastern Afghanistan, is now in the hands of Taliban forces, who are busy mining gold for their own purposes in Badakhshan Province.

The original vision for Centar was somewhat different. As a former captain in the SAS who had spent time working directly with US special forces, Mr Hannam had convinced General David Petraeus, who was leading US troops in Afghanistan at the time, that the best way to release America from its Afghan entanglement was to modernise the economy and raise living standards by exploiting extensive natural resources. What’s more, he convinced the US military that Centar was the company to spearhead this effort. 

To lead all this on the ground, Mr Hannam turned to the SAS, bringing in the former commanding officer of the main operational regiment, Lieutenant-Colonel Richard Williams of 22 SAS regiment, as Centar’s chief executive. 

For a certain type of investor this was a thrilling, if risky, proposition. Mr Hannam had a spectacular record as a corporate financier, advising on flotations of emerging market companies and mergers of big mining companies that had transformed the FTSE 100 index in London. 

Ian Hannam © Bloomberg

Afghanistan, meanwhile, clearly had huge reserves of copper and iron ore, as well as gold and an array of rare metals. A Pentagon report at the time put a value of $1tn or more on this gigantic natural resource base.

On top of this came Lt-Col Williams, who brought the colourful history of leading British special forces missions in Iraq during a period when more than 3,000 insurgents were either killed or captured and the daily tally of bombing victims in Baghdad was suppressed. 

All this caught the eye of Poland’s richest man, billionaire financier Jan Kulczyk, who ended up with a 25 per cent stake in the business and became Centar’s chairman.

What Centar and its backers lacked, however, was an Afghan mining licence. From incorporation in 2011, it would be seven years before the company won formal approval to start mining operations.

The delay was caused by the volatile nature of Afghan politics and America’s flip-flopping strategy. While Centar was able to use the time doing test drilling and sampling, the extreme security situation meant cash was burnt quickly, depleting finances. Money deposited in a local bank as a bond prior to bidding for a mining licence also became frozen and still remains beyond management’s reach.

Mr Kulczyk died, suddenly, in 2015 after complications from surgery, and Lt-Col Williams left the business, tempted away by the chance to become chief of staff at Barrick Gold, the Canadian mining group. Mr Hannam was forced to step in as chairman, taking executive control of a business that was haemorrhaging cash and had lost its primary funder in Mr Kulczyk.

Still lacking a mining licence, Mr Hannam brought in Omnia Strategy, Cherie Blair’s law firm, to offer advice. A two-pronged strategy was agreed: while Mr Hannam would lobby Washington to pressure the Afghan government of President Ashraf Ghani, Ms Blair would start legal action against the government directly in Kabul. 

Personal backing from President Trump finally brought Centar two licences — one for gold, the other for copper — with a signing ceremony in Washington in October, 2018. But on the ground in Badakhshan, meaningful operations had little chance of commencing, with the Taliban reasserting its influence.

Little more than a year later, the authorities in Kabul had cancelled Centar’ licences, claiming the company had not met contractual obligations. 

In his letter to shareholders this weekend, Mr Hannam pointed to a stalemate in the Afghan elections held last September, with a power-sharing agreement between President Ghani, who wants to nationalise the mining industry, and his rival Abdullah Abdullah, who opposes nationalisation, agreed only last week.

“Afghanistan has been a melting pot of politics and the recent stabilisation efforts have been destroyed yet again by violence and volatility,” he said, adding that senior Afghan officials were unwilling to support western mining interests when they sense that the US will leave the country as soon as it finds an exit strategy.

“Further to this, the Taliban have established their own ministry of mining in Qatar, with their own people on the ground collecting revenues and operating mines nationally, which has led to a profitable mining industry of which our mine in Badakhshan is a great success.”