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Nevsun Secures $60M From Eritrea to Develop Bisha

Written by Administrator

Saturday, 24 November 2007

SAN FRANCISCO (ResourceInvestor.com) -- On Oct. 31, Nevsun Resources [AMEX:NSU; TSX:NSU] announced that the government of Eritrea had finally signed a participation agreement for the company's massive Bisha project, agreeing to purchase a 30% stake at a “full fair value.” At the time, RI noted that the biggest question that remained was what price the Eritrean government would pay for the interest in the project. That question has now been answered.

At this year’s Hard Assets Conference in San Francisco, Nevsun CEO John Clarke confirmed with RI that the government of Eritrea has secured $60 million for its additional 30% interest in the Bisha project. He said this is the first time the government has secured funding for a foreign mining project, which is a rare occurrence in any underdeveloped country.

On Nov. 16, media sources reported that the China Import-Export Bank will lend $60-million to Eritrea so that its state-owned mining firm can buy a partial stake of the gold mine. Eritrea had agreed to purchase a 30% paid participating interest in Bisha, to add to its 10% free participating interest. The government will also require a 5% royalty tax on gold and 3.5% base metal tax per mining legislation.

Bisha is one of the largest undeveloped gold and base metal deposits in Africa, with 1 million ounces of gold, 9 million ounces of silver, 747 million pounds of copper and 1 billion pounds of zinc. But the fate of the project has remained up in the air as the Eritrean government has been slow to issue a formal mining permit.

Clarke told RI that the mining agreement is almost in place, with only a few more details to iron out. He expects to have the mining permit in hand by year end, with development slated to begin immediately thereafter. This would be the country’s first new mine since the colonial times, he said, which could open the door for many more.

The agreement shows confidence in the country that it will fulfil its promises to miners, and is an important step forward for the industry, according to Clarke. He said in the next 3 to 4 months, the market will see a sequence of events that may change popular opinion of Eritrea, noting that some majors have visited the country recently.

After gaining independence from Ethiopia in 1993, Eritrea and Ethiopia have been in a border conflict, ongoing since a two-year war from 1998 to 2000 in which 13,000 Eritreans died. Both countries currently have more than 100,000 troops close to the frontier, raising fears of a repeat of their war.

Under a peace deal that ended the two-year war, a U.N. peacekeeping force of 1,700 monitors a security buffer zone on Eritrea's side of the 1,000-kilometre frontier. Eritrea has had strained relations with the force, and restricted helicopter flights and expelled western peacekeepers.

Although Eritrea is believed to be very rich in minerals, few miners have braved the war-torn nation in recent years. In addition to Nevsun, Sanu Resources [TSX-V:SNU], Sunridge Gold [TSX-V:SGC] and Sub-Sahara Resources [ASX:SBS] have properties in the country.

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.

In fact, Nevsun was ordered to halt operations by the Eritrean government in late 2004, and only allowed to resume exploration activity in early 2005. Clarke said Eritrea had held off on releasing any permits for at least three years up until just recently.

Frontier Strategy Group’s Above Ground Risk Report rates the country as a C for foreign mining investment, the bottom 10 of countries globally for political risk. Alex Turkeltaub, managing director at Frontier Strategy Group, told RI the risk is not improving, but the country “has no choice” but to allow more foreign investment “given its political isolation.”

Turkeltaub indicated that the decision to advance the Bisha project may have been a political move more than anything else.

“The involvement of the Chinese is part of the new trend across the natural resources sector in Africa, whereby the Chinese offer terrific terms in order to get access to resources,” he added.

Richard Corbo, adviser to the CEO of MDN, previously told Resource Investor that the Eritrean government “owes a lot of money to the Chinese for arms,” noting billions of dollars.

“They’re probably looking to offer properties and license or mining rights or whatever to the Chinese,” he said.

The loan by the Chinese Import-Export bank is the first commercial loan to Eritrea, after it signed a 500-million yuan ($67.36 million) soft loan with the country last year.

In early February, as reported by RI at Mining Indaba 2007, Chinese President Hu Jintao toured eight African nations chasing mineral resources. China had plans to lend African nations as much as $3 billion in preferential credit over three years and double aid and interest-free loans over the same time.

Clarke said the country’s ability to obtain funding from outside sources simply shows promise in the mining sector.

“The government has access to the funding - China being one of them that are very happy to help out with business arrangements,” added Clarke.

Nevsun shares rose 3 cents to $2.15 today on AMEX.

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Last Updated ( Saturday, 24 November 2007 )

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