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SECTOR ANALYSIS REPORT

RESEARCH

Rana Toukan Tel: (962 6) 5607126 Ext.. 317 Fax: (962 6) 5681482 Email:

[email protected]

CORPORATE FINANCE

Nizar Darwish Tel: (962 6) 5607126 Ext.. 312 Fax: (962 6) 5681482 Email:

[email protected]

ARAB JORDAN INVESTMENT BANK

Research Department Al-Thaqafah Street, Shmeisani P. O. Box 8797 Amman 11121, Jordan

NOVEMBER 2003

EXECUTIVE S UMMARY The mining sector in Jordan plays an important role in the Jordanian economy and comprises a significant portion of domestic exports. Mining sector products have contributed to over 27% between extractive and manufacturing activities of domestic exports in 2002. The sector is currently supervised by the Natural Resources Authority (NRA) which is controlled by the Ministry of Energy and Mineral Resources (MEMR). The Jordanian mining sector is characterized by the production of non-metallic minerals and is segmented into extractive industries and manufacturing industries. Extractive industries include phosphate, potash, salt, calcium carbonates, and quarrying & mine products. Manufacturing industries include fertilizers, acids, aluminum fluoride, cement, white cement, rock wool, ceramics, lime, and building materials. Currently, two major companies dominate the extractive industries while one dominates the cement industry. These include The Arab Potash Company (APC), Jordan Phosphate Mines Company (JPMC) and Jordan Cement Factories Co. The major products of the mining sector in Jordan are phosphate and potash. According to the NRA these products have contributed approximately 4% of gross domestic product and comprised nearly 20% of domestic exports in 2002. Phosphate bearing deposits were first discovered in Jordan in 1908 and are estimated to exist across more than 60% of Jordan. Phosphate mining activities first commenced in 1935 in Jordan's Al-Ruseifa region north of Amman. Currently, JPMC is the exclusive phosphate rock producer in Jordan and operates three mines in the country. The Company is the sixth largest phosphate rock producer and fourth largest phosphate rock exporter in the world. APC was founded in 1956 to begin extracting, manufacturing and marketing the resources of the Dead Sea. APC was granted a 100-year concession by the Jordanian government in 1956 to carry out these activities exclusively. Potash production began in 1983 and has progressed rapidly making APC one of the worlds leading producers of industrial grade potash and fertilizer grade potassium chloride. Currently, the company underwent privatization when 26% of its shares were sold to the Canadian company PCS. This move coupled with the technical expertise is expected to help improve the company's productivity efficiency, technological skills and overall global competitiveness. Jordan Cement was established in 1951, and enjoyed a 50 year exclusive concession to trade, manufacture and produce cement in Jordan. Through its two production facilities in Rashadieh and Fuhais, Jordan Cement has a capacity to produce over 4.2million tons of cement and 3.6million tons of clinker annually thus comfortably meeting its local required demand of around 2million tons of cement. Since 2001, Jordan experienced a surge in the construction sector thus translating into a 78.8% higher sales for the company in 2002 to reach JD16.3million from JD9.1million in 2001. Jordan Cements privatization in 1998 significantly improved performance primarily due to an increase in exports (of 51% ), an enhanced local demand through expansion of the local construction sector (of 6% ) in addition to organizational improvements and technical expertise implemented by the strategic partner; Lafarge. During the past five years the mining sector, including extractive and manufacturing industries, exhibited moderate growth in local and export revenue. In 2002, Jordan recorded an overall 5% real growth up from 4.2 per cent in each of the previous two years, with the mining sector contributing 12% growth The mining sector continues to play an extremely important role in the Jordanian economy. The privatization of APC and eventual privatization of JPMC will effectively boost the strength of the two companies by introducing competition, attracting investment, and increasing the efficiency.

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TABLE OF CONTENTS

Executive Summary .............................................................................................................................................. 2 Part I: Mining Sector Highlights ...................................................................................................................... 5 1.1 Sector Definition:............................................................................................................................................ 5 1.2 Sector Profile:.................................................................................................................................................. 5 1.3 Sector Performance ........................................................................................................................................ 6 Part II: Mining Sector Production and Consumption ............................................................................... 9 2.1 Potash................................................................................................................................................................ 9 2.2 Phosphates......................................................................................................................................................11 2.3 Other Extractive Minerals ..........................................................................................................................14 Part III: Select Extractive Mining Companies ...........................................................................................16 3.1 Arab Potash Company - APC.....................................................................................................................16 3.2 Jordan Phosphate Mines Company - JPMC ..........................................................................................16 Part IV: Selected Manufacturing Mining Companies..............................................................................18 4.1 Jordan Cement Factories Co. Ltd.............................................................................................................18 Part V: Privatization Program .......................................................................................................................19 5.1 Privatization Program..................................................................................................................................19 5.2 Market Access And Barriers To Entry .....................................................................................................19 5.2.1 Government Policy & Legislation ............................................................................................... 19 5.2.2 Investment Incentives..................................................................................................................... 19 5.2.3 Market risks and factors affecting entry ..................................................................................... 21 Part VI: Conclusion ...........................................................................................................................................22

TABLES AND FIGURE Figure 1: Mining Sector as % of GDP........................... .............................................. 5 Figure 2: Relative Importance of Mining Sector to GDP..................................................... 6 Figure 3: Mining Sector as % of Domestic Exports ............................................................ 6 Figure 4: Mining Industries Contribution to GNP............................................................. 6 Figure 5: Mineral Products as a % of Mining Sector.......................................................... 7 Figure 6: Mining Sector Performance Charts .................................................................. 8 Table 1: Global Production of Potash (million tons of KCI)................................................ 9 Table 2: Global Potash Consumption (million tons of KCI)................................................. 9 Table 3: Potash Production by Grade (tons)....................................................................... 10 Table 4: Potash Sales by Grade (tons)......................................................................... 10 Table 5: APC Sales Distribution (%).......................................................................... 11 Table 6: Importers of Jordanian Potash (%).................................................................. 11 Table 7: Producers of Phosphate Rock (million tons)....................................................... 12 Table 8: Projection of Phosphate Production (million tons)................................................ 12 Table 9: Phosphate Fertilizer Consumption (million tons)................................................. 14 Table 10: Oil Shale Deposits in Jordan........................................................................ 14 Table 11: APC Shareholder Structure......................................................................... 16 Figure 7: JPMC Shareholder Structure ........................................................................ 17 Figure 8: Jordan Cement Shareholder Structure ............................................................. 18

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Disclaimer: All information contained in this report has been obtained from resources believed to be accurate and reliable, and Arab Jordan Investment Bank (AJIB) does not warrant its accuracy or completeness. Opinions expressed and estimates, represent our own judgment and are not intended to buy and sell securities, to be an offer, or a solicitation of an offer, and are subject to change without notice. Recipients of this report must make their independent decisions regarding any information mentioned, and AJIB accepts no responsibility or liability regarding such decisions. This report is intended for private distribution and may not be reproduced without the prior written permission of Arab Jordan Investment Bank.

