Revival of graphite mining in Sri Lanka – A critical review

25 September 2013 05:17 am - 0     - {{hitsCtrl.values.hits}}

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The graphite mining industry in Sri Lanka dates back to 200 years with its boom periods during the First and Second World Wars when approximately 35,000 metric tons of natural graphite per annum, were exported. During this period, nearly 6000 shallow workings, pits and small scale mines were in operation.
The miners were traditionally Singhalese villagers who used primitive methods for driving shafts and adits as well as dewatering. These miners resorted to religious rituals coming down from their ancestors and there is a lot of folklore wound around this activity.



Industry development
The mechanized mines operated by the private sector were owned by rich Sri Lankan land owners who had vast acres of cocoanut and rubber plantations. The Kahatagaha-Kolongaha mines were operated by the Senanayakes, Kotalawelas and De Mels and the Bogala mine, earlier owned by Chettinard Corporation from South India, was bought over by Joyce Fernando’s family.

These mines located in the north western and south western parts of the island fell on the distinct graphite belt that continued north up to Vavuniya. The other traditional pits and workings were located in Aluketiya, Meegahatenna, Matugama and Agalawatta.

The Geological Survey Department, the successor to the Mineral Survey of Ceylon, launched in 1903 under Ananda Coomaraswamy, who was the Principal Mineral Surveyor, had records of all these graphite pits, shallow workings and mines that were carefully filed by the Inspector of Mines. It is unfortunate that these records were completely destroyed when the Geological Survey and Mines Bureau (GSMB), its successor, was established in 1992.

This industry was nationalized in 1971 with the takeover of the Bogala, Kahatagaha and Kolongaha mines that were in operation at that time and the other pits, etc. were abandoned with the demand falling drastically after the Second World War. Significant reserves of lump as well as flake graphite are found in these abandoned workings and no attempts were made to estimate the tonnages at that time.

With the establishment of the Graphite Corporation in 1972, Bogala, Kahatagaha and Kolongaha (KK) mining operations were streamlined and exports were in the region of 10,000 metric tons.





In 1977, State Graphite Corporation expanded its activities by taking over the Eppawela Phosphate open cast mine and there was a name change to State Mining and Mineral Development Corporation.

I was a Director of the above entities from 1975 to 1987 representing the Government of Sri Lanka (GOSL) and was closely associated with the development of these industries. During my tenure as a Director of New Projects, an Asian Development Bank-funded project to modernize the operating graphite mines was launched with a loan of US $ 38 million. However, this project did not get off the ground due the GOSL not funding the local component of about Rs.15 million.
In 1990, under the World Bank Public Sector Restructuring Programme, the GOSL privatized the Bogala and Kahatagaha-Kolongaha mines, the former under Bogala Graphite Ltd, a limited liability company operating with German collaboration. The KK mines, which were privatized, were again nationalized due to the request of the employees and are now wholly-owned GOSL entities.




Graphite consumption  
Minerals Year Book 2012, published by the GSMB, records the exports of all grades of graphite, including flake, were only 3444 metric tons with a production of 3357 metric tons. The local consumption was only 74 metric tons, which is 2.1 percent.

The value of exports for 2011 was a meagre US $ 3 million. The main importers are Japan, the USA, UK, Germany and Pakistan. Two thousand five hundred and ninety three metric tons of exports were above 90 percent carbon and 851 metric tons were below 90 percent carbon.

Natural graphite from Sri Lanka is of very high quality reaching 99.9 percent carbon and the averages vary from 90 to 96 percent. Both lump and flake varieties will be in this range and the main industrial applications are manufactured of crucibles linings of steel furnaces by carbon aluminium bricks, specially in the USA and Japan, carbon brushes, refractory bricks, carbon –cinema arcs, electrodes, paints lubricants and golf sticks. Graphite of high purity is used in TV screens and reactors as a shield to prevent emission of radiation in nuclear power plants.

In 1982, a team of consultants from the Commonwealth Secretariat recommended two projects for foreign collaboration for the manufacture of the following:  

Project A - Carbon-based refractory, carbon bricks - envisages an investment of US $ 10 million and will use about 4000 metric tons of high grade graphite per annum.
Project B - Graphite crucibles and related products, midget electrodes, cinema arc carbon, colloidal graphite, foundry facing material and will involve an investment of US $ 12 million consuming about 1200 metric tons of high grade graphite per annum.

These figures could be compared to 74 metric tons consumed by the local industry at present.
If the GOSL had encouraged foreign direct investment (FDI) on these two projects in 1982, the total investment would have been US $ 22 million and a substantial market was there in the neighbouring countries such as Australia, India, China and the countries in South East Asia for the above finished products. However, the investors were required to give a buy-back guarantee for a minimum of 90 percent production and were reluctant to do so as they had formed a cartel for value addition abroad.

The Board of Investment (BoI) is now promoting companies especially from China and Australia to invest in mining ventures for graphite in abandoned mining areas and a recent news item in the local media has highlighted an Australian company investing heavily on a survey for graphite around  the KK mines.



Investment strategy
It has been proposed to carry out an airborne electromagnetic survey covering an area of about 200 square kilometres. Companies mainly  from these two countries are also trying to rehabilitate old surface mine workings  close to Warakapola  and Botale, Minuwangoda, Aluketiya, etc. with exploration  permits from the GSMB.
It is quite evident that these companies are looking for natural graphite and not interested in establishing graphite-based industries with value addition. Under the Mines and Minerals Act No 33 of 1992 and Mines and Minerals (Amendment) Act No 66 of 2009 and regulations framed under the earlier Act in 1993, clearly indicate in Section 10 (1) and (2) of Part 2 that special negotiations have to be carried out by the foreign proponent for a Mineral Investment Agreement (MIA) with the Secretary of the Ministry in charge of the GSMB.

The MIA will contain inter alia provisions spelled out from (a) to (p) that cover participation provisions, venture capital incentives, mine financing provisions among others.

The GSMB should advice and insist the BoI that it is mandatory for foreign proponents to sign an MIA under the law before any exploration activity is launched and if not this activity will be illegal.

It must be stressed that the GOSL should discourage export of graphite in raw form and insist that the foreign collaborator establish graphite-based industries as indicated above. The investment strategy of these companies is to promote exploration and mining for graphite and export the natural graphite for their industries established abroad.

Further, it is illegal for the BoI to sign a Section 17 agreement and give tax holidays under the Greater Colombo Economic Commission (GCEC) established in 1978 by an Act of Parliament without signing an MIA.

In conclusion, the graphite industry in Sri Lanka since the two World Wars has failed to attract foreign investors and if the GOSL allows export of graphite in raw form by foreign companies, we will spirit away this valuable mineral raw material.

The Institute of Nanotechnology has successfully made very high-grade graphite of high value by altering the physical and chemical structures and it is unfortunate that the GOSL is promoting mining companies to export graphite without any value addition at present.

(Dulip Jayawardena is retired Economic Affairs Officer United Nations ESCAP, former Director Geological Survey Department (present GSMB) and a Director of State Graphite Corporation from 1975 to 1987)
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