Eritrea reveals its rich reserves
Michael Schwartz takes a look at Eritrea, a country that has attracted the attention of the mining industry in recent years.
Sparse mining in the past has disguised Eritrea’s rich mineral reserves, notably the sources of copper, lead and zinc within its volcanogenic massive sulphide deposits and the gold previously recovered by artisanal miners from the Arabian Nubian Shield. More than 60% of the Eritrean landmass lies within the latter. Eritrea’s natural mineral resources also extend to potash, oil, natural gas, cement, gypsum, granite, marble, ceramics, limestone and iron ore.
Eritrea, with six million people, is one of the youngest countries – it only achieved independence in 1993 – and its growth is anchored to the principle of self-reliance, with the Government, for the most part, rejecting foreign aid. Mining will play a key part in its development – a recent report by Reuters from Eritrea's capital, Asmara predicted copper, zinc and potash mines operating by 2018. In these circumstances, the Government will take an automatic 10% stake free and then usually takes up its right to buy 30% more.
Confidence in Eritrea rises
The Fraser Institute’s survey of opinion among 4,000 senior mining executives evaluates mining countries and individual territories for overall investment appeal and many other factors. Eritrea attracted enough attention to join 108 other administrations to be included for the 2015 review.
Eritrea has enjoyed varying fortunes among these senior executives – its encouraging rank of 48th out of 122 in 2013 plunged to 76th in 2014, but rose to 42nd for 2015. At present, the Fraser Institute currently ranks Botswana as the most investment-friendly country in Africa at 14th, with Morocco, another regular high-scorer coming in 24th. Eritrea’s 42nd place trails Namibia (29th) but exceeds Burkina Faso (44th), Ethiopia (48th) and Ghana (52nd).
Any review of Eritrean mining must include one of the largest potash resources anywhere in the world, namely the Colluli deposit. With the UN forecasting the world’s population to increase to almost 10 billion by 2050, agricultural yields must increase by almost 70% to meet the food challenge. The Colluli project will initially focus on the production of Sulphate of Potash (SOP), a premium, chloride-free potash suitable for high value crops.
As the project develops, it could produce a diverse range of potash types, including potassium chloride and potassium magnesium sulphate. Crucially, in the words of Danakali CEO Paul Donaldson, ‘With a long mine life of more than 200 years, the Colluli Potash Project has the potential to be a globally significant source of high quality potash for decades to come – and an important project in terms of global agriculture and food production into the future.’
Donaldson continues, ‘We work closely with the Ministry of Land and Environment and the Ministry of Energy and Mines to ensure that we meet or exceed these requirements. The project aims to create sustainable employment. Study estimates indicate 1,000 people will be required for the construction phase, 450 people for Phase I, with an increase to 650 people for Phase II of the development. Danakali is committed to ensuring that long-term positive social and economic benefits are experienced by local communities.’
The importance of potash
Located in Eritrea’s Danakil region, Colluli lies roughly 177km south-east of Asmara (350km by road) and 180km from Eritrea’s key import/export facility, Massawa (230km by road). Colluli is owned by Colluli Mining Share Company (CMSC), a 50/50 joint venture between the Eritrean National Mining Company and Danakali, based in West Perth, Australia.
To demonstrate Colluli’s size, more than 1.3 billion tonnes of the potassium-bearing salts needed to produce potash fertiliser have been identified to date. The Colluli resource remains open to the north west and south east. More than six billion tonnes of potassium-bearing salts have been identified throughout the Danakal basin.
Starting at 16m below the surface, the Colluli resource is a highly accessible and represents the world’s shallowest evaporite deposit. Opencast mining is thus the key candidate for mining technique, considered more efficient than underground or solution mining and providing superior resource recovery.
Three variants of potassium-bearing salts in solid form make up Colluli – sylvinite, carnallitite and kainitite. The combination of these salts results in a high-yield, low-energy conversion to SOP, which is a higher quality and thus more expensive potash fertiliser than the more common muriate of potash (MOP).
