Mining firms see little appeal in Egypt's gold exploration terms

Aton Resources

24/01/2017 15:35

* Egypt launches first gold-mining tender since 2009 
    * Terms dash miners' hopes for friendlier investment 
approach 
    * Three foreign players active in Egypt say they won't bid 
 
    By Eric Knecht 
    CAIRO, Jan 24 (Reuters) - The gold beneath Egypt's desert 
could make it a top global producer, but the investment terms on 
offer are driving away small explorers whose skills the country 
needs to unlock its mineral wealth. 
    The Egyptian government launched its first international 
tender for gold mining concessions in eight years last week, 
potentially an exciting opportunity for global miners to help 
develop a relatively untapped gold-mining frontier. 
    Though it has a history of gold-mining stretching back to 
the pharaohs, Egypt today has a single commercial gold mine, 
Centamin's  CEY.L  Sukari, which produced 551,036 ounces last 
year.  urn:newsml:reuters.com:*:nFWN1EY01C 
    In Egypt's mineral-rich Eastern Desert alone, some 
exploration companies estimate potential gold reserves could be 
higher than 300 tonnes, although the government declines to give 
an estimate. 
    But mining companies active in Egypt and Africa say the new 
exploration round, which offers five concession areas and closes 
on April 20, is unlikely to lure investors because of commercial 
terms they say are among the least attractive in the world.  
    A poor response from the mining firms would be a setback for 
Egypt, which has struggled to lure foreign investors ever since 
a 2011 uprising and subsequent turmoil drove many away. 
    The gold tender terms include a six percent royalty payment, 
only partial cost-recovery before the start of 
production-sharing, and three bonus payments to Egypt's mining 
agency, EMRA, including one of at least $1 million. 
    At least 50 percent of any gold revenues companies generate 
would have to be shared with the government. 
    The country's three main foreign players -- Centamin, Aton 
Resources  AAN.V , and Thani Stratex Resources --  have all told 
Reuters they would not bid under the current terms. 
    Centamin, which pays a three percent royalty on Sukari, said 
the new terms collectively "create a non-commercial operating 
environment for any mining investor".  urn:newsml:reuters.com:*:nL5N1FD2BT 
     
    HOPES DASHED 
    The terms of the new exploration round have dashed 
investors' hopes, raised by a more flexible 2014 mining law and 
a government goal of expanding the mining sector to 5 percent of 
GDP by 2024, compared with a fraction of one percent now. 
    Miners say the terms price out the most critical early 
investors: junior explorers that operate like venture capital, 
raising funds to take high-risk bets in the hope of stumbling on 
a commercially viable discovery. 
    "I've been really excited about them making changes. But 
unfortunately the terms don't seem to be getting any better," 
said Omar El-Alfy, head of precious metals at Qalaa Holdings, 
which has invested in exploration in nearby Ethiopia but so far 
shunned its home market Egypt. 
    "The framework that's currently on offer in Cairo isn't 
really attractive for the smaller players to really get involved 
and hence the reason you've only got one gold mine." 
    Miners say the international norm is a royalty and tax 
regime where the government takes a small royalty fee from 
production revenues, a model that has created booming industries 
from Chile to Ethiopia. 
    But EMRA head Omar Teama told Reuters the government has no 
intention of applying this model and expects a "beyond 
excellent" turnout in the round. 
    "For those who find the bid round suitable for them under 
these terms, they are welcome in Egypt. For those who don't find 
them suitable, I don't want to hear anyone's advice," said 
Teama. 
    Egypt's Petroleum and Mineral Resources Ministry declined 
comment. 
    David Hall, CEO of Thani Stratex Resources, said juniors 
like his firm are unlikely to enter the round based on the high 
bonus payments alone. 
    "(Juniors) don't want to pay money for signing-on bonuses... 
they'd rather put that money in the ground," he said. 
    "You see the cash generated by Sukari, and if you make one 
of those discoveries every four to five years you have the 
ability to generate billions of dollars, but you've got to get 
the company to take the risk to do the exploration to see if the 
potential is there first." 
 
 (editing by Lin Noueihed and Adrian Croft) 
 ((eric.knecht@thomsonreuters.com; +20 2 2394 8102; Reuters 
Messaging: eric.knecht.thomsonreuters.com@reuters.net)) 
 
Keywords: EGYPT GOLD/