Ethiopia — home to Africa's second-fastest growing economy — is experiencing significant foreign interest in its mining sector, even though the bloody Tigray conflict has only recently come to an end.

The country's geology shows extraordinary potential for exploration and development. It is endowed with metallic minerals (gold, platinum, iron, nickel, chromite and base metals), fertiliser raw minerals (potash and phosphate), gemstones (sapphires, emeralds, fiery opals), energy minerals (lithium, graphite and tantalum, oil shale and coal), cement raw minerals (limestone, gypsum, clay, pumice), ceramics raw minerals (kaolin, feldspar), glass raw minerals (silica sand), and dimension stones (marble, granite, limestone, sandstone, diatomite, bentonite, soda ash, salt, graphite and sulphur).

Despite its mineral wealth and long mining history — dating back more than a millennium — commercial and large-scale mining is still in its early stages. Only gold is mined in significant quantities, though the country produces smaller amounts of limestone, tantalum, salt and pumice.

Ethiopia's gold deposits are clustered in a Proterozoic basement — which sits partly in the Arabian-Nubian shield that continues north into Sudan, Egypt and Saudi Arabia and south into the Mozambique Belt. It covers around 18% of the country. Aerial geophysical surveys and geochemical mapping have been conducted in a considerable part of this area, though much of the rest of the country has not been surveyed.

The good news for investors is that significant gold mineralisation has been found in three other regions: the Western, Northern and Southern greenstone belts. In the Western belts, the most promising gold occurrences are located in the Tulu-Kapi and Ankore areas. In the Northern belts, the Terakimiti prospect — where trenching and drilling have revealed grades of up to 16 grams a tonne — has the greatest potential. The deposit contains an estimated total of 20m metric tonnes (mt) of ore body. 

There are already two gold mines in the Southern belt, known as the Adola Gold Belt, in the Oromia Region. The Legadembi mine is the country’s only gold mine operating on an industrial scale. It has two sites in production – one open pit and an underground mine. It is operated by Midroc Investment Group, the largest business entity in Ethiopia, owned by Mohammed Hussein Al Amoudi, a Saudi-Ethiopian businessman. However, between 2018 and 2021, the mining operations were suspended by the Ethiopian authorities over the release of dangerous chemicals.

Furthermore, the Sakaro mine — an underground mine — located in the Gujji zone in Oromia Region is operating. It has a current gold resource of 708,770 ounces at 14.14 grams per tonne. 

The Adola Belt also hosts the Kenticha tantalum lithium mine, which has already produced 120,000 mt of tantalum pentoxide and has a significant hard rock lithium deposit. It is home to one of the world’s largest tantalum resources, with a probable reserve of 17,000 mt. It could produce as much as 9,000 mt of processed tantalum products during the next 15 years.

It is operated by Kenticha Mining, a joint venture between the Oromia Mining Share Company and Abyssinian Metals. In July 2024, the Ethiopian government threatened to remove the company’s mining licence over delays in its starting production. 

Several other gold projects have reached advanced stages of exploration and are heading towards development, including Tulu Kapi, Dish and Jilaye (in western Ethiopia) and Meli (in northern Ethiopia).

There are additional opportunities for investors in epithermal gold, a type of gold deposit formed from hydrothermal fluids at shallow levels in the earth's crust. A low-grade epithermal gold deposit has been discovered at Tendaho in the Afar region in the East African Rift Valley.

Potash is also attracting major investor interest. Potash deposits are scattered around the country's Northern, Central and Southern regions. However, one area is particularly exciting — the Danakil Depression in the country's far north. Danakil lies at the junction of three tectonic plates and was formed as the African and Asian continents moved apart. This caused rifting and volcanic activity, resulting in a complex geology. The salt formations on the surface cover an area of about1,170 sq km but only a small fraction has been explored.

The Danakil Potash mine is a significant mining project being developed by Allana Potash, a mining company listed on the Toronto Stock Exchange. It is expected to become one of the largest and lowest-cost potash mines in the world, producing around 2.4m mt of potash per year and making it one of the most important mining projects in the country.

Currently, mining makes a small contribution to the country's GDP — only 1%. The industry has amazing potential but political instability has been the main hurdle to its development.

The Tigray war lasted from 3 November 2020 to 3 November 2022. It was primarily fought in the country's Tigray Region between forces allied to the Ethiopian federal government — led by Prime Minister Abiy Ahmed Ali since April 2018 — and Eritrea on one side and the Tigray People's Liberation Front on the other.

By 29 December 2022, federal police were reported to have returned to Tigray, while flights and internet access had also been restored. The cost of reconstruction in the battle-scarred northern region is estimated at $20bn.

Ethiopia's economy continued to grow strongly even during the conflict and has rebounded robustly since it came to an end. Total GDP more than doubled to $205bn in 2024 from $96.6bn in 2020, according to the IMF. Economic growth averaged 6.9% annually between 2019 and 2023. The IMF forecasts economic growth of 6.23% this year and 6.49% in 2025. The country is the second-fastest growing in Africa after Ivory Coast at 6.6%. The government itself estimates even stronger growth (7.9%) for the 2023/2024 fiscal year, which ended on 7 July 2024.

