Eritrea makes mining a backbone of its national economic rehabilitation

Eritrea makes mining a backbone of its national economic rehabilitation
(Source: Mineweb)

Eritrea wants to become a mining giant. To make good its plans, the government has just issued Vancouver-based Nevsun Resources Limited a mining license for the Bisha mining project.

Author: Frank Jomo
Posted: Thursday , 10 Jan 2008

BLANTYRE -

Eight years after the border war between Eritrea and Ethiopia that ruined the economy of both countries, the Eritrean government is resuscitating its mining industry to make the country a mining giant, having the industry play a significant role in the nation's economic rehabilitation.

Minister of Energy and Mining Tesfay Ghebreslasie said the country is endowed with massive mineral resources. Exploration activities conducted in various parts of the country during the last six or seven years confirm that Eritrea is one of the volcanogenic Massive Sulfide (VMS) countries in the world.

In a recent interview with Menesey Magazine, Ghebreslasie said that based on exploration findings, a total of 1.7 billion pounds of zinc, 735 million pounds of copper, 15 million ounces of silver and several million ounces of gold may be exploited in the near future.

Among the areas being exploration is Bisha where Vancouver-based Nevsun Resources Limited (TSX, AMEX: NSU) wants to develop a US$250-million Bisha mine, Eritrea's first new mine since colonial times.

According to Ghebreslasie, the Bisha mining site is expected to yield 1.06 million ounces of gold, 10 million ounces of silver, 747 million pound of copper and more than 1 billion pounds of zinc.

Making good its plans to boost the mining industry, the Eritrean government has just issued a mining license for the Bisha gold and base metals project. Nevsun Resources owns 60% of the project while state-owned Eritrean National Mining Company (ENAMCO) has 40 percent equity.

The issuance of the license is a landmark development for Nevsun whose operations at the site were halted by the government in 2004. The company was only allowed to resume operations in 2005 after Nevsun allowed the government to buy a 30 percent interest in the project, on top of the free 10 percent interest it receives according to the country's law. In November ENAMCO borrowed US$60 million from the China Import-Export Bank to acquire the 30 percent stake.

Nevsun says, "The government of Eritrea continues to show its strong support to the redevelopment of mining as an important sector of its national economy."

Production at the Bisha project is planned for 2010. The open-pit operation has a mine life of 10 years. During the first phase, Nevsun project production will average 447,000 ounces of gold yearly. During the second phase, payable copper production should average 173 million pounds annually while during the third phase there would be an estimated production of 218 million pounds of zinc, according to the project feasibility study.

But Eritrea's mining policy might betray its quest of becoming a mining giant. Compared with other emerging mining countries, Eritrea's mining policy is a bit harsh.

According to the Minister of Energy, Eritrean mining proclamation states that every licensed body pays from 3.5 to 5 percent of the total cost of production to the government before hand. After a company pays all expenses, it also pays 38 percent tax on net income to the government. Then the government also gets a payment after all the expenses are covered based on the number of shares it holds.

Other mining companies active in Eritrea include Sino-Eritrea Mining Share Company, a joint venture between ENAMCO and a Chinese company, and Sun Resources and Sub Sahara Resources in Zara, among other companies.