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PART I: MINING S ECTOR HIGHLIGHTS 1.1 Sector Definition The mining sector in Jordan is focused on the production of non-metallic minerals and segmented into two types of industries: i. Extractive Industries: are industries primarily concerned with the extraction of Phosphate, Potash, Calcium Carbonates, Salt, Quarrying & Mine products (dimensional stone, natural sand, marble, granite, gypsum). Phosphates and Potash are categorized as the sector's principal extractive products, with collective revenue contribution to the national economy 4% of GDP in 2002, and make -up around 20% of domestic exports. Manufacturing Industries: are industries producing goods based on mining products like cement, fertilizers, white cement, phosphoric/sulfuric acids, alu minum fluoride, rock wool, ceramics, lime and building materials among others.

ii.

1.2 Sector Profile As mentioned above, the mining sector in Jordan is dominated by the production of non-metallic minerals . Jordan is abundant in Potash and Phosphate thus making it the world's fifth largest producer and exporter of these principal minerals. In addition to these minerals, Jordan also produces significant building materials like calcium carbonate, salt, dolomite, ornamental stone (building stone) and cement (white cement included). Since their initiated, the extractive mining sector industries have been state controlled and owned on which the government has been dependent for its source of income (whereby extractive industries generated revenues of about JD600million and manufacturing industries around JD155million through export of minerals and fertilizers). Comprehensive economic growth and diversification has enabled Jordan to become less dependent on the mining sector, as illustrated in the chart below. There has been a steady contraction in the growth of the mining sector`s contribution to gross national product GNP between 1996 to 2001, (for both extractive and manufacturing industries)1 . Total revenues for the mining sector in 2002, reached JD597,460,141 (US$841.5 million), as compared to JD558million (US$788 million) in 1999.

Figure 1: Mining Sector as % of GNP

% 20% (1996-2001)

17.05% 15% 10% 9.69% 5% 0% 1996 1997 1998 1999 2000 2001 Source: NRA 10.54% 9.83%

8.52% 9.35%

The mining sector is currently under supervision of the Natural Resources Authority which is controlled by the Ministry of Energy and Resources (acting as NRA's President). Through its strategy to improve the sector's efficiency and develop its technological know-how, the government of Jordan began a series of policies to privatize the industry starting with Jordan Cement Factories in 1998.

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Source: Central Bank of Jordan

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1.3 Sector Performance The following chart reveals the trend in extractive versus manufacturing industries' contribution to gross domestic products from 1997 to 2001:

Figure 2: Relative Importance of Mining Sector toGDP 7.5 6.66% 6.5 % 5.5 4.5 3.5 1997 1998 1999 2000 2001 5.99% 5.16% 4.54% 4.54% 4.05% 6.2% 6.21% 6.05% 5.3%

Extractive Manufacturing

Source: NRA

Since 1996, the Jordanian economy has experienced strong growth driven by many industries. The Arab Potash Company (which exploits minerals from the Dead Sea), the Jordan Cement Factories Company and the Jordan Phosphate Mines Company together with their subsidiary companies, account for over 26% of Jordan's exports, as follows:

Figure 3: Mining Sector as % Domestic Exports (1998-2002) 60% 40.74% 40% 39.12% 20% 27.35% 36.98% 26.31%

0% 1998 1999 2000 2001 2002

Source: Department of Statistics

When segmenting the mining sector activities in reference to their contribution to the national economy , the following major industries are revealed as the largest contributors for the year 2001 (trend carried over for 2002):

Figure 4: Mining Industries Contribution to GNP (2001) %

2.21% 1.98% 1.82% 1.28% 0.89% 0.68%

Potash

Phosphate

Cement

Fertilizers

Acids & Aluminum Floride

Mines & Quarrying Products

Source: NRA

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The figure below further segments the sector into the different industries, and represents their contribution as a percent of the total sector:

Figure 5: Mineral Products as a % of Mining Sector Aluminum Fluoride & Acids; 9.00% Fertilizers; 14.00%

Others; 6.00% Potash; 24.00% Mines & Quarrying Products; 7.00%

Phosphate; 21%

Cement; 19.00%

Source: NRA

The following charts illustrate the mining sector's performance from 1997-2002 (some 2002 figures were not available thus 2001 was used instead) in terms of quantities sold (for export and local purposes), and revenues generated (for export and local purposes).

Figure 6: Mining Sector Performance Charts

Phosphate Quantities Sold

Thousands

Export Local

Millions

Phosphate Revenues

Export Local

6,000 4,500 3,000 1,500 0 1997 1998 1999 2000 2001 2002

150 120 90 60 30 0

1997 1998 1999 2000 2001

2002

Potash Quantities Sold

Thousands

Export Local

Millions

Potash Revenues

Export Local

2,500 2,000 1,500 1,000 500 0 1997 1998 1999 2000 2001 2002

150 100 50 0 1997 1998 1999 2000 2001 2002

Thousands

Cement Quantities Sold

Export

Millions

Cement Revenues

Export Local

3,000 2,000 1,000 0 1997 1998 1999 2000 2001 2002

Local

120 100 80 60 40 20 0 1997 1998 1999 2000 2001 2002

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Fertilizer Quantitiy Sold

Thousands

Export Local

Fertilizer Revenues

Millions

Export Local

750 600 450 300 150 0 1997 1998 1999 2000 2001

100 80 60 40 20 0 1997 1998 1999 2000 2001

Total Quanitities Sold-Mining Sector

Thousands

Export

Millions

Total Revenues - Mining Sector

Export Local

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1997 1998 1999 2000 2001

Local

500 400 300 200 100 0 1997 1998 1999 2000 2001

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PART II: MINING S ECTOR PRODUCTION AND CONSUMPTION 2.1 Potash Potash (K2 O) is a major source of potassium (K) which is one of the world's primary crop nutrients required for plant and animal growth and used in fertilizers, feed supplements and other industrial products. The most valuable form of potash is potassium chloride (KCI), which also the most widely used potassium fertilizer (contains 60% to 62.5% K2 O). In 2002, the international potash market experienced greater activity in both the production and consumption of potash with global potash demand rising by 5.3%. The increase was driven by heightened demand for raw materials and increases in the demand for agricultural products derived from potash. Table 1: Global Production of Potash (million tons of KCI) Country 2002 2001 2000 1999 1998 FSU* Canada Europe USA Israel Jordan Other** Total 13.8 14.3 6.0 1.1 3.4 2.0 2.1 42.7 13.2 13.6 6.2 1.1 3.0 2.0 1.9 41 11.8 15.3 6.5 1.2 2.9 1.9 1.6 41.2 12.8 13.7 7.0 1.4 2.8 1.8 1.3 40.8 11.6 15.3 7.6 1.5 2.7 1.5 1.1 41.3

