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S E C R E T SECTION 01 OF 06 NOUAKCHOTT 000639 
 
SIPDIS 
 
E.O. 12958: DECL: 11/02/2018 
TAGS: ECON EFIN PGOV PTER EMIN MR
SUBJECT: EXPANDING MINING OPERATIONS THREATENED BY THE COUP 
AND BY TERRORISTS 
 
Classified By: CDA Dennis Hankins for reasons 1.4 (b) and (d). 
 
¶1. (C) Summary: EconOff recently visited SNIM's iron ore 
mining operations in northern Mauritania.  After many years 
of low prices for iron ore, higher prices in recent years 
have led SNIM to develop new projects to increase production. 
 SNIM has two projects that it is developing on its own as 
well as three projects under development with foreign 
partners.  SNIM is the largest importer of U.S. goods, 
purchasing nearly all of its heavy machinery and train 
locomotives from the United States.  Because of the harsh 
environmental conditions in which SNIM operates, it continues 
to rely on old inefficient machines and equipment because 
many of the newer technologies are not suited for the 
conditions.  Security and the threat of AQIM are a growing 
concern in Mauritania, but one that SNIM officials are 
reticent to talk about.  AQIM ambushed Mauritanian soldiers 
on patrol just 30 km from SNIM's operations in September. 
SNIM officials assert that the company has enough 
independence from the government that the August 6 coup has 
not changed anything, but local press reports that SNIM's 
director general recently purchased a whole wardrobe of new 
suits for General Aziz.  End Summary. 
 
¶2. (U) EconOff recently visited the National Mining and 
Industrial Company's (SNIM) operations in the northern cities 
of Nouadhibou and Zouerate.  SNIM was created as the result 
of the 1973 nationalization of the French mining company 
MIFERMA.  SNIM, which is now 78% state-owned, has a monopoly 
on all iron ore mining operations in Mauritania.  Mining is 
the backbone of the Mauritanian economy, and SNIM is the 
dominant actor in the sector.  The mining sector consists 
primarily of iron ore mining carried out by SNIM, but gold, 
copper, and uranium mining have all begun recently.  SNIM's 
earnings account for 12% of GDP, 45% of export earnings, and 
8% of the national budget.  It is also one of the country's 
largest employers. 
 
¶3. (U) For many years, SNIM's production stagnated at about 
seven million tons of iron ore per year.  Faced with low iron 
ore prices, SNIM was unable to expand production or increase 
investment.  SNIM saw its fortunes start to improve around 
2003 and 2004 when China could no longer produce enough iron 
ore domestically and began purchasing iron ore 
internationally.  Increased demand from China caused global 
demand and prices to increase, which in turn improved SNIM's 
financial position and led it to increase production.  SNIM 
currently operates three large mines and two small mines.  It 
will produce about 12 million tons of iron ore in 2008. 
Despite increased production, it is still a relatively small 
player in the iron ore market.  The market is dominated by 
three companies (Vale, BHP Billiton, and Rio Tinto Group), 
which combined produce approximately 700 million tons of iron 
ore per year.  SNIM has traditionally sold all of its 
production to European customers, but after signing two new 
agreements with Chinese companies in 2007, it will sell 20% 
of its production to China in 2008. 
 
¶4. (U) In 2005 SNIM developed a new strategy to address the 
changing economic conditions and greater demand for iron ore. 
 Due to the long lead time for new mines to come into 
production and the long life span of the mines, SNIM's 
development plans look at least 20 to 30 years out. 
Development for its large mines takes at least 10 years from 
the time development begins until iron ore production begins. 
 Because all of SNIM's investments are for the long-term, it 
is taking a cautious approach in the case that the current 
high prices are not sustained.  After suffering many years of 
low prices for iron ore, SNIM officials are well aware of 
what the future could bring.  The head of mining operations 
Mohamed Ould Mohamed Abdallahi told EconOff that recent 
global economic problems will not change SNIM's long-term 
development plans. 
 
¶5. (U) In its 2005 development plan, SNIM identified new 
projects that it will develop and finance itself as well as 
projects that it will realize in conjunction with foreign 
partners. Through its self-developed and financed projects, 
SNIM intends to increase production to 18 million tons per 
 
NOUAKCHOTT 00000639  002 OF 006 
 
 
year by 2012.  To do so, SNIM has begun adding new equipment 
to a deposit that is already being exploited in order to 
increase production by two million tons per year by 2010.  It 
is also planning to build a new concentration factory, which 
will produce an additional four million tons per year by 
¶2012.  A Canadian company has already completed the 
feasibility study for the concentration factory.  SNIM is now 
looking for financing from development and commercial banks 
to fund the 500 million Euro project. 
 
