VZCZCXRO6505
RR RUEHDE RUEHDH RUEHDIR
DE RUEHYN #0348/01 0611026
ZNR UUUUU ZZH
R 021026Z MAR 09
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC 1286
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF INTERIOR WASHDC

UNCLAS SECTION 01 OF 02 SANAA 000348 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/ARP ANDREW MACDONALD 
DEPT OF TREASURY FOR SAMANTHA VINOGRAD 
DEPT PASS TO USTR FOR JASON BUNTIN 
DEPT OF COMMERCE FOR TYLER HOFFMAN 
 
E.O. 12958: N/A 
TAGS: ECON EIND ELAB EMIN ENRG BTIO YM
SUBJECT: SUCCESS OF YEMEN'S FIRST MINE DEPENDENT ON 
SECURITY, HIGHER PRICES 
 
REF: 06 SANAA 2143 
 
SUMMARY 
------- 
 
¶1. (SBU) Yemen's first mine is expected to export zinc 
starting in mid-2010, contributing up to USD 160 million of 
non-oil revenues to the ROYG after the end of a three-year 
tax holiday.  The UK-Yemeni joint venture, Jabal Salab, is 
hoping that the price of zinc returns to its 2008 peak so 
that the project will be profitable, since it would barely 
break even selling at current price levels.  The mine is 
located in Marib, at the intersection of areas controlled by 
three competing tribal groups, and is reliant on Yemeni 
Republican Guardsmen and local tribes for site security, a 
markedly different security arrangement from that used by the 
oil companies also operating in Marib.  End Summary. 
 
ZINC EXPORTS TO BEGIN IN 2010 
----------------------------- 
 
¶2. (U) Yemen's first mine, located 100-km northeast of Sanaa 
in Marib governorate, will begin processing zinc ore in 
mid-2010, according to ROYG and company officials.  The mine, 
Jabal Salab Company, is a USD 200 million joint venture 
between UK ZincOx (52% share) and Yemeni Shaher Trading 
Company (48% share) and will process 800,000 tons of zinc ore 
into 80,000 tons of zinc concentrate annually.  The mine 
could make Yemen one of the top twenty zinc producers 
worldwide and will generate USD 160 million in revenues for 
the ROYG annually, starting in 2013 when the company,s tax 
holiday ends, according to Jaber al-Sanabani, acting director 
of the International Finance Corporation (IFC) in Yemen. 
 
¶3. (U) Yemen's mining sector is largely untapped and could 
eventually account for 3-7% of the country,s GDP, according 
to Sanabani.  The IFC has been working with the Ministry of 
Oil and Minerals since 2006 on a mining policy reform project 
(reftel) that has streamlined the ROYG's production-sharing 
agreements with foreign companies to conform with regional 
best practices, paving the way for projects such as the Jabal 
Salab mine.  Jabal Salab claims that the mine will provide 
Yemenis with 400 direct jobs and 1,400 indirect jobs, 
although some of the direct jobs likely will be cut as 
operations progress, according to Majed Abdul Haq, the 
company's deputy general manager. 
 
MINING SUCCESS DEPENDENT ON HIGHER PRICES... 
-------------------------------------------- 
 
¶4. (U) Despite soaring rhetoric from Prime Minister Ali 
Mujawar about the future of the mining sector at a February 
26 foundation-laying ceremony, the mine's success will 
largely depend on a significant rise in the global price of 
zinc.  Base metal prices, like those of crude oil, declined 
dramatically in the past year, in large part due to reduced 
demand resulting from the global financial crisis.  The Jabal 
Salab project was financed when zinc prices averaged USD 
5,000 per ton.  Current zinc prices rarely reach beyond USD 
1,150 per ton, however, and the company must sell at USD 
1,200 per ton just to break even, according to deputy general 
manager Abdul Haq. 
 
...AND HAPPY TRIBESMEN 
---------------------- 
 
¶5. (SBU) As with its oil and gas reserves, Yemen's mineral 
resources are located in some of the country,s most troubled 
spots.  The Jabal Salab mine is located near the Marib 
village of al-Fardah, at the intersection of areas governed 
by three powerful and often bellicose tribal groups, and 
zinc-laden trucks will have to travel the 230-km highway, 
past numerous tribal checkpoints to the western port of 
Hodeida.  Other potential mining sites include 
tribe-dominated areas in Hajjah, Saada, Shabwa, and Jawf, 
according to Ismail al-Janad, head of the ROYG's Geological 
Survey and Mineral Resources Board. 
 
¶6. (SBU) Opinions differ on the soundness of Jabal Salab's 
security model, which is markedly different from that of the 
international oil companies also operating in Marib.  Whereas 
oil companies often employ Yemeni security firms to act as 
 
SANAA 00000348  002 OF 002 
 
 
intermediaries with the tribes, Jabal Salab is dealing 
directly with the three major tribes in the area, including 
the powerful Showhayfi tribe, and relying on a Yemeni 
Republican Guard deployment for site protection.  The success 
of any resource extraction project in Yemen depends on 
companies reaching some sort of accommodation with the local 
tribes -- usually jobs and SUV's in exchange for free passage 
and a pledge not to harm the project's infrastructure. 
 
¶7. (SBU) Jabal Salab suffered numerous delays in 2007-2008, 
owing to increasingly brazen tribal demands for jobs, 
vehicles, and cash, according to Jean Phillip Roos, head of 
Griffin Security, a Yemeni firm that deals with Marib tribes 
on behalf of oil companies.  The trigger-happy Republican 
Guards do not know Marib and will complicate, rather than 
facilitate, relations between the company and the tribes, 
Roos said.  Others, including the governor of Marib, Naji 
al-Zayadi, and Jaber al-Sanabani, the acting IFC director, 
defended Jabal Salab's plan to deal with the tribes directly, 
saying that the mine is providing more local jobs and a 
greater share of revenues (NFI) to the tribes than the oil 
companies. 
 
COMMENT 
------- 
 
¶8. (SBU) Prior to the establishment of Jabal Salab in 2007, 
Yemen's mining laws seemed to have been designed to repel 
foreign direct investment and the ROYG signed agreements with 
small firms with no previous mining experience.  Against this 
historical background, the Jabal Salab mine should be seen as 
a major step forward and will make a significant contribution 
to the ROYG's non-oil revenues, although not until 2013.  If 
the local tribes come to see themselves as stakeholders in 
the project rather than outsiders, and if global zinc prices 
return to higher levels, the mine could lead other major 
companies to develop Yemen's mining sector, further 
diversifying the ROYG's revenue stream. 
SECHE