* Former Soviet Republic (Russia and Belarus) ** Primarily includes South America Source: USGS

The main sources of increased consumption demand came from India, China, Malaysia, and Brazil. Growth registered in India showed recovery from peak levels in 1999 and 2000. Decreasing levels of agricultural demand led to a drop in consumption during 2001. It is expected that consumption will continue growth in 2003 driven by increases in agricultural use. World demand should grow more than 2% annually, with higher rates in developing Asian and Latin American regions. China, India and Brazil remain the countries for greatest growth followed by North America and then Western Europe and Latin America. North America, which is considered a mature market, is not expected to expand more than 1% annually. In 2002, China National Chemicals Import & Export Corporation (Sinochem) succeeded in signing exclusive contracts with all of the potash suppliers to China. This resulted in sizable reserve stock increases in China during 2002 and will cause China imports for consumption to flatten for 2003. For Malaysia and Brazil, increases in the world prices for agricultural crops (particularly soybeans in Brazil) led to improved financial standing and consumption of potash in these countries during 2002. Table 2: Global Potash Consumption (million tons KCl) 2002 2001 2000 Asia 14.0 12.7 12.9 North America 9.5 9.5 9.6 Europe 8.6 8.7 8.9 FSU* 2.4 2.3 2.3 Latin America 6.1 5.3 5.3 Africa & The Middle East 1.2 1.2 1.1 Total 41.8 39.7 40.1

*Former Soviet Union Countries (Russia & Belarus)

1999 13.0 9.7 9.0 2.6 4.9 1.2 40.4

1998 11.3 9.7 9.1 2.7 5.2 1.1 39.1

Source: USGS

There are only 12 countries that produce potash. World Potash production also increased during 2002 by over 2.5% from 2001. This increase came mainly from Canada, Russia and Israel in response to the increased demand from India, China, Malaysia and Brazil. The cost of production also rose due to the increase in fuel costs incurred from rising oil prices and the heavy use of inland transportation and marine freight to transport potash.

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Production of Potash in Jordan comprised 4.5% of total world potash production. Arab Potash Company, having an exclusive government concession for mining potash in Jordan, was responsible for all potash production in Jordan. APC enjoyed a substantial competitive advantage in the potash market due to its relatively low transportation cost achieved by its close proximity to its target markets (primarily India). While agricultural products maintained strong price growth, potash prices were under pressure until the end of 2002. Price deterioration resulted from increases in production as a result of unutilized capacity and increased supplier competition to win market share in target growth countries. Overall, global potash consumption is expected to rise in 2003 consequently raising potash prices. The price increase is expected to come as a consequence of healthy potash consumption in 2003 due primarily to rises in agricultural crop prices and consump tion. Potash is produced in four grades including Standard, Fine, Granular, and Industrial Grades. In Jordan, 1.956million tons of potash was produced in 2002 compared to 1.965million tons in the previous year. The Standard grade comprised 57.6% of the total production (up from 56.4% in 2001) and the Fine grade comprised 37.8% of the total production (down from 38.4% in 2001). Granular and Industrial grade production contributed little to overall potash production in 2002. Potash produced in Jordan is transported from the plant's Safi site to the Company's warehouses at Aqaba. This year a total of 1.956million metric tons were transported to Aqaba. Table 3: Potash Production by Grade (tons) 2002 Country Tonnage % Standard 1,126,723 57.60 Fine 739,635 37.81 Granular 86,165 4.41 Industrial & Grade B 3,500 0.18 Total 1,956,023 100%

2001 Tonnage % 1,106,485 56.38 753,180 38.38 91,910 4.68 10,960 0.56 1,962,535 100%

Source: company sources

Total sales of Potash in Jordan increased by 1% to 1.960million tons in 2002. Sales by grade were 53.59% Standard, 41.5% Fine, 4.51% Granular and 0.24% Industrial and Grade B. Table 4: Potash Sales by Grade (tons) 2002 Grade Tonnage % Standard 1,050,308 53.59 Fine 813,402 41.50 Granular 88,380 4.51 Industrial & Grade B 4,750 0.24 Total 1,959,887 100%

2001 Tonnage % 1,189,181 61.46 639,632 33.05 99,020 5.12 0,00 0.00 1,934,984 100%

Source: company sources

The increase in Fine grade potash sales is directly attributed to the increase in nitrogen-phosphoruspotassium (NPK) fertilizer consumption particularly from China. Asia comprised the majority of total potash sales representing 78.5% of the market while Europe comprised 14.7%. Arab and regional countries boosted their share from 4.0% to 4.1% in 2002. Most of potash sales were intended for NPK fertilizer production and oil-well drilling. It is expected that local sales will significantly rise with the launch of a 25,000 metric ton-per-year membrane chlorine production facility at Jordan Bromine Company's Safi plant on the Dead Sea in Jordan expected to be completed by 2005 as well as increases in potash sale to the Kemira Arab Potash Company which will be the largest potassium nitrate fertilizers and di-calcium phosphate animal feed production plant, in Aqaba.

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Table 5: APC Sales Distribution (% ) Market 2002 Asia 78.51% Oceania 0.10% Arab Region 4.10% Europe 14.72% Africa 0.63% America 0.00% Other 1.94% Total (Percent) 100% Total Sales (Thousand Tons) 1.960

2001 84.70% 0.10% 4.00% 8.20% 1.40% 1.60% 0.00% 100% 1.935

2000 82.90% 0.48% 0.86% 10.90% 1.20% 1.90% 1.76% 100% 1.919

1999 79.10% 0.96% 0.46% 14.20% 2.87% 0.21% 2.20% 100% 1.706

1998 73.60% 4.00% 1.50% 14.90% 3.00% 0.95% 2.05% 100% 1.517

Source: company reports

India leads the consumption of Jordanian Potash with a 26.6% share in 2002 down from 30.2% in 2001. China boosted its imports in 2002 to a 22.6% share from 20.9% in 2001. The trend in Jordanian Potash exports is towards a reduced dependence on the top ten markets for consumption as indicated by the drop in consumption to 80.9% in 2002 from 86.5% for the top ten markets. Table 6: Importers of Jordanian Potash (%) Country 2002 India 26.6 China 22.6 Malaysia & Singapore 8.5 Indonesia 7.7 Philippines 3.6 South Korea 3.2 Spain 3.3 Taiwan 2.2 Thailand 1.6 Japan 1.6 Others 19.1 Total (%) 80.9 Total Sales (million Tons) 1.960

