Pharaohs' shadow an omen in Egypt gold search

Aton Resources

08/06/2016 12:18

By Eric Knecht 
    EASTERN DESERT, Egypt, June 8 (Reuters) - Careering around 
Egypt's rocky Eastern Desert, Alexander Nubia  AAN.V  CEO Mark 
Campbell peers from his jeep and sees hills so rich with gold 
they could lure billions in investments and jumpstart the ailing 
economy. His company just has to find it. 
    Egypt's gold mining industry has for years been long on 
potential and short on investment -- the result of a jarring 
mismatch between spectacular geology and an unattractive 
commercial framework for mining. 
    Despite a history of gold mining that stretches back to the 
pharaohs, the industry is largely dormant. With just a single 
gold-producing mine, Centamin's  CEY.L  Sukari, the sector 
contributes a fraction of one percent to gross domestic product 
(GDP). 
    But last year, Egypt's government said it wanted mining to 
contribute upwards of 5 percent to GDP within 10 years.   
    This month it will launch its first bid round for new mining 
concessions since 2009, when a global gold-mining boom brought a 
handful of first-time investors to Egypt, despite what many of 
them say were poor commercial terms. 
    Most of these investors left after the 2011 uprising, driven 
away by rising political turmoil and falling global gold prices. 
    Now, armed with a 2014 mining law that helps streamline 
investment, Egypt wants to lure them back.  
    If successful, the industry could create jobs and attract 
foreign currency to an economy that is in dire need of both. 
    Paul Jones, CEO of Nuinsco, a Canadian explorer that left in 
2011, likens Egypt's mineral-rich Nubian shield rock formation 
that straddles the Red Sea to the Canadian shield of a century 
ago, before it "developed the northern part of Quebec and 
Ontario with tens of millions of ounces of gold, and billions of 
pounds of copper, zinc, and lead." 
    Leonard Karr, a geologist with Vancouver-based Alexander 
Nubia, says the ancient continental crust upon which the 
company's two concessions sit is chock full of potentially 
recoverable mineral wealth. 
    "There are hundreds of good plays," he said.     
     
    TOUGH TERMS 
    That the allure of Egypt's geology has yet to spur a gold 
rush is down to regulation, investors and analysts say.  
    Despite the mineral-rich concessions on offer and the 2014 
law, they predict a tepid response to this month's tender. 
    Rather than levy a modest royalty on mineral production and 
collect tax -- a system that helped Peru and Mexico launch their 
mining sectors -- Egypt offers investors a production-sharing 
agreement similar to its oil and gas deals. 
    Mining companies say the model does not fit their work. 
Unlike companies drilling wells, their capital costs can stretch 
for decades as they build out mines requiring hundreds of 
millions of dollars in investment.  
    They say production sharing, on top of a royalty payment, 
makes Egypt a prohibitively expensive play. 
    "Production sharing works for the oil and gas industry, 
however it does not work anywhere in the world for mining,"  
said Centamin chairman Josef El-Raghy. 
    "As such, companies will not come and invest in Egypt 
despite the hugely prospective mineral resource area." 
    For Abdelaal Attia, an adviser to the Egyptian Mineral 
Resource Authority (EMRA), Egypt's commercial terms reflect the 
lower risk of exploration in a country where ancient mines 
populate the desert, indicating known areas of mineralisation. 
   "You will not go to an area and start from scratch ... you 
know you have gold there. It's just about how much," said Attia. 
   "The tax and royalty system can be applied in countries that 
don't have any information about their lands ... but EMRA has a 
century of work, reports, and maps." 
    EMRA has yet to announce the commercial terms for this 
month's bid round, but Attia says it will likely stick to the 
production-sharing model and offer five to seven concessions. 
   Yousef Husseini, an analyst with EFG Hermes, said the data 
available is not enough to lure investors on the current terms. 
    "It's clear there is a lot of potential but investors want a 
more definitive answer. They want to know where minerals are and 
how much is present," he said. 
    BACK TO THE FUTURE 
    Alexander Nubia, just one of three active explorers in 
Egypt, is nonetheless bullish. 
    Campbell says a prospect his firm began exploring in 2011 
will likely yield a commercially viable discovery next year. He 
plans to begin building Egypt's second mine there by 2019. 
    For Alexander Nubia, an exploration junior that takes on a 
multitude of high risk bets in hopes of occasionally striking it 
big, Egypt's mining history makes it a sound wager. 
    The work of past miners dots the hilly expanse of the 
company's concession -- a crumbling Roman fort and an abandoned 
20th century British mine are not far from its own drill holes. 
    Campbell says these relics are cost-saving guides to future 
discoveries, while new technology allows modern miners to drill 
deeper and extract lower grade minerals than their predecessors. 
    "There's about 6,000 years of mining history here and a 
large part of it was gold ... It offers almost a roadmap to the 
opportunities," said Campbell. 
 
 (Editing by Lin Noueihed and William Hardy) 
 ((eric.knecht@thomsonreuters.com; +20 2 2394 8102; Reuters 
Messaging: eric.knecht.thomsonreuters.com@reuters.net)) 
 
Keywords: EGYPT GOLD/