¶6. (U) SNIM also has three projects that are under 
development with foreign partners.  This first is a project 
that it began with the Australian company Sphere in 2005 to 
begin producing iron ore pellets, which have extremely high 
iron ore content (71%) and sell for approximately twice the 
price of regular iron ore.  The project will initially 
produce seven million tons of pellets per year, but will have 
the capacity to expand to 28 million tons per year.  The 
project is estimated to cost $2 billion.  However, the 
project is currently stalled due to a lack of financing. 
Saudi Basic Industries Corporation (SABIC) was one of the 
original investors but it pulled out in 2007.  SABIC was 
replaced by Qatar Steel, which subsequently pulled out of the 
project in August, citing concerns about the profitability of 
the project.  In September, SNIM and Sphere appointed USB to 
help them identify a strategic partner for the project, which 
would hold a 49.9% share in it. 
 
¶7. (U) ArcelorMittal signed an agreement with SNIM in 
December 2007 to jointly develop a new iron ore mining 
project.  ArcelorMittal is one of SNIM's traditional 
partners, but as a buyer, not a developer.  The project is 
still at the beginning stages and ArcelorMittal must create a 
subsidiary for the new joint venture company that it will 
form with SNIM before work can actually begin.  The project 
is still years away from coming into production.  A 
feasibility study must first be done, which is expected to 
take three years.  ArcelorMittal currently holds a 30% share 
in the project.  If the results of the feasibility study are 
positive, then the two partners will begin developing the 
site and ArcelorMittal will have the option to take a 70% 
stake in the project.  The project could produce up to 25 
million tons per year.  The site where they are intending to 
develop the project is 30 km away from the existing railway, 
meaning that a railway extension will also be necessary. 
 
¶8. (SBU) The Chinese have been active in developing new 
projects in conjunction with SNIM since March.  They are 
currently exploring the possibility of developing underground 
mines at sites that have already closed.  Many of these mines 
still contain iron ore, but it is underground.  Because these 
projects are still at the early stages, they have not 
released production estimates.  It is relatively rare to mine 
for iron ore underground.  Given that there is not 
significant international experience in underground iron ore 
mining and the relatively lax safety regulations in 
Mauritania, the new underground mining projects could pose a 
safety concern. 
 
¶9. (C) To handle increased production, SNIM will have to 
expand its infrastructure.  It will extend the current 700 km 
railway to several new sites as iron ore production comes on 
line.  It will also increase the number of trains that run 
each day from three to six.  In addition, SNIM has plans to 
build a new port facility in the northern city of Nouadhibou. 
 Its current port facility in Nouadhibou is aging and cannot 
accommodate many of the new larger ships.  According to 
plans, the new port which will be adjacent to the current 
port should be operational by 2012.  Even after the new port 
is completed, SNIM plans to maintain the old port as a 
back-up and potentially for regular use as production 
continues to increase.  The most significant hurdle facing 
the new port is funding.  It is expected to cost 116 million 
euros to build.  The European Union had agreed to provide 40 
million euros for the project, but it has frozen that money 
since the August 6 coup.  If the coup is overturned, SNIM 
will likely receive the money as planned.  If the coup is not 
overturned and the European Union implements sanctions in 
Mauritania, it could present a significant hurdle to 
 
NOUAKCHOTT 00000639  003 OF 006 
 
 
completing the construction of the new port. 
 
¶10. (U) SNIM has spoken of the possibility of eventually 
expanding into steel production, but it is more of a dream 
than a reality at this point.  The only way for steel 
production to become viable in Mauritania is if coal or gas 
to provide sufficient energy is found.  Gas could be a viable 
possibility in the future as initial surveys indicate that 
there could be substantial gas deposits offshore.  Further 
testing and studies are still needed to determine if gas 
production could be commercially viable in Mauritania.  If 
gas production is proven to be viable, it would still require 
significant time and money before steel production could ever 
begin in Mauritania. 
 