2001 30.2 20.9 10.6 6.1 5.5 2.8 4.3 3.0 1.4 1.7 13.5 86.5 1.935

2000 28.3 23.7 8.3 5.3 4.4 3.6 3.3 2.9 2.0 1.6 16.6 83.4 1.919

1999 26.1 20.6 12.0 0.8 4.3 4.7 3.7 3.5 0.6 2.3 21.4 78.6 1.706

1998 32.4 10.9 11.1 0.9 4.3 3.7 5.0 4.3 0.0 2.6 24.8 75.2 1.517

Source: company reports

2.2 Phosphates Phosphorus is a fundamental nutritional element for plants and animals. The primary source of phosphorous is phosphate rock. Phosphorous consumption is led by nitrogen-phosphorus-potassium (NPK) fertilizers, which are used in agricultural crops. The United States is the world's leading producer and consumer of phosphate rock, which is used to manufacture phosphate fertilizers and industrial products. In 2002, a global recovery occurred in the production and consumption of phosphates from depressed levels of 2000 and 2001. In 2001, production of phosphate rock reached 126million tons, accounting for a 24.1% decline from its peak level in 1988 (with 166million tons), due to the fall in international phosphate rock prices as a result of lowered demand and over capacity. As of 2002, there was a significant recovery in phosphate production reaching 143million tons.

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Interestingly, about 96% of the world's total phosphate rock production is accounted for by the world's top 14 phosphate rock producing countries, as illustrated: Table 7: Producers of Phosphate Rock (million tons) Country 2002 USA 34.2 China 34.1 Morocco 23.0 FSU 11.9 Tunisia 7.6 Jordan 6.0 Brazil 5.0 Israel 3.5 South Africa 2.75 Syria 2.27 Australia 1.7 Senegal 1.7 Togo 1.45 India 1.25 Other 6.6 Total Production 143.0

Source: Fertecon

Produce 96% of world phosphate (=136.4 million tons)

Global prices and price projections have been heavily influenced by both fluctuations in phosphate fertilizer demand for agricultural crops and increased competition in phosphate rock supply. Phosphate rock demands for phosphate fertilizer are expected to drive further increases in phosphate prices. Given the wide range of prices paid across the globe, the forecasts below focus on the Jordanian market and are based on an analysis by Fertecon; a provider of world market information on fertilizers and raw materials. Jordan is expected to enjoy continued price advantages to other countries due to its close proximity to target high margin countries. These price advantages are included in the following: Table 8: Projections for Phosphate Production (million tons) Product Phosphate Rock Phosphoric Acid: NJFC India Saudi/Dubai Local- Kamera Local - Other DAP: Bulk Bagged 2003 24.32 184 206 243 238 273 137 147 2004 25.33 184 223 268 262 298 147 158 2005 27.46 184 241 272 266 301 151 162 2006 28.17 184 262 272 266 301 155 165 2007 31.29 184 255 264 259 294 158 169 2008 29.89 184 245 254 248 284 151 162 2009 28.88 184 234 243 238 273 140 151 2010 24.00 184 216 254 248 284 123 133 2011

184 238 254 248 284 143 153

Source: Fertecon

After declining to 35-year lows in 2001, the production and sales of phosphate rock recovered in 2002 due to increased production of phosphoric acids for the manufacture of DAP (DAP exports to China doubled in 2002) and phosphate fertilizer. It is notable that around 90% of global phosphate rock production is consumed in the manufacturing of chemical fertilizers. The balance is generally used in animal feed or converted to phosphoric acid for use in detergents, food and other industries. World demand for phosphate rock will continue to expand in correlation with increasing world population and food requirements, especially in developing countries. World phosphate consumption is forecast to increase 2.6% annually.

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The United States is the leading producer of phosphate fertilizers in the world. Over the last two decades, there has been a shift in production of phosphate downstream fertilizer products to countries with natural sources of phosphate. Excluding the former Soviet countries (where the collapse of Communism in Eastern Europe and Russia contributed to a decline in fertilizer consumption in the 1990s), global fertilizer consumption has been on the rise in correlation with growth in world population. Phosphoric acid based fertilizers, particularly DAP, have been the focus of this increase owing to their very high nutrient content. However, phosphoric acid prices have maintained better than DAP prices historically. The developing nations (esp. Asia and Latin America) and the Third World countries hold greater longterm growth potential for fertilizers. These regions' rising populations, income levels, and demand for better living standards and diets increase the need for grain production, consequently increasing the chemicals needed to help grow and sustain the crops. The U.S. Bureau of Mines estimated world reserves of phosphate rock in excess of 34 billion metric tons, of which Morocco accounted for 5.9 billion, South Africa 2.5 billion, U.S. 1.2 billion, and Jordan 90million. Jordan has since increased its proven phosphate rock reserves through exploration and new discoveries to 730million metric tons. Phosphate rock production in Jordan reached 7.135million tons in 2002. The latest estimates in 1999 indicated that global phosphate rock capacity is approximately 153million tons of product with North America leading at 50million tons or nearly 33% of the total. Africa follows with 40million tons or 25% of the total. New growth in the global phosphate market has been driven primarily by Morocco and China while new mine capacity is being created in Canada and Australia. Among the primary uses for phosphate are phosphoric acid and phosphate fertilizer productions derived from the phosphoric acid. Mineral fertilizers account for approximately 80% of phosphate use in the world, shared by detergents at 12% , animal feeds at 5% and specialty applications including food additives at 3%. Approximately 99% of all phosphate fertilizers are derived from phosphate rock with a relatively small amount being produced as a by-product of steel production. Only about 2% of phosphate rock is applied directly without processing while the remainder must be processed with mineral acids. Overall, about 66% of phosphate fertilizers are derived from rock treated with phosphoric acid while approximately 90% of world phosphoric acid output is used for the production of fertilizers. The United States of America, China, India, Russia, and Morocco collectively account for two thirds of phosphate fertilizer production. During the past twenty years, there has been a distinct trend towards the processing of phosphate rock in countries with substantial resources of the material. Integrated phosphate mining and processing offer significant technical and economic advantages other than the obvious shipping cost benefits. There have been many recent phosphate plant closures in Europe causing phosphoric acid production capacity and output to fall by 60% in the region since 1980. The closures have resulted from the implementation of increased environmental standards, as well as trends to shift plants to countries with abundant reserves of phosphate. In 2002, the USA accounted for the majority of global phosphoric acid production followed by Morocco and Tunisia. While China is a major producer of phosphate rock, the bulk of extracted rock is used for the production of alternative phosphate-based products such as fused magnesium phosphate or single super phosphate. Southeast Asia accounted for the majority of global phosphate fertilizer consumption in 2002. The major potential growth areas continue to be Latin America (particularly Brazil and Argentina) and Southeast Asia (particularly China and India). Growth is expected to be driven by strong price support for agricultural crops. A drop in the price of agricultural crops could weaken consumption demand for phosphate rock in the Latin American markets. Growth in the Southeast Asian market is expected to come from increased food and feed requirements. Consumption growth in North America is expected to be approximately 1% per annum as is the growth in Western Europe. Africa and the Near East are expected to grow 3-4% per annum but from a low base level. 1 Growth in phosphate consumption is expected to rise 2% annually outstripping capacity in the shortterm, which in turn will increase prices. There are few planned projects for capacity expansions over the next 5 years, in Algeria, Brazil, China and India. In fact, China is expected to dominate 95% of expansion capacity plans.

