Saturday,17 November, 2018
Current issue | Issue 1365, (19 - 25 October 2017)
Saturday,17 November, 2018
Issue 1365, (19 - 25 October 2017)

Ahram Weekly

Looking for the yellow ore

Egypt needs to place itself more firmly on the international gold-mining map, writes Doaa Montasser

 

Al-Sokkari Mine
Al-Sokkari Mine

While Egypt has more than 125 gold-mining sites, it currently has only one commercial mine in the Al-Sokkari Mine that contributed the lion’s share of Egypt’s production of 470,000 ounces of gold in 2016 and a targeted output of 540,000 ounces in 2017.

The world’s total production of the yellow ore came in at 3,000 tons in 2015, however, putting Egypt in the shade. The world’s top gold-producing countries include China, Australia, Russia, South Africa, Mexico, Uzbekistan, Ghana, Brazil and Indonesia, with Egypt not making the grade.

In a bid to improve its gold-mining potential, in January Egypt invited interested companies to bid for five gold concessions in the Eastern Desert and Sinai Peninsula. And in July four companies won the tenders for five concessions, including Britain’s Veritas Mining, Ghassan Spain Investment, Egypt’s East Gas Company and Resolute Egypt, an Australian company that won two concessions. 

The concession agreements are based on a production-sharing system that allows Egypt to retain an at least 50 per cent share of the mine’s production. The terms also include a six per cent royalty payment, partial cost recovery, and three bonus payments to the Egyptian Mining Resources Agency (EMRA). 

However, according to Youssef Al-Raghi, manager of the Australian gold-mining company Centamin, these terms made the concessions commercially non-viable and caused his company to refrain from competing for the new tenders. 

He criticised the fact that the new agreements are based on production-sharing rather than profit-sharing. The concession agreement with Centamin, which has had exploitation rights at the Al-Sokkari Mine since 1994, is based on profit-sharing.  

A source at the Ministry of Petroleum, the ministry responsible for the mines, told Al-Ahram Weekly that if the same production-sharing terms had been applied to Al-Sokkari, “it would have paid at least $600 million to the state by now.”

However, the government has received less than $200 million from the company since the Mine started operations in 2010.

“No country applies production-sharing mechanisms in the gold-mining industry. Countries usually impose royalty fees and taxes. And the sum of both does not exceed three per cent of the explorer’s profits. That is why this bid did not attract prominent companies with a good track record,” he said.

The present tenders are reminiscent of what happened during the last round of tenders for gold-mining operations in 2009. According to Al-Raghi, three unqualified foreign companies won the bids, but withdrew after five years because they were “incompetent”, a fate he is concerned may also face the four companies winning the bids this time round.

While refusing to reveal the causes of the 2009 failure, Omar Teama, head of the EMRA, said that the new system avoided previous mistakes and paved the way to Egypt’s being able to compete with gold-mining countries across the world.

The terms of the new concessions had been prepared and revised by the ministries of petroleum and mineral resources, finance, planning, defence and scientific research, in addition to the Administrative Control Authority, he explained. 

Magdi Ghorab, regional manager of Ghassan Spain, one of the companies winning the concessions, said his company had already injected its first investment into Egypt as the economic atmosphere had become more attractive. New investor-friendly regulations were among the reasons the company had decided to enter the market, he explained. 

He added that the company had been eyeing the Egyptian gold-mining sector since 2010, but the 25 January Revolution and its consequences had caused delays. 

Nabil Nagi, head of Britain’s Veritas Mining which won the exploitation rights for the Om Al-Os zone in the Eastern Desert 8km from Marsa Alam, said his company had allocated $16 million for the first phase of exploration and $60-80 million for the second phase.

“I am sure we will make sizeable profits as the wealth of the gold ore in this zone is expected to be vast,” he said. The company earned $6 billion last year from its activities in gold mining worldwide. 

Egypt’s gold-mining potential has been known of at least since the 1950s when the Russians tried to help the country exploit its mines. However, because of instability and difficulties with international relations, the sector was neglected, said Mohamed Zaher, head of the mining committee at the Canadian-Egyptian Business Council (CEBC).

“The big challenge ahead is the lack of funding. Investment in the gold-mining industry is a high-risk investment, as the investor could spend up to $20 million for exploration and find nothing,” he said.

In addition, this kind of investment is long-term, which means that production and profits cannot be expected for at least three years after starting the project.

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