¶11. (U) A visit to the SNIM facilities is like a time warp 
back to the 1960s.  SNIM continues to use and rely on almost 
all of the original equipment and facilities that were built 
in the 1950s and 1960s by the French company MIFERMA that 
originally began mining in Mauritania.  Because of the long 
period of stagnation in the iron ore market, SNIM did not 
have capital for investment and renewing its equipment.  In 
addition, the extreme heat, sand, dust, and lack of water in 
Mauritania makes it a uniquely challenging environment for 
iron ore mining.  Most of the heavy equipment and machinery 
that SNIM uses is specially made or adapted for the 
conditions.  The equipment and technologies used by other 
mining companies simply would not work in the harsh 
conditions in Mauritania.  Because water is very limited in 
northern Mauritania, SNIM uses specially adapted equipment 
that uses very little water, but as a result is extremely 
energy intensive.  Much of the newer equipment is much more 
energy efficient, but would not work in the local conditions. 
 As a result, SNIM continues to use the same old equipment 
that was specially developed for it in the 1950s and 1960s 
because it has little alternative. 
 
¶12. (U) SNIM will spend $105 million on new equipment in 2008 
and it is the largest Mauritanian buyer of U.S. goods.  SNIM 
purchases nearly all of its mining equipment (large trucks, 
loading machines, electric shovels, digging and drilling 
equipment, and bulldozers) from the United States, primarily 
from Caterpillar, Bucyrus, and P&H.  It also purchases all of 
its locomotives from GM's Electro-Motive Division.  It 
currently has 21 locomotives and recently purchased eight 
additional ones.  The first two new locomotives will arrive 
by 2010 to increase annual production to 14 million tons per 
year and the remaining six will arrive by 2011 to increase 
production to 18 million tons per year.  Director of 
Operational Production Mohamed Khalifa Ould Beyah said that 
SNIM originally used locomotives produced by a French 
company, but they were not able to withstand Mauritania's 
harsh environment and constantly broke down.  SNIM replaced 
all of the French locomotives with GM locomotives specially 
adapted for use in Mauritania.  He said that the GM 
locomotives have performed extremely well and many of the 
original locomotives are still in use.  In the coming months 
SNIM intends to put out a bid for eight additional 
locomotives to retire some of its oldest ones.  The bid will 
be open to all companies, but SNIM intends to purchase them 
from GM because of its proven track record and the need for 
standardization in the fleet to keep maintenance and 
operating costs down.  Because Mauritania is so far from its 
suppliers, obtaining parts is difficult and time consuming. 
There is a six to twelve month delay between the time a part 
is ordered and the time it is delivered.  This means that 
SNIM has to maintain stocks of parts and supplies for at 
least seven months.  With over 95,000 different parts in use, 
keeping new parts to a minimum is important. 
 
¶13. (S) Security is an increasingly important concern in 
Mauritania.  After four terrorist attacks in Mauritania in 
the past twelve months, there is growing awareness of the 
threat posed by AQIM.  In September, a group of Mauritanian 
soldiers out on patrol were ambushed near the town of 
Tourine, just 30 km from SNIM's mining operations in 
Zouerate.  There is speculation that SNIM was AQIM's intended 
target.  SNIM officials that EconOff spoke with were quick to 
reassure that security was under control to try to establish 
 
NOUAKCHOTT 00000639  004 OF 006 
 
 
confidence in their operations.  Most dismissed the recent 
attack in Tourine as an isolated incident.  While saying that 
they were not concerned, actions taken by SNIM officials 
during EconOff's visit clearly indicated that they were 
nervous.  EconOff traveled on SNIM's iron ore train 700 km 
from Nouadhibou to Zouerate.  Normally the train takes other 
passengers during the trip, but SNIM officials refused to let 
any passengers other than Embassy personnel on board.  The 
train normally makes seven to eight stops along the way, but 
the train only made two stops: one to let another train pass 
and another to change conductors at the midway point. 
EconOff also had armed plain clothes police officers outside 
of her hotel room at all times.  Local residents of Zouerate 
told Embassy FSNs that they had created the equivalent of a 
neighborhood watch following the attack in Tourine.  Stating 
that they did not trust the military and police forces to be 
able to provide security, they thought that it was necessary 
to take matters into their own hands and were watching anyone 
who did not belong. 
 
