Keeping all informed.
Eritrea: Mining Picture Remains Cloudy
By Nathan Becker
18 Jul 2007
St. LOUIS (ResourceInvestor.com)
-- A tiny African country is giving some miners a big headache.
Eritrea, a war-torn nation on the Red Sea in northeastern Africa, is about the size of Tennessee. It’s also believed to be very rich in minerals. Yet no one in modern times has mined the country, and only a few hope they can.
MDN [TSX:MDN], formerly Northern Mining Explorations, was one of those few before it decided to withdraw from Eritrea on July 11, after waiting since 2003 for an exploration permit for its Haykota property.
Richard Corbo, adviser to the CEO of MDN, told Resource Investor that the Eritrean government never said MDN couldn’t have a permit - just that the company had to wait. Eritrea never gave MDN a reason for the permit being put on hold.
“We’d love to know why,” Corbo said. “We can only suspect that they’ve not been allowing permits to anybody since the beginning of the year.”
Corbo said Eritrea’s border conflict, ongoing since a two-year war with neighbouring Ethiopia from 1998 to 2000 in which 13,000 Eritreans died, could indirectly be the cause of permit scarcity.
“The fact is that … unfortunately, [Eritrea] owes a lot of money to the Chinese for arms. We’re talking here, billions of dollars of arms that they bought from the Chinese, and most probably they will have to face payback time. They’re probably looking to offer properties and license or mining rights or whatever to the Chinese.”
He said MDN doesn’t think the idea will float.
“We don’t think the Chinese, whatever power or influence they have out there, will accept potential mining operations in which you invest and have to do everything from scratch. [China would say], ‘You’re trying to pay me with something that doesn’t exist, or it’s only potential.’
MDN drilled on the Haykota property in June 2006 on two targets. One hole returned 13 metres of 2.34 g/t Au at depths of 6 to 19 metres, including 3 metres of 3.52 g/t Au from 8 to 11 metres. Another hole returned 7 metres of 3.08 g/t Au at depths of 2 to 9 metres, including 2 metres of 9.03 g/t Au from 5 to 6 metres.
Since MDN’s withdrawal, only three foreign miners remain with projects in the country: Nevsun Resources [TSX:NSU; AMEX:NSU], Sunridge Gold Corp. [TSXv:SGC] and Sanu Resources [TSXv:SNU].
Corbo said MDN eventually decided to quit waiting on Eritrea after the company hadn’t seen any progress in nearly four years. Talks never made any headway, he said.
“We’ve been dealing with the minister of mines, and … discussions have always been very positive. They keep on saying to us, ‘Just be patient,’ and they never came through. The bottom line is that we simply cannot trust what’s going on up there.”
Alex Gorbansky, managing director of the Frontier Strategy Group, said Eritrea is a risky place for any miner.
“Eritrea is at the high end of the risk curve for the mining industry given unclear regulations, an authoritarian regime and the ongoing conflict with Ethiopia. Security is another major concern for Westerns ... The current risks in Eritrea and the dynamic situation on the ground make it off-limits to virtually all firms but those with the highest risk tolerance.”
But Nevsun is still optimistic that it will eventually be able to mine its Bisha project, the largest and most-advanced of any mining project in Eritrea. The company is waiting on a mining license for Bisha, but it has already received an exploration license.
The Bisha deposit hosts 1.06 million ounces of gold, 747 million pounds of copper, 1.09 billion pounds of zinc and 10 million ounces of silver. The mine will produce an average of 447,000 ounces of gold per year in the first two years, 173 million pounds of copper per year in years 3 to 5 and 218 million pounds of zinc plus 39 million pounds of copper per year in years 6 to 10.
Nevsun estimates a capital cost of $196 million with expansion costs at $61 million + $31 million in two phases, funded from operations. Operating costs are forecast to be $31.64/tonne ore milled through the 10+ years life of mine. Using recent metal prices of $650/oz gold, $3.00/lb copper, $1.50/lb zinc and $13/oz silver, the company calculates a capital cost payback period of just 1.2 years.
“Nevsun is currently in active discussion with the government of Eritrea regarding our application for a mining license for the Bisha Project,” Nevsun CEO John Clarke told RI.
Nevsun has extensively explored Bisha and has presented Eritrea with a feasibility study as well as a social and environmental impact assessment, Clarke said.
“Throughout our time in Eritrea, we have continued to receive strong support from all the relevant government ministries and we are confident that the Bisha mining license will be awarded,” he said.
Nevsun isn’t without its share of problems with the Eritrean government, however. In September of 2004, after the company had finished up a 195-hole, 30,000-metre drill program that produced encouraging results, the Eritrean Minister of Energy and Mines ordered a halt to all mining and exploration activities.
The government gave no reason for the policy change, but there’s word within this Casey report that a high-ranking Eritrean official confirmed off the record that it was because the government figured out just how big the deposit was, and it wanted a bigger cut.
The ban was lifted in February 2005 after the government reviewed the laws and raised its maximum-available equity interest in Bisha and other properties from 20% to 30%.
Corbo said companies currently in Eritrea are just looking to stay positive, and he said he thinks the country, which gained its independence from Ethiopia in 1993, is leading those companies on.
“[Eritrea is] not saying, ‘No.’ They’re not shutting the door, they’re not putting them out,” Corbo said. “[The companies trying to mine Eritrea] have been quite creative to announce nothing by staying positive. No permits have been allowed.”
MDN is currently looking to sell its 75% equity stake in the Eritrean Minerals Corporation, Corbo said.
“We’re looking to sell, if there’s anything to sell,” he said. “There are a couple of deals that we’re looking at, and some approaching has been done, but as we speak, nothing concrete.”
With Eritrea out of the way, MDN looks to return its focus to its properties in Quebec and Tanzania, which have shown positive results lately. The ongoing results coming out of the Tulowaka mine are encouraging, Corbo said, and MDN is looking to add years to the mine’s life as well as revise its resource estimates.
“Things are going better than expected with our other assets,” Corbo said. “We’re debt-free, cash-flow positive in 2008. We’re in great shape.”
The Eritrean Haykota project currently has no value, which made MDN’s withdrawal timing appropriate, Corbo said.
The country’s mineralization is so appealing, including gold, copper, zinc and silver, that it caused MDN to keep its interest in Eritrea maybe longer than it should have, Corbo said.
“The only reason why we took so much time is because we have to recognize it’s a great place to be, to explore, and there’s no doubt of the overall potential,” he said. “The geology there is just great.”
So great that, even though Corbo said MDN “can’t trust the overl situation” in Eritrea, company officials couldn’t rule out rethinking its withdrawal from the country if things end up looking on the up-and-up.
“We’ll keep our ears open,” he said.
Posted to the web on 16 Jul 2007 at 06:18 PM GMT-04:00