Brendan Ryan from Miningmx, a platform providing content exclusively about shares and people involved in African mining, says that Eritrea is fast developing as a hot new destination for mining exploration companies following in the tracks of pathfinder TSX- listed Nevsun Resources.

Addressing the Africa Down Under conference held recently in Perth, the Eritrean minister of energy and mines Ahmed Haj Ali listed 12 companies now operating in the country looking at gold and base metal projects.

Reasons for the surge in interest include the country’s prospective geology and the willingness of the Eritrean government to fund its share of the development costs of mining projects up-front.

Eritrean state mining company Enamco holds a 40% stake in Nevsun’s Bisha gold/copper/zinc project which consists of a 10% free carry and a 30% stake to be purchased at “fair value.”

Enamco made a first provisional payment of $25m in 2008. The final amount to be paid will be determined by an independent valuator and will be based on the net present value of 30% of the project as at the date of the first shipment of gold from the mine.

That should take place during the third quarter of 2010.

Enamco has so far contributed $35m to the project as part of its requirement to provide one third of owners’ financing contributions.

Interviewed on the sidelines of the Africa Down Under conference, Eritrean mines department director-general Alem Kibreab commented the state’s attitude was that it should be prepared to share in the risks as well as the benefits from the project.

Haj Ali stressed that Eritrea’s exploration and mining regulation code involved a simple, one-stop licencing system in which the right to exploit commercial deposits discovered under a valid exploration licence was guaranteed.

He added the licensee has the right to sell locally – or export free of duties and taxes – all minerals it produced. Mining licences were valid for 20 years with optional 10 year renewals.

Nevsun reached financial close in July this year on the $235m debt package it required to complete the Bisha mine. One of the participants is the Industrial Development Corporation.

Nevsun CEO Cliff Davis commented on July 29 that, “The Export Credit Insurance Corporation of South Africa is finalising a policy of insurance tied to South African supply of goods and services.

“Similarly, Nevsun appreciates the unwavering support from the government of South Africa since the first financial commitment in October 2008 during a very difficult time for major international financial institutions.”

But it has not all been plain sailing for Nevsun. The company went through a torrid period from 2004 to 2006 while the Eritrean government was finalising its mining policy and regulations and not being clear about its intentions.

Nevsun shares soared from C$0.55 to C$3.94 in the 12 months to February 2003 on the back of the initial, high-grade borehole results from Bisha. They subsequently peaked at a record $9 during 2004.

But the shares plummeted 50% in a single day’s trading on September 3, 2004 when the Eritrean government forced Nevsun and two other gold exploration companies to shut down operations but provided no reasons.

The uncertainty over what was actually going on lasted for months. Nevsun finally signed a mining agreement over Bisha with the Eritrean government in December 2007.

The shares collapsed again to just C$0.35 in October last year during the global financial crisis but have recovered to current levels around C$2.00 on the back of the finalisation of the debt funding package.

Latest exploration company into Eritrea is ASX-listed Chalice Gold Mines which is assessing the Zara gold project. It must complete a prefeasibility study by end-October and a detailed feasibility study by May 25 next year.

As with the Bisha mine, the Eritrean government is entitled to a 10% free carry and has the right to buy a further 30% equity stake.

In his address to the Africa Down Under conference Chalice director Michael Griffiths told delegates “the Eritrean mining code works very well for me. It’s based on the Western Australian mining code and, so far, it’s only half a centimetre thick.”

Chalice – which has a number of gold prospects in Australia – got its exposure to Zara through a merger with ASX-listed Sub Sahara Resources which was announced in April.

Since the beginning of April the Chalice share price has quadrupled from around A$0.10 to the current level of A$0.40.

According to Chalice, the Zara project lies within an emerging gold and base metal province in East Africa which includes the Sukari gold project in Egypt, the Ariab/Hassai gold and base metal deposit in Sudan and the Bisha gold and base metal project in Eritrea.

Related posts:

1. Nevsun Shares on the Rise
2. Eritrea Mine Analyst Tour
3. Analyst: Nevsun Shares on the Rise
4. Eritrea: Chalice to Complete African Gold Merger
5. Eritrea: Canadian Gold Hunter to Acquire Sanu Resources