Mining firms see little appeal in Egypt’s gold exploration terms
cairo — 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 recently 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 Sukari, which produced 551,036 ounces last year.
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 productionsharing, and three bonus payments to Egypt’s mining agency, EMRA, including one of at least $1 million. At least 50 per cent of any gold revenues companies generate would have to be shared with the government.
The country’s three main foreign players — Centamin, Aton Resources, 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”.
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 five per cent 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.