May 19, 2009 / 1:01 PM / in 8 years

Eritrea awards more mining licences, sees gold output in 2010

5 Min Read

* Foreign juniors snap up more mining exploration licences

* Bisha gold mine projected to start producing by late 2010

By Andrew Cawthorne

ASMARA, May 19 (Reuters) - Eritrea said on Tuesday eight more foreign firms had entered its mining sector with a clutch of new exploration licences in a nation seen on the cusp of a minerals boom that could motor its needy economy.

Alem Kibreab, director general of mines for the Energy and Mines Ministry, added the Horn of Africa nation's first and flagship project -- the Bisha mine -- should start producing gold by the third quarter of 2010.

"Despite its small size, Eritrea is going to be on the map of mining countries," he told Reuters, adding that reserves identified so far were only the "tip of the iceberg."

Foreign miners agree on the potential, but Eritrea insists the sector must be developed slowly and carefully to prevent the so-called "resources curse" where oil and minerals have spawned corruption and violence elsewhere in Africa.

A new round of licences awarded earlier this year had brought the total number of foreign companies exploring or about to explore in Eritrea to 14, Alem said.

He named the newcomers as Britain's Andiamo Exploration and London Africa; China's Land and Energy and Zhongchang Mining; the Eritrean-Libyan Mining Share; Australia's South Boulder and Gippsland; and India's Spice Minerals.

Gold, copper, zinc and potash are the main interest.

"We know that the juniors are the ones who aggressively come for exploration," he said. "We are comfortable not only with the size but the diversification of countries."

Eritrea's most advanced project, run by Canada's Nevsun Resources Ltd with a 40 percent stake for the state, is Bisha. Its 27 million tonnes of ore are believed to contain 1 million ounces of gold, 700-800 million lb of copper and 1 billion lb of zinc.

"Construction has started. Most of the workers' quarters are ready. We strongly believe that by the third quarter of 2010, we will start production," Alem said, adding that feasibility and environment impact studies had been lengthy.

For the first two-and-a-half years it will produce gold, with output of 450,000 ounces a year expected. Then it will turn to copper, followed by zinc in a probable 10-year life.

"Bisha is unique. You rarely find a project with gold on top, then copper, then zinc, like that," Alem said.

"If we get the gold price at today's price, it will be beneficial, obviously," he said, adding the mine was planned with a lower price of between $400-600 an ounce in mind.

Ministerial Re-Shuffle

Next up will be the Zara project, run by Australia's Sub-Sahara Resources, and the Asmara belt, headed by Canada's Sunridge.

Zara is believed to hold 1 million ounces of gold.

Asmara belt has some 70 million tonnes of ore thought to contain between 500,000-1 million ounces of gold, 2 billion lb of zinc and 700-800 million lb of copper, Alem said.

"It is a very difficult time because of the credit crunch. If all goes well, though, we should have feasibility studies finished by 2011 for both, then construction would start, and production would be a year or two years after."

Mining company sources said those targets were not over-ambitious, but may shift according to global economics.

Alem said Eritrea did not have any estimates for total national reserves, but the potential was clear and the economy -- one of the world's smallest -- had much to gain.

"As well as the revenues, it can provide a big support to other sectors," Alem said.

Apart from small-scale, artisan mining and some minor extraction by Italians during the colonial era, Eritrea's mining potential is unexploited. Some bigger miners were scared off by the 1998-2000 border war with Ethiopia.

President Isaias Afwerki recently moved long-serving Energy and Mines Minister Tesfai Ghebreselassie to the environment portfolio, replacing him with Ahmed Haj Ali who had been running the fisheries ministry.

Ahmed had experience in the sector from a stint as deputy energy and mines minister, Alem said. And while foreign companies would be reassured by Tesfai's move to the environment, he would be no pushover, he added.

"It is a plus to the industry. That is how the companies take it ... I am sure, though, that he will be even tougher in protecting the environment because a lot of people will say he will have a weakness there. Even when here, he was very strong on the environment." (Editing by Daniel Wallis and James Jukwey)

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