BISHA MINING'S REMAINING CHALLENGES

C O N F I D E N T I A L SECTION 01 OF 02 ASMARA 000490

SIPDIS

DEPARTMENT FOR AF/E,
LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: DECL: 10/06/2018
TAGS: EMIN PGOV ER
SUBJECT: BISHA MINING'S REMAINING CHALLENGES

Classified By: CDA Melinda C. Tabler-Stone for Reason 1.4 (d)


1. (C) Summary: Bisha Mining's Stan Rogers said extraction
of gold is on schedule to begin in 2010. The present
condition of roads and bridges between the mining site and
the port cannot handle the weight of the trucks, and 25
megawatts of electricity are needed to operate the mine.
Financing is challenging in the current global credit
markets, but is coming together. High-level Eritrean
government officials are committed to helping make the mine
operational by 2010. End Summary.

ROADS AND BRIDGES - NOT UP TO THE JOB
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2. (SBU) Eritrea's road network presents serious
transportation challenges for mineral extractors. While
studying the road between Asmara and Massawa for an upcoming
rehabilitation project, engineers from the European
Commission (EC) determined the bridges are in pitiful
condition. The metal supports on many of the bridges show
significant stress and cannot handle dozens of ore-laden
trucks per day. Temporary roads are planned to bypass the
bridges, but the loaded trucks' weight makes them unable to
use these roads while the ground is wet, especially during
the long rains from July to September. The EC will
coordinate with Bisha so that their road rehabilitation
project does not interfere with either getting heavy
equipment to the mining site or getting minerals out.


3. (SBU) Inadequate roads are not a problem untl2012, when
QrQcks containing copper and zinc begin rolling down the
escarpment. Only gold will be mined from 2010 to 2012, but
it will be flown out from an airstrip near the mine rather
than trucked to the coast for shipment by sea.

NOT ENOUGH POWER
--------------

4. (SBU) Rogers said he is still working out supplying
Bisha's power needs for full mining operations, which he
estimates as 20 to 25 megawatts (MW). Nevsun offered to
install a heavy fuel oil generator near the mine and connect
it to Eritrea's power grid, but only if its output was
prioritized for mining operations. Eritrea's present
generating capacity cannot adequately support mining
operations. Unfortunately, the GSE nixed the generator
proposal, leaving Rogers to find an alternative solution.


5. (SBU) According to Rogers, the Eritrean government would
license Nevsun to develop the 100 MW geothermal field south
of Massawa &tomorrow8 if he asked for it. Unlike ore
mining, all extra revenues generated from electrical
production would be in the non-convertible local currency,
making any Nevsun investment in the endeavor mostly
altruistic. If the Eritreans make peace with their neighbors
and contribute to developing a regional electrical grid,
Nevsun may reconsider the project, but only after gold
extraction is fully underway,

FINANCING - SLOWLY COMING TOGETHER
--------------

6. (SBU) Rogers said project's financing is coming together,
but gave no indication of the investors' identities. Other
Embassy contacts said the Qataris and Chinese are at the top
of the list. A Chinese firm recently offered to buy an
equity stake in Bisha, but Rogers informed them the only
available avenues of investment were either ore-purchasing
contracts or loans. Rogers said despite the current state of
global credit markets, the project was attractive enough that
he had had to turn some investors away. However, other
investors had decided against the investment due dod
"political cick" in Eritrea, which Rogers described as a
euphemism for fear of global financial conditions. He
downplayed the threat of GSE expropriation.

GSE DECISION-MAKING ON MINING
--------------

7. (SBU) Rogers claimed the Bisha mining project has strong
backing throughout the government, despite President Isaias

ASMARA 00000490 002 OF 002


recently telling a group of potential investors that he
"hates all mining and oil companies." Rogers believes
Eritrea's desperate need for hard currency trumps the
president's personal feelings, and either by choice or
design, the president is out of the decision-making loop on
mining. Rogers said relevant government ministers and high
ruling-party officials work out a consensus on all mining
related matters before presenting them to Nevsun.


8. (C) A number Eritrean government ministers and other
officials recently expressed concern to Rogers about
Eritrea's deteriorating economic condition. They all know
something is wrong, but Rogers said none of them know what to
do about it.


9. (C) Comment: Rogers' belief that President Isaias is not
directly involved in mining affairs contrasts with his usual
hands-on approach. The president is believed to micro-manage
and make decisions better left to functionaries and technical
personnel. If Rogers' account of the president's involvement
is true, it indicates either unusual personal restraint or a
deliberate policy within the government to reduce the
president's influence over a potentially regime-saving stream
of hard currency. Either way, it helps explain why mining is
one of Eritrea's few functional industries. End Comment.
TABLERSTONE