Chalice Gold Likely to Start Production, Exports From Eritrea in Two Years

[Source: Bloomberg,com]

Chalice Gold Mines Ltd., an Australian explorer for the metal, will begin output at the Koka deposit in Eritrea in two years after spending more than $147 million developing the mine.

The company, based in West Perth, expects to begin exports of 104,000 ounces per year in late 2012 or early 2013, Managing Director Doug Jones said in an e-mailed response to questions on Oct. 1. Shipments over the seven-year life of the mine are expected to total 720,000 ounces, he said.

The Horn of Africa country needs funds from mining to support an economy that the International Crisis Group last month described as being in “free fall.” The economy shrank 1.1 percent from 2004 to 2008, according to the International Monetary Fund’s website.

“Large-scale gold production, expected to begin in 2010, would improve the state’s foreign-currency position,” the ICG said in the Sept. 21 report. Nevsun Resources Ltd., based in Vancouver, is scheduled to start producing gold, copper and zinc at the Bisha mine later this year.

Eritrea is under United Nations sanctions for its alleged support of al Qaeda-linked terrorists fighting to topple the Western-backed government of Somalia. In December, the Security Council voted 13-1 to freeze the assets of Eritreans designated by a committee of the 15-nation panel and ban them from travel. It also imposed an arms embargo, authorized the inspection of cargo going into or out of the country on the Red Sea, and demanded that it settle a border dispute with neighboring Djibouti.

Eritrea’s Foreign Ministry called the sanctions “unjustifiable.”

‘Repressive’

Human Rights Watch has described Eritrea as “one of the most closed and repressive states in the world.” The nation is on a permanent “war footing,” has “thousands of political prisoners” and independent media and civil society are non- existent, according to an April 2009 report by the New York- based advocacy group.

Eritrea has been ruled by President Isaias Afeworki, a former rebel leader, since it gained independence from Ethiopia in 1993.

Mineral resources including 3 million ounces of gold, 41 million ounces of silver, 1.6 billion pounds of copper and 4.2 billion pounds of zinc have been identified in Eritrea over the past 10 years, according to Mining Journal, a London-based newspaper. A total of 16 mining companies from seven countries are engaged in 34 projects in the country, it said last month.

“By the standards of established mining countries such as Australia, Canada, Chile or even many of the West African countries, the exploration potential has hardly been touched,” Jones said.

Weapons Purchases

The government may use proceeds from mining revenue to enhance its military capacity, since its relations with neighbors are tense, the ICG said. As many as 100,000 people died in the two-year conflict with Ethiopia.

“I think they’re more likely to spend it on infrastructure,” Jones said. “However, it’s a sovereign country and the government can spend it where they want.”

Calls made on Oct. 1 to the Eritrean Mines and Energy Ministry in Asmara, the capital, didn’t connect.

The Koka deposit was discovered in 1998 and development of the project was delayed by a war with neighboring Ethiopia that began that year and ended in 2000; a moratorium on exploration by the government in 2004; and the global financial crisis in 2008, Jones said.

“Koka will not be a big mine, but our financial models suggest it will be a significant contributor to government revenue over its seven-year life,” he said.

The Eritrean government owns 10 percent of the Zara Project, where the Koka deposit is based, and has an option to buy a further 20 percent, Jones said.