Income per head stands at $1,909 in 2024. The country has 107.4mn inhabitants, the second highest in Africa after Nigeria (218mn). General government gross debt is estimated at only 30% of GDP in 2024, low by African standards. Inflation — estimated at 25.% in 2024 — is a major issue. At 1.1m sq km in geographic area, Ethiopia is the tenth largest country in Africa. Its capital, Addis Ababa, has an estimated population of 3.9mn.

The latest report from the Extractive Industries Transparency Initiative shows that the country's mining sector accounted for 1% of total exports and 14% of total employment in 2019. Artisanal and small-scale mining (ASM) is a significant source of work for over 1.2mn people, primarily in rural communities and among urban youth.

Despite a slight decrease in inward foreign direct investment from $3.6bn in 2022 to $3.263bn in 2023, Ethiopia's decision to liberalise previously restricted sectors for foreign investors signals a significant policy shift from its 1970s-era regulations, expected to drive future inflows.

Under its Growth and Transformation Plan, Ethiopia wants its mining sector to contribute 10% of GDP by 2025, a highly-ambitious target it is unlikely to meet. However, Rahel Getachew, chief executive at Ethiopian Minerals Corporation, a state-owned exploration and mining company, says that international interest in the country's mining sector is taking off. Unexploited mineral resources could be used to make the mining sector the biggest contributor to GDP over the next five years, Getachew says.

In February 2024, Sun Peak Metals, a Canadian junior miner, said it prepared to resume exploration activities on its Shire project in the country’s north. The flagship copper-gold project was put on hold in November 2020 after the breakout of the Tigray war. The company invoked force majeure on all four of the exploration licences comprising the project.

Together, these licences (Nefasit, Adi Dairo, Terer and Meli) cover around 900 sq km of the prospective Arabian Nubian Shield. The licensed areas are located in the same geological environment as the Bisha mine (belonging to Zijin Mining) and the Asmara projects to the north in Eritrea.

In May 2024, KEFI, a London-listed gold and copper exploration company, said it would launch Tulu Kapi gold project. It will be the first grand opening of a mine in Ethiopia for 30 years. It is located in the Oromia Region, 360km west of Addis Ababa. The planned Tulu Kapi operation is an open-pit gold mine and processing facility.

It is estimated that the ore reserve of Tulu Kapi is around 1.05mn ounces (oz), with mineral resources totalling 1.7mn oz. It is expected that the planned gold production will be around 140,000 oz per year. 

The country’s mineral potential, coupled with improving government policies, means it is becoming more attractive to international mining investors. The mining reforms included formalising and supporting artisanal and small-scale mining, reviewing gold pricing to reduce incentives for illicit trade, addressing political and legal issues with local communities and addressing technical and institutional barriers against large-scale mining projects.

The country has a solid legislative framework and fiscal regime (proclamation number 678/2010 is the main regulation), overseen by the Ministry of Mines and Petroleum. 

There is a 25% corporate tax rate and it permits 10 years' loss carry-forward. It has attractive royalties — 4% for industrial minerals, 5% for metallic minerals and 7% for gold. A portion of foreign currency earnings can be retained and remittance of profits, dividends, principal and interest on a foreign loan out of Ethiopia is allowed. 

There is a 100% cost recovery for companies that successfully engage in mining operations. The company or mining licence holder can sell minerals domestically or overseas. All mineral exploration or pre-production costs are 100% recoverable.

Recently, Ethiopia introduced a digital mining cadastre system, the first of its kind in Africa, which handles all licence applications and provides users with vital mining-related information.

Despite the country’s vast mineral potential, the mining industry faces some formidable challenges, including political instability.

In May 2024, Akobo Minerals — a mining company listed on the Euronext Growth exchange in Oslo focusing on gold projects along the Akobo river in southwestern Ethiopia — said its operations had suffered from nationwide diesel supply disruptions and new customs procedures for duty-free imports. 

Its production start-up has been delayed until July or August this year. Its latest mine plan shows $20mn in revenue potential in the first few months of full production. 

Major challenges facing the industry include a lack of infrastructure such as roads, power, and healthcare; a shortage of skilled professionals including engineers and geologists; and limited capabilities to transform raw materials into other valuable elements. High inflation is also an issue. 

Illegal mining has become a significant problem in Ethiopia, particularly in recent years, with Chinese involvement in the sector being one of the aggravating factors. Chinese workers have been found engaging in illegal mining without the necessary licences and permits. Furthermore, Chinese companies are accused of using Ethiopian employees as "fronts" for their illegal gold mining operations to avoid legal scrutiny. 

Furthermore, environmental concerns remain. In April 2023, Human Rights Watch issued a report requesting that the Ethiopian government suspend of the Legadembi gold mine again. It says that the average mercury concentration in the water at Legadembi is 37 times higher than the World Health Organisation’s standard for drinking water. 

Cyanide, a key gold-processing chemical, was detected in “considerable amounts” in water and soil samples outside of the tailings dam, it claimed. However, Midroc, the operating company, described the report as “baseless”. 

Economic issues for artisanal miners include limited access to finance and information on market prices, and institutional gaps that lead to inconsistencies in regulations, lack of documentation and low coordination among government bodies.

Ethiopia’s mining sector has tremendous potential owing to the country’s extraordinary mineral wealth and the pro-business investment environment. The ending of the Tigray war creates a lot more opportunities. New mines are being planned and the sector could be poised to make a much bigger contribution to GDP. However, it is vital that mining happens in a responsible way. Furthermore, the country’s significant infrastructure challenges must be addressed if the sector is to start to fulfil its potential.