By Matthew Green in Hajigak, Published: October 11 2010 19:39

On a boulder-strewn ridge in the Hindu Kush, Atiq Sediqi is deep in conversation with a rock. His means of communication: a tiny magnet dangling from a thread. As if performing a conjurer’s trick, the Afghan geologist lowers the pendulum until it swings, revolves then sticks to the stone with a barely audible click.

A similar phenomenon was first observed in 1890 when a British explorer noticed his compass needle spinning listlessly in the cathedral-like range – a sign of the vast iron ore deposits buried beneath. As the new century unfolds, Afghanistan’s government is hoping the trove will shape the country’s future.

“It will provide jobs, opportunity,” said Mr Sediqi, who worked as a geologist in the US before returning to Afghanistan in 2007. “Once people have some bread on the table, they want to defend their income instead of turning to violence.”

Kabul wants investors to pledge billions of dollars to develop Hajigak, billed as one of the world’s biggest iron ore finds. At a time of growing doubts over the durability of the west’s commitment to Afghanistan, the tender will test the reach of eastern economic forces.

The US has laid down more lives here since 2001 than any other power, but the most likely bidders are Chinese or Indian companies seeking resources to fuel burgeoning economies.

Beijing and New Delhi are both deepening commercial ties with Kabul as part of a broader rivalry.

“If you want to see long-term geo-political considerations, watch these deals,” said Robert Kaplan, a senior fellow at the Center for a New American Security, a Washington think-tank.

Afghanistan boasts reserves of gold, cobalt and lithium, as well as gemstones. The government is also seeking investors for oil and gas blocks that have drawn interest from France’s Total and Swiss-based Addax Petroleum.

However, the obstacles to mineral exploitation are as forbidding as Afghanistan’s peaks. Uncertainty over what may happen when the US starts to withdraw its forces next year weighs on investment decisions. Growing insurgent violence, entrenched corruption and a lack of infrastructure have raised questions over whether exporting Hajigak’s iron ore will be viable.

The hurdles may deter the biggest western miners, but state-owned Chinese competitors may be more inclined to subordinate commercial calculations to strategic imperatives.

China has ventured into risky countries in west Africa in search of iron ore, and is investing in extracting oil from Iraq. It plunged into Afghanistan in 2008 when the Metallurgical Corp of China and Jiangxi Copper Group bid $3.4bn to secure the Aynak copper deposit south-east of Kabul.

Munificent pledges to build smelters and railways left US and European competitors standing.

MCC and Indian companies including JSW Steel, Vedanta Group’s Sesa Goa and Essar Minerals took part in a tender for Hajigak.

The bid was cancelled amid reports that Mohammad Ibrahim Adel, former mining minister, accepted a $30m bribe to award Aynak to the Chinese. Mr Adel denied the allegations.

Hamid Karzai, Afghanistan’s president, appointed Wahidullah Shahrani, a respected technocrat, to take over the portfolio. He is working with international advisers to try to stage a credible auction. “At some point next year – in the summer – we’re expecting to award the contract,” Mr Shahrani said.

He reminds potential bidders that Soviet scientists concluded in the 1960s that Hajigak held at least 1.8bn tonnes of iron ore, enough for decades of extraction.

Security at the site is better than in many places, though not assured. “We will fully back the project,” said Mohammed Sadiq, a wheat farmer. “But I can’t speak for any insurgents in other parts of the country.”

Although state-backed finance gives Chinese companies deep pockets, they are not indifferent to safety.

Exporting the ore may be an even bigger challenge. MCC committed to building a $6bn railway to transport copper ore when it bid for Aynak, though production is not expected to start for years.

Zou Jianhui, MCC’s president, warned on a visit to Kabul in September that investors might even have to reconsider the railway if security worsened.

For all its magnetism, Hajigak’s promise may yet turn out to be a mirage.

Copyright The Financial Times Limited 2010.