Canadian firme edges closer to Eritrea mine
October 29, 2007 (TORONTO) — The Canadian Nevsun Resources Ltd said on Monday it had signed an agreement with the government of Eritrea over ownership of Nevsun’s Bisha gold and base metals project, raising hopes that it will soon get final approval to begin construction on the mine.
The news drove the Canadian miner’s shares up as much as 25 percent and boosted shares of other miners active in the northeast African country, which see the Bisha development as a test-case for further development.
Under the agreement, Eritrea will take an additional 30 percent stake in the project, to add to the 10 percent interest provided under the country’s mining legislation. The price will be determined by an independent valuator when Bisha ships its first gold, which analysts see occurring in 2010 or later.
Nevsun said the Eritrean government had assured the company that the mining license and agreement for Bisha will be “advanced very promptly”. Nevsun expects the mine to yield around 1 million ounces of gold, 747 million pounds of copper, and 1.1 billion pounds of zinc over its 10-year life.
“This is a precursor to the finalization of discussions regarding a mining agreement for the Bisha project,” the company said in a statement.
Just after midday on Monday, the company’s stock was up 31 Canadian cents at C$2.11 on the Toronto Stock Exchange, after initially rising as high as C$2.25 following the news.
Haywood Securities analyst Stefan Ioannou said the government’s additional stake in the project was unexpected, but said the agreement shows Eritrea is serious about moving the project ahead.
“I would like to think by the end of the year we’ll see the (mining) permit itself,” Ioannou said.
He also said it was a good sign that an independent valuator would determine the price of the additional 30-percent stake, which he valued at $136 million.
Nevsun said the agreement will help reduce risk of disruption at the local level. The government will make a cash payment over the next few months that will help offset capital funding requirements for the mine, which are expected to total close to $300 million, according to the company’s Web site.
Gold explorers have flocked to Eritrea in recent years, although some investors have remained suspicious after the nation unexpectedly ordered a halt to foreign mining work in September 2004. The ban was lifted the following year.
Bisha is expected to be the first new mining project in the country to reach production, and shares of other locally active companies rose on the news of the agreement.
Sunridge Gold , which is also trying to bring a project to production, rose 30 Canadian cents to C$1.90 on the TSX Venture Exchange, while Sanu Resources was up 18 Canadian cents at C$1.50. Base metals player Lundin Mining , which holds a stake in both Sunridge and Sanu, was up 41 Canadian cents at C$12.80.
Haywood’s Ioannou said Bisha was “ripe for the picking” in an industry that has seen heavy consolidation as miners search to replace reserves.
(Reuters)