ERITREA - MAJOR AUSTRALIAN GOLD STRIKE

C O N F I D E N T I A L SECTION 01 OF 02 ASMARA 000248 SIPDIS LONDON AND PARIS FOR AFRICA WATCHERS E.O. 12958: DECL: 05/05/2018 TAGS: EMIN ECON PGOV PINS PREL ER SUBJECT: ERITREA - MAJOR AUSTRALIAN GOLD STRIKE ASMARA 00000248 001.2 OF 002 Classified By: Ambassador Ronald K. McMullen for reason 1.4 (d). ¶1. (SBU) Summary: Australia's Sub-Sahara Resources exploration company reports it has discovered a deposit of 1.04 million ounces of gold in north-central Eritrea worth one billion dollars at today's prices (about equal to Eritrea's GDP). This gold deposit is similar in size to the Vancouver-based Nevsun's reported discovery in Eritrea's western lowlands. Both companies hope to begin production within the next two to three years. Revenue accruing to the government from these two mines will more than replace the drastic fall in remittances that has hamstrung Eritrea's economy. End Summary. ¶2. (SBU) Perth's Sub-Sahara Resources Strikes it Rich -------------- -------------- The country manager of Sub-Sahara Resources, a Perth-based company traded on the Australia Stock Exchange, provided emboff May 5 with details of a major gold deposit his company has discovered in the isolated Zara Valley. The million ounces of gold are contained in a huge quartz seam that breaches the surface in some spots, permitting relatively uncomplicated open-cast extraction. The company plans to mine the Koka deposit, one of twelve prospects in the Zara goldfield. "Others may be as rich as Koka, but we haven't fully explored them yet." His team has sunk 79 diamond drill holes and estimates Koka contains a very rich 6.3 grams of gold per ton of ore. ¶3. (SBU) Sub-Sahara Resources' Owners and Partners -------------- -------------- The Eritrean Ministry of Energy and Mines has issued Sub-Sahara and its partners exploration licenses covering 76 square miles of the Zara Valley, located 100 miles northwest of Asmara. Sub-Sahara Resources owns 69% of Zara Joint Venture, with the remaining equity held by two other Australian corporations. Eritrean law requires Zara JV to give the government 10% ownership when a mining permit is issued, with an option to buy another 30%. Traded on the Australian Stock Exchange, Sub-Sahara Resources counts among its ten largest shareholders Merrill Lynch and Citicorp. Sub-Sahara Resources has been exploring in Eritrea since 2001 and is active in Tanzania. ¶4. (C) Artisans and the Army -------------- Sharing the Zara goldfield with Sub-Sahara's exploration team are a large number of Eritrean artisanal miners who crush exposed quartz outcrops with Neolithic stone-tipped sledgehammers and sift the pulverized ore through handmade tin sieves. They bag the gold-rich powder and sell it to nearby Eritrean military units. The Eritrean Defense Force provides "protectors and minders" for Sub-Sahara Resources and the artisanal miners, in part due to the murder several years ago of a Western geologist in this region, allegedly by the Eritrean Islamic Jihad. The country manager said Sub-Sahara Resources has unusually good relations with the artisanal miners, who "often show us where the gold is." ¶5. (C) Comment -------------- The Australian company is behind Nevsun in gearing up for full-scale production, but it will be able to mount a simpler mining operation because Koka contains only gold, rather than the complicated mix of base metals and gold found at Nevsun's Bisha deposit. Sub-Sahara also benefits from Nevsun's pioneering work with the testy and inexperienced Eritrean Ministry of Energy and Mines. Sub-Sahara's country manager said he would not be surprised if Sub-Sahara begins extraction before Nevsun, based on these advantages. The Australian-Canadian race to the production stage can only make cash-strapped Eritrean officials drool at the prospect of millions in mining revenues within a couple of years. Due to mismanagement and the drastic drop-off in remittances over the past two years, Eritrea's "war economy" is creaking toward a standstill. Gold promises to change this. ASMARA 00000248 002.2 OF 002 MCMULLEN