¶14. (S) SNIM would present an inviting and ready target for 
AQIM.  Because revenues from iron ore mining make up such an 
important part of the national budget and GDP and because 
mining is such an important part of Mauritanian national 
identity, an attack on SNIM could cripple the country and the 
economy.  SNIM could be a relatively easy target.  Its 
operations are located in northern Mauritania, a vast no 
man's land.  Operations are spread out over a relatively 
large area and have little in the way of lighting, fencing, 
or guards.  SNIM officials said that they had recently taken 
measures to step up security, but if they have, they are not 
visible.  For example, hundreds of large bags of nitrogen 
used for explosives were clearly visible sitting outside 
unsecured.  The only thing separating them from the main road 
100 feet away was a chain link fence with no barbed wire. 
The train, which runs along a nearly 700 km track, is largely 
unprotected.  An attack on the railroad would bring mining 
operations to a halt in the short-term until repairs could be 
made, but would be much more damaging in the long-term by 
creating a climate of fear, leading customers to reconsider 
their long-term contracts with SNIM for fear that they would 
not be fulfilled and investors to reconsider the feasibility 
of making a major investment in the region.  In a poor 
country without a diversified economy, Mauritania is heavily 
reliant on iron ore mining to support the economy and 
government operations.  A downturn in SNIM's production as a 
result of an AQIM attack would devastate Mauritania's 
economy, especially in the current context where a lot of 
donor money has been frozen since the coup. 
 
¶15. (C) SNIM officials that EconOff spoke with were quick to 
distance the company from the government and the military 
junta.  All were unanimous in asserting that nothing had 
changed in terms of SNIM's operations since the coup. 
Although the state holds a 78% share, SNIM operates as an 
independent company.  SNIM officials explained that there is 
a convention governing the relationship between SNIM and the 
government, which essentially protects SNIM from government 
interference.  They also added that the vast majority of 
SNIM's accounts are held in Europe, not Mauritania, which 
gives them some measure of protection from the junta. 
However, if the junta's financial situation continues to 
worsen with the freezing of donor aid, it could always look 
to SNIM as a source of hundreds of millions of dollars to 
buoy its position.  Comment: SNIM may certainly have reason 
to believe that things will continue for the company 
post-coup the same as they were pre-coup given the number of 
coups and governments that the company has weathered in its 
35 year history.  On the other hand, things may be different 
this time, especially as the company is an expansionary 
phase.  The EU has already frozen the money it had promised 
for SNIM's new port facility.  Foreign investors and banks 
may be less inclined to invest in SNIM given the opaque 
political situation, especially during the current economic 
crisis.  End Comment. 
 
¶16. (C) The Mauritanian press reports that SNIM Director 
General Mohamed Ould Sidi Mohamed Deyahi recently purchased a 
whole new wardrobe of suits for General Aziz and brought his 
 
NOUAKCHOTT 00000639  005 OF 006 
 
 
personal tailor down from Morocco.  Deyahi reportedly said 
that General Aziz looked too much like a "mafioso" in his 
usual cheap polyester suits.  Post can neither confirm nor 
deny this report, but post LES believe the report to be true. 
 They say that it is a tradition in Mauritania to purchase 
gifts for one's boss to garner favor and keep one's job. 
Deyahi is reported to be very close to both the military 
junta and the businessmen who are actively supporting the 
coup -- although he had called Charge in the past to 
emphasize he is just a businessman with no connection to the 
regime..  Deyahi was originally appointed director general of 
SNIM by the last military junta, the CMJD.  There is ample 
reason to believe that he might have believed that his job 
was at risk.  The junta has recently replaced the directors 
of almost all state owned companies, including the Port of 
Nouakchott, the Port of Nouadhibou, SOMELEC (electricity 
company), and SONIMEX (national import-export company) among 
others.  Deyahi likely feared that he would be the next to go 
or that the junta would open a potentially embarrassing 
corruption investigation into his tenure as the director 
general of SNIM.  Comment: Deyahi and his son Sidi Mohamed 
Mohamed Aly Deyahi both applied for visas to travel to the 
United States in the past week.  Post has referred their 
cases to the Department with the recommendation that they be 
denied given Deyahi's apparent active support of the junta. 
End Comment. 
 