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Data gathered from The Sulphur Institute on Phosphate Consumption and Trade

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Table 9: Phosphate Fertilizer Consumption (million tons) Country Western Europe Central Europe & Russia North America Latin America Oceania Africa Near East South East Asia Total Consumption 2002 3.3 2.2 5.15 4.13 1.50 1.0 1.8 17.5 36.6 1997 3.57 1.5 4.96 3.2 1.5 856 1.5 15.85 32.9 1989 3.3 10.7 4.55 2.4 1.0 1.0 1.6 11.2 35.7 % Change (1997-2002) -1.5% 8.0% 0.8% 5.3% 0.2% 3.8% 3.2% 2.1% 2.1%

Source: Fertecon

2.3 Other Extractive Minerals Jordan is abundant in Oil shale resources yet remain unexploited with enormous investment potential. Oil shale has been defined by the American Society for Testing Material (ASTM) as a compact rock of sedimentary origin with ash content of more than 33% and containing organic matter that yields oil when destructively distilled. Oil shale is a main source of energy of fossil origin having a high content of ballast material. It has been employed in the past as an alternative fuel. Oil shale contains about 25% of a solid organic material, the greater part of this organic matter is called Kerogen and the rest is bitumen. oil shale calorific value shows considerable fluctuations just like oil content. Jordan possesses enormous indigenous sources of energy in its vast low-grade oil shale. o il shale in Jordan represents a significant energy source that could potentially lead to Jordan achieving selfsufficiency for energy sources. Large deposits of oil shale are widely distributed all over Jordan. Geological surveys have confirmed the existence of oil shale reserves that cover more than 60% of Jordan and some of the major oil shale deposits are beneath phosphate beds. The National Energy Research Centre (NERC) announced that there are about 40 billion tons of exploitable high quality oil shale in Jordan.

Table 10: Oil Shale Deposits in Jordan

Deposit EL-Lajjun Sultani Jurf EdDrawish Attaraat UmGhudran Wadi Maghar EL-Thamad Khan Ezzabib Geologic reserves (billion tons) 1.3 0.99 8.6 11.3 32 11.4 N.A Surface area (sq.km) 20 24 150 226 29 150 N.A Overburden Oil shale thickness (m) thickness (m) 31 69 47 47 40 142-400 66 29 32 68 36 40 72-200 39-45 Organic matter(%) 28 25 18 29 20 25 N.A Average oil content(%) 10.5 9.7 5.7 11.0 6.8 10.5 6.9

Deposit EL-Lajjun Sultani Jurf EdDarawish Attaraat Wadi Maghar EL-Thamad

Number of Drilled Wells 135 57 50 41 21 12

Moisture Content (%) 2.1 5.5 4.5 3.25 2.9 2.5

Ash Content Sulfur Content (%) (%) 54.7 55.5 58.4 53.2 57.5 54.7 3.1 2.4 2.4 2.6 2.6 3.2

Density (g/cm3) 1.81 1.96 2.1 1.8 2.03 1.8

Kcal/Kg 1650 1526 1100 1730 1090 1800

Calorific Value (kj/Kg) 6906 6380 4603 7.235 4.773 6903 Source: NERC

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Huge proven and exploitable near surface reserves are estimated at more than 50 billion metric tons with extractable crude oil equivalent to about 50 billion barrels of crude oil2 . These major deposits of commercial scale interest are located in the central part of Jordan and are easily accessible. These deposits are traversed by high voltage power transmission lines so that a substantial part of the infrastructure required for development is already in place. There are 18 known surface and near surface deposits. Eight of them were investigated in different levels and are regarded as commercially attractive. These major deposits and their characteristics are summarized in the above table. Currently, oil shale is not extracted and used as an energy source due to the high economic burden associated with the process. Research & development efforts are ongoing and aim to create economically viable technology methods for extracting and processing it in Jordan. Most recently, the National Energy Research Center signed an agreement with Applied Balqa University in July 2002. The primary objective of the agreement is for cooperation in the field of oil shale research and development including oil shale utilization, mining process, mineral dressing, feasibility studies and ash utilization. Until oil shale extraction and processing is comme rcialized, the primary source of petroleum in Jordan will remain imported oil. In 2002, Jordan imported 5.3 million tons of oil from Iraq. The imported oil is transported to Jordan's sole oil refinery at Zarqa for Jordan Petroleum Refinery Company. The Jordanian government aims to commercialize the use of oil shale deposits to reduce its dependence on external sources of fuel. The primary products derived from oil are petroleum products, lubricating oils, and LPG cylinders. Petroleum products include liquefied petroleum gas, gasoline, jet fuel, kerosene, light gas oil, fuel oil, and asphalt. Liquefied petroleum gas includes butanes and pentanes, which are sold to consumers for domestic use in 12.5 kilograms cylinders and in bulk to some industrial and services sectors. It also includes a special unit produced and used in the aerosol industry as replacement to ozone depleting propellants. Gasoline is blended in three grades including regular leaded gasoline of octane number not less than 88, super leaded gasoline of octane number not less than 96, and unleaded gasoline of octane number not less than 95. Jet fuel is produced in two forms including Avtur, which is used in civilian jets, and super Avtur for military aircrafts. Kerosene is mainly used for domestic purposes. Light gas oil is mainly used in vehicles, as heating oil, and in power generation. Fuel oil is used in fired installations of power plants and industries. Asphalt is produced in two grades including blown asphalt and liquid asphalt. Other mining sector products in Jordan are scarce relative to potash, phosphate and oil shale. Such products include calcium carbonate and salt among many others. Salt and calcium carbonate comprised approximately 30,000 tons of mining product in 2002 while remaining products were negligible in production quantity. Jordan is very rich in Limestone which is also used in productions like calcium carbonate, lime and cement manufacturing and hence maintains its leading position as exporter to neighboring countries. Furthermore, Jordan possesses a competitive advantage in gypsum based wallboard products (an additive to cement clinker) which has very limited competition in the market since there is only one plant in the region located in Israel.