In addition to Colluli’s SOP, its salt composition also helps produce potassium sulphate, potassium magnesium sulphate and potassium chloride. Danakali states that this diversity of potash products cannot be found anywhere else.
Vancouver-based Nevsun Resources mined gold at the Bisha Mine, 150km west of Asmara from 2011–2013, until it was exhausted and the decision was taken to produce copper. A further change was made in mid-2016, when Nevsun was expanded to include zinc concentrate.
During its period of gold production, Nevsun’s operations yielded roughly 784,000oz of gold. In the three years since, Nevsun has produced around 380Mlbs of copper. In total, operations have generated US$913m of after-tax operating cash flows since gold mining started.
Construction of Nevsun’s zinc plant expansion is substantially complete and ore commissioning of the zinc plant began late in Q2, at a projected cost of US$80m.
In more particular terms, exploration drilling results at the Harena deposit (10km from Bisha) during 2015 meant an upward revision of 0.5Mt for indicated mineral and 4.5Mt for inferred. The total indicated resource at Harena is 3.7Mt (70Mlb copper, 258Mlb zinc, 70,000oz gold and 3.3Moz silver) while inferred runs to 11.0Mt, with 348Mlb copper, 952Mlb zinc, 360,000oz gold and 14.4Moz silver.
More crucially, in the Q2 of 2015, Nevsun announced a new massive sulphide deposit 20km from Bisha at the greenfield Asheli prospect on the Mogoraib River exploration licence. Highlights from the drill holes include hole MX-052 with 3.67% Cu, 8.04% Zn, 0.68g/t Au and 50g/t Ag over 7.4m and 7.92% Cu, 3.89% Zn, 1.14g/t Au and 101g/t Ag over 2.9m.
Mining at Bisha follows conventional drill and blast open pit mining to remove waste and deliver ore to the run-of-mine stockpile. This mined ore is reclaimed from the stockpile and fed to the conventional single stage crushing/SAG/ball mill comminution circuit. Copper and zinc flotation are also conventional – after thickening, dewatering and stockpiling, transport to Massawa for worldwide shipment ensues (power at Bisha comes from dedicated diesel generators managed by Aggreko, while water comes from pit de-watering, the tailings pond and local well fields).
China buying into Eritrea
While this feature was being researched, a major acquisition was taking place. China’s Sichuan Road & Bridge Mining Investment Development Corporation Ltd is purchasing Sunridge Gold Corporation’s 60% holding in the Asmara Mining Share Company, for US$65m.
As a result, Sichuan is expected to hold the four advanced deposits within Eritrea’s key Asmara project – Emba Derho, Adi Nefas, Debarwa and Gupo Gold.
There are also two pipeline deposits, namely Adi Rassi (Cu-Au) and Kodadu Gold Target (Au-Ag).
An analysis of Danakali was carried out earlier this year by Duncan Hughes of GMP Securities Australia. The analysis also looked at Eritrea at national level. The company’s assessment is that ‘Eritrea is, in many people’s minds, a challenging jurisdiction to operate in. However, our recent site visit demonstrated to us that Eritrea is a much easier and friendlier country to operate in than the current global perception.
‘The country has a track record of mines coming on line […] but clearly more work has to be done to make the country more attractive to foreign investment.
‘The current Government, albeit not a democratically elected one, appears stable, generally liked and not corrupt. On our recent visit we always felt safe – the war of independence from Ethiopia finished more than 20 years ago.
‘However, UN military sanctions restrict overseas investment, as does the somewhat dated and overly paranoid secrecy around national policy and infrastructure. Corporate tax of 38% and a royalty of 3.5% are high, as is the 50% local ownership.’
Add to these factors the sheer extent of the Colluli prospect and the interest being shown by China, and it is clear that Eritrea is emerging as a safer and more commercially viable mining environment than some believe.