Virtual Mining: How to Make a Fortune By Failing

Cameroon has a growing portfolio of failed mining projects in which a few well-connected individuals have made millions, all the while the minerals have remained deep under the ground. In 2003, the American company Geovic raised hopes when it secured a permit to build an industrial cobalt mine. Cameroon's mineral wealth had long been known - ranging from iron and bauxite to diamonds and gold but this was the first such licence to be granted in decades.

Expectations were sky high and further intensified when the company announced it had discovered the "largest known primary cobalt deposit in the world". A leaked cable from the American embassy in Yaoundé in 2008 insisted: "Far from a 'hoax,' Geovic is Cameroon's best hope for industrial mining in the near future."

However, despite the company's spectacular declaration and the US diplomat's rosy outlook, Geovic's project site remained mostly fallow until, in 2014, the company finally up and left. There had once been hope that Geovic's activities could be transformative for the country's economy, and the East region. But by the time the company departed, it had still yet to extract any minerals whatsoever. In fact, the most lasting legacy of the company's presence may well be a handful of decrepit announcement boards that are still standing in some surrounding villages.

On the surface then, the project was clearly a failure. Geovic's shareholders lost money. The Cameroonian government missed out on tax revenues. And the local population did not benefit from substantial employment or development. However, it is clear that not everyone lost out. For instance, while foreign investors squandered huge sums of money and Cameroonians got increasingly frustrated at the lack of activity, Geovic executives paid themselves handsomely in salaries and stocks worth several millions of dollars over two decades.

At first glance, it would be easy to dismiss this account as an oddity, as an unfortunate failure in a sometimes risky sector. But a closer look at Cameroon's mining projects suggests that Geovic's story is the rule rather than the exception. In its recent history, Cameroon has produced more failed projects than minerals. Venture after venture has followed in Geovic's exemplary footsteps. Projects start full of promise and often raise enormous sums of money before ultimately vanishing in a puff of smoke, leaving all but a small handful of individuals let down and out of pocket.

But why do these projects keep collapsing? How is it that some people come away with huge financial rewards? Who are these individuals benefiting from Cameroon's mining misadventures? And at whose expense? By examining public and leaked documents, speaking to insiders in the companies involved, and visiting the site areas of several mining projects, we conducted an investigation in an attempt to answer these questions.

In the course of our inquiries, we uncovered close links and conflicts of interest between investors and powerful politicians, we came across multi-million investments that vanished into thin air, and we saw how a few well-connected individuals managed to multiply their money by a factor of 400 in just one year.

How to make real cash from "pretend" mining

It is probably fair to say that the Cameroonian government's management of the mining sector is haphazard. In 2010 and 2011, for instance, the Mines Ministry suddenly accelerated the granting of new exploration permits, issuing about a hundred over a couple of years. Moreover, a map of these permits - something the ministry official who provided the information said he had never seen before - shows that many of them overlap with logging concessions, protected areas, and even each other. Perhaps predictably, none of these licences has led to any great success.

However, within this somewhat chaotic environment, some canny individuals have managed to reap huge rewards. According to our investigation into a dozen cases where this has happened, the projects have tended to follow a similar pattern.

To begin with, a domestic company acquires a mining permit. This firm usually lacks significant resources itself, and is soon sold on to a foreign corporation which, in the process, obtains the mining licence. This international firm is usually listed on a stock exchange, but generally also lacks the capacity to extract the minerals. The stated aim of such juniors is to explore for minerals and structure a project that is then sold on to yet another corporation - this time a major one - which finally conducts the mining.

So far so good. Yet amongst Cameroon's countless attempts, this last step - the one at which minerals actually leave the ground - has only ever been reached by two quarry projects. Thus, over time, the country has developed a growing portfolio of failed mining ventures, some of which have provided huge profits for those involved in the first few stages, but that have never reached the point of actual extraction.

Great hopes have been stirred, multi-million dollar deals have been signed, and great fortunes have been made (and lost) from Cameroon's vast deposits - all while the minerals themselves have remained deep under the ground.

Uranex S.A. and Resource Generation Ltd.

A template for failed mining projects described above comes courtesy of the Cameroonian company Uranex and its Australian partner Resource Generation Ltd.

According to incorporation documents we procured, Uranex was created in 2006 by four individuals with capital worth the equivalent of just $15,000. To obtain an exploration permit, Cameroon's mining law requires companies to prove they have the financial means to conduct exploration activities of at least $1.5 million for the 3 years of the permit. Uranex had just a fraction of this sum, but this did not stop the government granting the company three uranium exploration licences, covering an expanse spanning nearly 3,000 square kilometres. It is also curious that two of these sites overlapped with protected rainforest areas where extraction is illegal without a special derogation, which the company did not have.