2

Lots of Plans, Emerging Jordan 2003, Page 115, The Oxford Business Group

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PART III: S ELECT EXTRACTIVE MINING COMPANIES 3.1 Arab Potash Company - APC The Arab Potash Company is a public shareholding company that was founded and registered in 1956. During 1958, the company was granted a concession from the Government of Jordan to exploit the minerals and salts of Dead Sea brine. The concession expires after 100 years from the grant date, after which, the company's factories and installations become the property of the Jordanian government. Under the terms of the concession, the Jordanian government is entitled to a royalty of JD 0.008 for each ton of potassium chloride ("Potash") exported by the company up to a maximum of 25% of the company's net income. Currently APC produces and markets exclusively Potash and sells it in the international market. The total number of employees was 2,195 as of 2002. Table 11: APC Shareholding Structure % Ownership Jordan Investment Corporation (Jordanian Government) Arab Mining Co. Islamic Development Bank (Jeddah) Government of Iraq Libyan Arab Foreign Investment Co. Government of Kuwait Other governments Private Sector Total 52.883% 20.706% 5.161% 4.706% 4.064% 3.944% 0.691% 7.845% 100%

APC produced 1.956 million tons of potash in 2002 compared to 1.962million tons in 2001. Potash sales increased 1% to 1.960million tons in 2002 with Asia representing 78.5% of total sales. Europe followed with a 14.7% share while the Arab and regional countries' share was 4.1%. Most of the Potash sold by APC was used in producing NPK fertilizers and in oil-well drilling. Last October, Kemira Arab Potash Company (KEMAPCO) a Jordanian-Finnish joint venture was inaugurated in Aqaba, Jordan's largest potassium nitrate fertilizers and di-calcium phosphate animal feed production plant. This project is expected to contribute 10% of total global market production of potassium nitrate fertilizers and 1.25% of total global market production of di-calcium phosphate animal feed. The company's total consolidated revenue decreased to JD144.7million in 2002 versus 2001 revenue of JD147.9million. The increased share of low margin markets in total sales caused the slight drop in revenue. Falling interest income generated from bank interest participated in the revenue decline. Total costs increased. The Jordanian government completed the transaction with Potash Company of Saskatchewan (PCS) in October of this year under which PCS has agreed to purchasing 26% of the capital stock of Arab Potash Company at a price of JD5.19 (over 21million shares). The privatization of APC is expected to develop the company's production techniques, improve its efficiency and international competitiveness as well as open new markets for export. In addition, it is anticipated that some redundancies will result since the company is overstaffed.

3.2 Jordan Phosphate Mines Company - JPMC Jordan Phosphate Mines Company was established as a private company on March 1949 to exploit phosphate deposits in Jordan. JPMC was registered as a public shareholding company in 1953. The company is controlled by the Jordanian government, which has a majority-control shareholding interest of about 82%. JPMC currently operates three mines in Jordan producing phosphate rock and a downstream fertilizer and chemicals plant at Aqaba in the south of Jordan producing phosphoric acid, diammonium phosphate ("DAP"), sulphuric acid and Aluminum fluoride.

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Figure 7: JPMC Shareholding Structure

JPMC Employees' Saving Fund 1% Others 5% Jordan Investment Corporation 67%

The Housing Bank for Trade and Finance 2% Kuwait Investment Corporation 9%

Social Security Corporation 16%

Source: company reports

JPMC is the sole entity currently operating under license to mine and produce phosphate rock in Jordan. By year-end 2002, Jordan was the sixth largest phosphate rock producer and the fourth largest phosphate rock exporter in the world. Additionally, JPMC was the largest exporter in terms of revenue in the Jordanian economy. JPMC is the largest mining and industrial employer in Jordan, employing over four thousand five hundred employees. JPMC has been active in international markets for the past 60 years and has become a recognized player in the international fertilizer industry. JPMC has been successfully exporting to more than 30 countries worldwide and controlling 15% of the total international trade market in phosphate rock, making Jordan one of the world leaders in phosphate production and exportation. Overall phosphate production from JPMC mines increased 23.8% to 7.135 million tons of phosphate rock in 2002. Phosphate rock sales reached 6.1 million tons in 2002 with approximately two thirds exported and one third sold locally. India remained JPMC's largest export market with a 63% share of total exports. JPMC maintains three joint ventures for the production of fertilizers in order to diversify its business risk caused by the company's dependence on phosphate rock for revenue generation coupled with volatile phosphate prices. The joint ventures include Indo-Jordan Chemicals Company (IJCC), Nippon-Jordan Fertilizer Company (NJFC) and Fauji Fertilizer Company-Jordan (FFC-Jordan). The joint ventures are involved in the production of phosphoric acid, NPK fertilizers, DAP, Urea, and Ammonia. For 2002, JPMC recorded a 3.6% increase in revenue to JD198.3 million. Net income rose 37.8% to JD5.5 million due to a strong reduction in cost of goods sold caused largely by staff reductions. Following 2000, JPMC adopted a very successful strategy cutting costs and increasing exports of phosphate and fertilizers along with increasing sales. In parallel, there was a major drop in the mining fees due to new Governm regulations resulting in net profit of JD4million in 2001 and JD5.5million in ent 2002. JPMC also witnessed an increased share of income from the joint venture companies of JD2.2million contributing to the rise in net income. Following the collapse of the initial p rivatization initiatives of selling 60% of the company to PCS (the same Canadian company that acquired 26% of APC), the government is now envisioning sale of the company through an international tendering instead. Currently JPMC is considering retaining a financial advisor to help in the consultation on the best privatization method that should be implemented.