¶17. (C) EconOff also met with the mayor of Zouerate Yacoub 
Ould Salem Vall.  Vall, the first Afro Mauritanian mayor of 
Zouerate, is a member of Messaoud Ould Boulkheir's APP party 
and is strongly anti-coup.  He stated that he has "no need" 
for the governor (wali) or prefect (hakem) of the region.  He 
stated that he did not find them to be helpful and limits 
contact with them to the extent possible, only going to seem 
them when ordered to do so.  Even as a SNIM employee, Vall 
was much more open and willing to discuss the impact of the 
coup and security on SNIM's operations than were other higher 
ranking SNIM employees.  He stated that while SNIM was 
creating a security strategy and had already taken some 
modest measures such as adding barbed wire, much still needs 
to be done to change people's mentality about the importance 
of security.  Vall added that SNIM relies on foreigners to 
come in regularly to perform certain maintenance operations, 
but many had refused to come since the attack in Tourine 
because of security concerns.  Vall also said that even many 
residents of Zouerate were scared.  He said that he routinely 
travels overland from Zouerate when he has business to attend 
to in Nouakchott.  When friends and neighbors heard that he 
was intending to drive to Nouakchott just days after the 
Tourine ambush, he said that many people approached him and 
told him not to do so because it was not safe. 
 
¶18. (C) Vall lamented that Zouerate has fallen into a virtual 
"black hole" of development and that the city has become a 
victim of infighting between the central government and SNIM. 
 The central government contends that it does not have to 
provide financial resources to Zouerate because SNIM will 
take care of the town.  SNIM responds that it is a for-profit 
company, not a charitable organization.  It already gives 
nearly all of its dividends to the central government; 
therefore the government should provide money for development 
to Zouerate just like it does to other towns.  Caught in the 
middle, Zouerate receives almost nothing.  What work has been 
done recently such as the paving of new roads and 
refurbishing of schools was paid for primarily by the World 
Bank.  In addition, as Vall is strongly opposed to the coup, 
whatever money that Zouerate was getting from the central 
government has now been terminated.  Vall also said that 
Zouerate is faced with additional difficulties because SNIM 
is exonerated from paying local taxes, which has led to a 
battle between SNIM, the central government, and the city of 
Zouerate.  Zouerate says that SNIM owes it 1.5 billion 
ouguiya ($5.75 million) in property taxes for the past two 
years.  The city's annual budget, including money for 
development projects, is less than $400,000.  SNIM normally 
contributes about $17,000 per year.  Vall said that the city 
of Zouerate had reached an agreement with SNIM where it will 
pay a little over $1 million to the city this year.  The 
agreement is far less than what the city claims SNIM owes it, 
 
NOUAKCHOTT 00000639  006 OF 006 
 
 
but it is nonetheless a significant increase compared to 
previous years. 
 
¶19. (U) Vall said that environmental problems are plaguing 
Zouerate.  There are severe water shortages in much of 
Mauritania, but particularly in the north.  He said that a 
lot of research has been done into the water situation, but 
there has never been any coordination between the Ministry of 
Hydrology, the Ministry of Mines, and SNIM.  As a result, the 
problem has never been solved.  He also said that a Moroccan 
firm had conducted a study into the feasibility of recycling 
waste water, but the city had never been able to find a donor 
to fund a waste water treatment plant.  Vall noted with irony 
that SNIM had always managed to locate new water resources 
for each new mine that it wanted to develop, but that it had 
never been able to do so for the city.  In addition to the 
water shortages plaguing the town, Vall said that he believes 
that there are high levels of contaminants and toxins in the 
air and water as a result of the mining activities.  He said 
that he does not have the tools to be able to measure them, 
but from anecdotal evidence, he believes that they must 
exist.  He said that a large proportion of the town's 
residents are sick, but their symptoms cannot be explained. 
 
¶20. (C) Comment: SNIM is at a turning point in its history 
and has the opportunity to substantially increase production 
and profits.  With record demand and prices for iron ore, it 
is well poised for the future.  However, there are questions 
as to whether SNIM will be able to fully execute its 
development plans.  First and foremost, financing is critical 
for several of its new projects, and there is no guarantee 
that it will fall into place, especially given the current 
economic uncertainty.  If current economic conditions 
continue, it could drive the price of iron ore back down 
again, essentially shutting down new development.  The 
current political situation in Mauritania is also a potential 
problem.  In the short term financing for the new port is at 
risk.  In the longer term buyers and investors could start to 
look elsewhere if sanctions are implemented.  In addition, 
looking for short-term gain, the junta could drain SNIM's 
resources, destroying one of the country's most important 
resources in the long-term.  Finally, security will be an 
ongoing challenge.  While nobody wants to acknowledge it, 
investors are unlikely to invest in Mauritania if there is 
not same degree of security.  SNIM has weathered many storms 
and will likely weather new ones that come its way, but some 
may impede its ability to fulfill its potential.  End 
comment. 
HANKINS