IDC remains committed to funding Eritrea gold/copper/zinc project despite UN sanctions

South Africa’s State-owned Industrial Development Corporation (IDC) has reaffirmed its commitment to providing $89-million in project debt facilities for the Bisha gold project, in Eritrea, despite the imposition of a number of sanctions on the Eritrea government.

Head of the IDC’s mining and beneficiation strategic business unit Abel Malinga tells Mining Weekly that the corporation does not expect the sanctions to influence the project at all.

“As I understand it, the sanctions include an arms embargo, travel bans and asset freezes. They do not target the interests of mining companies operating in Eritrea or the develop- ment of mining projects in the country.”

Canada’s Nevsun Resources head of the Bisha project Stanley Rogers backs this statement, saying that there has been no slowdown whatsoever since the announcement and that the momentum of the project has continued. “I do not expect anything to change with respect to the Bisha project. Our production start date remains the same.

“For investors, the international price of gold is a more decisive factor than sanc-tions imposed on a single country,” he comments.

In July 2009, Nevsun signed extensive loan documentation with South Africa’s IDC and a group of European lenders for the funding of the Bisha project. Currently, the company is still waiting for European lenders to also reconfirm their commitment on the balance of the facilities agreed to at that time.

Malinga says that the IDC decided to sponsor the project owing to the fact that more than 60% of goods and services supplied to the project will be coming from South Africa. “Before the IDC makes a commitment to funding a project outside South African borders, we ensure that at least 50% of the goods and services will be derived from South Africa.”

The IDC will provide funding in a one-off payment.

Bisha is Eritrea’s most advanced mining project. Its 27-million tons of ore is believed to contain one-million ounces of gold, 700-million pounds to 800-million pounds of copper and one-billion pounds of zinc.

Pro-duction is expected by the end of the year. Before sanctions were imposed in Dec-ember 2009, Nevsun spent a record $21,7-million on its Bisha project in the third quarter of 2009.

Meanwhile, Nevsun Resources has reached a significant milestone in the construction of its flagship Bisha project with the delivery of major equipment to the site in Eritrea.

By the end of December 2009, the company had received delivery of the semi- autogenous mill, the ball mill and the primary crusher. Installation of the mills and crusher has started.

Nevsun president and CEO Cliff Davis says that the installation of the mills forms the critical path activity and their timely arrival maintains the development time-line. The project continues to be on track for operation in late 2010.

The Bisha project is a high-grade gold/-copper/zinc volcanogenic massive sulphide deposit discovered in 2003, brought to feasibility in late 2006 and that began its official development stage at the start of 2009.

The project is positioned to become the first modern-day mine in this north-eastern African country, with yearly production projected to return payable metals of 1,06-million ounces of gold, 9,4-million ounces of silver, 734-million pounds of copper and 1 075-million pounds of zinc.

At current metal prices, the project is expected to generate enough cash in the first two-and-a-half years to repay all debt facilities, in addition to further mine expansion. The Bisha mine will be a low-cost gold producer for the first two years and a low-cost, high-grade copper and zinc producer for the remaining ten-year mine life. Further, resource potential exists at depth and from nearby discoveries within the company’s licence areas.

The project has the strong support of the government of Eritrea, which has a 40% ownership stake in the project company. “Nevsun looks forward to a very productive year in 2010,” concludes Davis.