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PART IV: S ELECTED MANUFACTURING MINING COMPANIES 4.1 Jordan Cement Factories Co. Ltd. Jordan Cement Factories Co. was established in 1951 as a public shareholding company and commenced operations in 1954 with the objective of manufacturing, producing and trading of cement and clinker in Jordan and abroad. In 1951, the company was awarded a government concession agreement giving Jordan Cement the only right to trade, manufacture and produce cement in Jordan. This gave Jordan Cement a monopoly for fifty years. Upon the expiry of Jordan Cement's concession in 2002, the market opened up to competition from imported cement. However, the company managed to negotiate an imposing of a 30% customs duty on imported cement to sustain their competitive advantage in the Jordanian market. Jordan Cement's current paid-up capital is JD60,444,460 and is divided as follows:

Figure 8: Jordan Cement Shareholder Structure

Other Arab Shareholders 2%

Jordanian shareholders 22%

Foreign Shareholders 5%

Lafarge Group 48% Social Security Corp. 23%

Source: Company reports

Jordan Cement currently operates two cement factories with a combined capacity of 4.5million tons of cement and 3.6million tons of clinker per annum. One facility is located in Rashadieh and the other in Al-Fuheis. At both plant facilities, Jordan Cement produces three types of cement; Ordinary Portland Cement, Sulphate-resistant Cement and Pozzolan Cement. Due to environmental concerns of carbon dioxide emissions in the cement industry, there is a growing worldwide demand for natural and synthetic Pozzolans to replace the Portland cement. Pozzolands reduce production costs (in terms of unit and environmental costs) because their production does not require the energy-intensive clinker manufacturing phase of production in Portland cement manufacturing. The end-users of cement are individuals and construction companies which are supplied through distributors of Jordan Cement. Virtually all Portland is utilized either in making concrete or mortars and competes in the construction sector with concrete substitutes like clay brick, glass, aluminum, steel, fiberglass, wood, stone, and asphalt. In 1998, Jordan Cement underwent privatization when the government (as Jordan Investment Corporation) sold 33% of its shares to one of the largest cement producing companies in the world; Lafarge Group, thus generating JD72million (US$102million) for the government. In early 2002, the government sold its remaining share in Jordan Cement of 14.3% amounting to JD29.32 million ($41.3million) to the Social Security Corporation. As a result of privatization, in 2002 Jordan Cement improved its operational efficiency and technological skills thus witnessing a 69% increase in net profits from the previous year. The improved performance was primarily due to an increase in exports (of 51%), an enhanced local demand through expansion of the local construction sector (of 6% ) in addition to organizational improvements and technical expertise implemented by Lafarge. Jordan saw a slowdown in the construction sector in 1990s which negatively affected cement sales (the largest consumer of cement) and consequently reduce Jordan Cement sales. However, the recent growth in the construction business owing to various infrastructure projects and buildings caused rise in demand and a significant surge in cement sales and hence translated in Jordan Cement profits. Jordan Cement recorded a 78.8% increase in sales for 2002 to reach JD16.3million from JD9.1million in 2001 (which was around a 166% jump from 2000 sales figures of JD3.4million). Simultaneously, cost of goods sold were also reduced from 65.09% in 2000 to 58.04%.

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PART V: PRIVATIZATION PROGRAM 5.1 Privatization Program Prior to 2000, the Jordanian government engaged in a series of economic reforms and restructuring efforts. These reforms included the revision of investment laws & procedures and the introduction of tax incentives to attract direct foreign investment. These efforts resulted in heightened investment and trade activities in Jordan. After Jordan was admitted to the World Trade Organization in 2000, the government agreed to a timeline for liberalizing trade and investment while enforcing foreign intellectual property rights. Within the mining sector, the Jordanian government has been actively engaged in discussions to privatize both the Jordan Phosphate Mines Company (JPMC) and Arab Potash Company (APC). A strategic investor, Potash Corporation of Saskatchewan Inc. (PCS), was selected in August 2003 as the bidder to negotiate the purchase of a 26% stake in Arab Potash Company. The transaction was completed in October 2003. 5.2 Market Access And Barriers To Entry 5.3.1 Government Policy & Legislation The Natural Resource Authority (NRA) was established in 1965, and has become the governing body for the mining and mineral resources sector in Jordan. The main responsibilities of the NRA are as follows: · Suggest policies to investigate, develop and exploit energy and mineral resources in Jordan. · Explore and prospect for mineral resources in the form of executing geological, geophysical, geo-chemical, technical, and economical studies. · Adopt plans and programs to administer laws and regulations in various fields of mineral resources. · Issue permits and licenses for prospecting explorations, mining, quarrying and mineral rights certificates. · Coordinate cooperation with various international Entities. · Supervise all hydrocarbons activities within the borders of Jordan including granting concession, exploration and exploitation international agreements. · Other duties assigned to NRA by the Council of Ministers such as investment promotion activities in mining. The mining industry has the following imposed on it: · Royalty (mineral levies) are imposed on production per ton of raw product sold. Royalty on phosphate production was JD5/t (now reduced to JD1.42/t), potash royalty stands at JD8/t. Others are charged JD8/t as long as it does not exceed 25% of profits. · Company Income Tax, mining income taxed at a corporation tax rate of 15%. · Withholding Taxes, profits distributed in the form of dividends or distributions of branch profits are subject to a further 10% withholding tax. · Other charges for mineral rights is set by the Natural Resources Authority for each comp any separately at a reasonable level. License fees have been reported to be JD100/Km2 for mineral rights, and JD50/Km2 for a mining license. · Customs and sales tax, according to the investment promotion law, all items of capital equipment (except vehicles) have a zero import tariff. Export fees are charged at JD2.25/t 5.3.2 Investment Incentives The Investment Promotion Law No. (16) of 1995 recognizes the benefits that foreign investment will bring to Jordan, and includes provisions to encourage domestic entrepreneurs as well. This new law allows access to the financial market for all investors and provides equal opportunity and treatment of investors regardless of nationality. The projects in the following sectors enjoy the special exemptions of favorable tax and customs duty treatment, specified under the law: (1) Industry (including the mining sector); (2) Agriculture; (3) Hotels; (4) Hospitals; (5) Maritime transport and railways; (6) Leisure and Recreation Compounds; (7) Convention and Exhibition Centers.

