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Eritrea makes mining a backbone of its national economic rehabilitation

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.

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.

 
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