CHINESE MOVE INTO ERITREA'S MINING SECTOR

C O N F I D E N T I A L ASMARA 000385 SENSITIVE SIPDIS DEPARTMENT FOR AF/E LONDON AND PARIS FOR AFRICA WATCHERS E.O. 12958: DECL: 08/05/2018 TAGS: EMIN ECON PREL ER CH SUBJECT: CHINESE MOVE INTO ERITREA'S MINING SECTOR ¶1. SUMMARY: Two Chinese mining companies have received exploration licenses from the government of Eritrea in the past eight months. One of these license areas is situated in the former Temporary Security Zone from which Eritrea forced UNMEE peacekeepers in February. Three Chinese companies are reportedly seeking to buy out Vancouver-based Nevsun's interests in the huge Bisha gold, copper, and zinc deposit, which is forecast to produce around $1 billion worth of gold, in addition to copper and zinc, starting in 2010. End Summary. Beijing Donia Resources Company, LTD (Eritrea) -------------- - ¶2. (SBU) Donia, a Beijing-based enterprise launched in 2004, has exploration activities in Tibet, Yunnan, Laos, Angola, the Philippines, and Eritrea. It registered as a company in Asmara in January 2008 and has acquired two exploration licenses. Donia has located a large iron ore deposit 20 miles north of Asmara. Its other, larger exploration license area is called Kenatib, which is located some 60 miles SW of Asmara. Kenatib is thought to hold substantial amounts of gold and copper and is situated almost entirely in the Temporary Security Zone, vacated by UNMEE peacekeepers and reoccupied by Eritrean security forces in February. This potentially mineral-rich area is only 15 miles from Ethiopia. Eritrea-China Exploration and Mining Company (ECEM) -------------- -------------- ¶3. (SBU) ECEM, which received its exploration license in late 2007, has taken over two old gold mines in SW Eritrea dating back to the Egyptian colonial era of the 1870s. During the early 1900s an Italian mining venture developed the site with an extensive shaft and tunnel complex running over a mile in length. The mines were abandoned in the late 1930s. The two old mines are located near the village of Awgaro, about 30 miles straight west of Badme, the flashpoint of the 1998-2000 war. ECEM is currently engaged in refurbishing the old tunnels, drilling rock cores, and constructing new tunnels. NEVSUN SELLING BISHA TO THE CHINESE? -------------- ¶4. (C) Employees of an Australian mining company and technical consultants in the mineral sector have told us Vancouver-based Nevsun is looking to sell its stake in Bisha, a combined gold, copper, and zinc deposit located 35 miles WSW of Agordat in Eritrea's western lowlands. Bisha is likely to be the first major mine to begin substantial gold production in Eritrea, with a target starting date of late ¶2010. Bisha is estimated to contain over a million ounces of extractable gold, valued at just under $1 billion, in addition to sizeable copper and zinc deposits. However, Post has been told that Nevsun is unable to find a partner willing to invest in an above-ground ore processing and refining plant. Given its reputed under-capitalization, Nevsun doubts it can raise the cash to build the top-side processing infrastructure itself, and is thus reportedly looking to sell its majority stake in Bisha. Three Chinese mining companies and one Swedish firm are interested, according to knowledgeable local sources. ¶5. (C) COMMENT: The mining sector, particularly gold mining, is abgoQQ"!Q@=91eQQ=hQ9Q%Q1QQI%Q!QQQ`=QQJ9Q*QQQQ .YXR$YZ.[X6 economic outlook. Many Eritreans see the mining sector as a life preserver that will save the sinking economy (and regime?). Australian and Canadian mining companies are clearly Eritrea's partners of choice, given their reliability and proven track record around the world. Chinese companies are partners of second or third resort, although they apparently have a high risk-taking threshold as demonstrated by their willingness to invest in Eritrea's volatile border area. Should Nevsun sell Bisha to a Chinese mining company, it could delay the start of production and would result in substantial profits accruing to Beijing or Shanghai, as opposed to British Columbia. End Comment. MCMULLEN