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Under that law, these sectors are subject to the following freedom from the customs duties: · Exemptions from taxes and fees to all imported fixed assets imported into the Kingdom solely for the use of the project. These assets include: machinery, equipment, and supplies which are used in the project, including the furniture and equipment for hotels and hospitals. · Fixed assets required for the expansion, development or modernization of the project shall be exempted fro m fees and taxes if such expansion, development, or modernization shall result in an increase in the production capacity of the project by not less than 25%. · Imported spare parts for the project shall be exempted from fees and taxes provided that the value of such spares does not exceed 15% of the fixed assets for which they are required. · Exemptions from income and social service taxes for a ten year period starting from the date of production is granted in ranging amounts according to the level of development of particular locales. Any increase in the value of the fixed assets which are imported for the project shall be exempted from fees and taxes if such increase is a result of a rise in the price of such assets in the country of origin, of a rise in the freight charges applicable thereto, or of changes in the exchange rate. Exemption from corporate income taxes in Jordan is as follows: · 15% on mining, industry hotels and hospitals · 35% on insurance and financial institutions · 25% on all other companies · 0% on agricultural projects Projects in the three development zones, Jordan is divided into shall enjoy exemptions from income and social services taxes for a period of ten years, starting from the date of commencement of work by the following percentages : · 25% if the project is in class A development area · 50% if the project is in class B development area · 75% if the project is in class C development area The Jordan Investment law affords equal treatment to both Jordanian and non-Jordanian investors. The law allows the non-Jordanian investor to own any project in full or in part, or to engage in any economic activity in the Kingdom, with the exception of some trade services which require a Jordanian partner. Except for the participation in public share holding companies, the investment of the non-Jordanian may not be less than fifty thousand Jordanian Dinars (JD50,000 or US$70,000). The investor has the right to manage the project in the manner he/she deems appropriate, and through the person(s) chosen by the investor for its management. The non-Jordanian investor shall be entitled to remit abroad without delay, and in a convertible currency, the invested capital together with any returns and profits accrued, the proceeds of liquidation of the investment or the proceeds of the sale of all or part of the project. Non-Jordanian technicians and administrators working in any project may transfer their salaries and remuneration abroad. With the approval of the investment promotion law committee, the investor may re-export the exempted fixed assets. With the approval of the investment promotion committee, the investor may sell the exempted fixed assets or relinquish them to another investor or project not covered by the provisions of this law after paying the fees and taxes due on such fixed assets. Any investor whose investment is guaranteed by his country or by an official agency thereof, may assign to that country or agency any returns on his investment or other compensation to which he is entitled. It shall not be permissible to expropriate any project or to subject it to any measures that may lead to expropriation unless such expropriation shall be by way of compulsory purchase for the purpose of the public interest, and in return for just compensation to be paid to the investor. The compensation paid a non-Jordanian investor in such case shall be in a convertible currency. 20

Investment disputes between an investor of foreign capital and Jordanian government agencies shall be settled amicably. If no amicable settlement can be reached within a period not exceeding six months, either party may resort to litigation or may refer the dispute to the International Center for the Settlement of Investment Disputes (ICSID). In an attempt to encourage export-oriented industries, Jordan established a number of Free Zones, with the first being at the Aqaba port on the Red Sea. Other free trade zones are located at Zarqa, the Sahab industrial estate and Irbid. In addition, Jordan has established the Qualifying Industrial Zone (QIZ) during the United States - Israel Free Trade Area Implementation Act of 1995 to provide duty-free treatment to products jointly produced by Israelis and Jordanians that meet the requirements of US legislation. 5.3.3 Market risks and factors affecting entry Entry into the mining sector is governed by the following impediments: · High investment capital requirements · Requirement of skilled labor and very specialized employees · High dependency on large natural reserves of high quality minerals. · High levels of infrastructure requirement · Inability of competing globally due to high production costs and the access of distribution (high costs of transportation by land, shipping, and customs and other mining taxes). · Inability of products to comply with international environment protection requirements. · Volatility of international prices. · Historically seen as a government monopolized industry. · Overlapping areas of authority and excessive signature clearances on paperwork of shipments remain an impediment to free trade in the customs procedures in Jordan In the mining sector in general, high barriers to entry have protected profitability of incumbent players by limiting new entrants in the market. The following issues present risks to potential investors in the mining sector: · Lack of Crude Oil Reserves: The dependence of Jordan Petroleum Refinery Company on imported crude oil poses a substantial risk to the Company's self-sustaining operational and financial capability. The recent termination of a favorable arrangement with Iraq under which JPRC received crude oil imports and fixed prices discounted well below the market was terminated in February. Similar arrangements from the UAE, Saudi Arabia, and Kuwait were forged to replace the lost Iraq relationship, but these arrangements are temporary. Given the lack of local crude oil reserves and the high cost associated with crude oil purchases at market prices, the future of JPRC remains uncertain. · Phosphate Rock Prices: Phosphate rock prices have fluctuated substantially over the pst two decades and are forecast to maintain thi pattern for years to come. JPMC's dependence on phosphate rock extraction for revenue generation has led to volatile earnings growth. Future efforts to diversify risk away from phosphate rock dependence into phosphate based product is essential for the long-term health of JPMC. Strong competition and new market entrants in Canada, Australia and the Middle East is expected in the near future. This expected to squeeze profitability of JPMC phosphate rock sales. · Employment: Given the Jordanian governments shareholding interest in JPMC and APC, the reduction in staff is proving difficult and expensive. Continued reductions in headcount are expected albeit with difficulty and great expense. Heavy staffing and expensive retirement packages are expected to be a drag on future earnings growth for JPMC and APC.

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PART V: CONCLUSION Mining, especially extractive industries, is currently under-performing other sectors in Jordan in terms of profitability, where commodity prices have been at their historic lows and are expected to remain there for the future. Mining companies have been surviving by severely rationalizing operations, globalizing relationships, cutting production costs by developing resources only with lower quartile cost potential, utilizing new technology and equipment, reducing labor and material costs, outsourcing non-core services and employing quality management remunerated against performance and improvements in shareholder value. The international environment for mining is highly competitive, and hence, to compete effectively for mining investment, Jordan must establish its geological potential which will justify to investors taking the extremely high risk associated with any mining project, and the mining sector's institutional structure needs to be reformed and strengthened to create an attractive climate for any major private sector investment. During the past decade the following industry trends have been observed in the mining sector in general: · Government controlled mining industries suffer from conflicts of interest and hardly experience commercial profitability. Hence there has been a trend to privatize the mining companies who have evidently become leaner, more focused on the market, and eventually experienced improved profitability. · Due to over-supply, substitution, recycling and lower per capita consumption of metals over the past five years, there has been a significant decline in commodity prices, which has also resulted in the underperformance of mining companies · Exploration expenditures have been reduced as mining companies are implementing costcutting strategies due to lowered profit margins as a result of low commodity prices. · Major mining companies and the mining sector in general have been experiencing globalization and consolidation. · Projected growth in the global metals market has been declining, even in high growth economies like China and the Far East · International transportation costs have been decreasing causing more stress on competitive pricing (although port duties have increased comparatively). Despite the issues and trends discussed above, mining, oil and gas projects remain attractive targets for international and domestic investors, for countries where there is potential to develop world-class ore deposits. Jordan has demonstrated such abundant quality resources in phosphate, potash, cement production and the future potential of oil shale.

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