MINING FIRMS SEEK "FLAGSHIP" LICENSE IN GOLD

UNCLAS ASMARA 000173 SENSITIVE SIPDIS LONDON AND PARIS FOR AFRICA WATCHERS DEPT FOR AF/E and EEB/CIP/BA E.O. 12958: N/A TAGS: EMIN PGOV ER SUBJECT: MINING FIRMS SEEK "FLAGSHIP" LICENSE IN GOLD REF: ASMARA 168 ¶1. (SBU) Chalice Gold Mines will likely purchase Sub-Sahara mining as its flagship gold mining operation, according to a representative from Sub-Sahara. Sub-Sahara, the Australian company that owns the coveted license to the gold strip in Eritrea's Zara region, is jointly owned by Australian-based Dragon Mining (which owns 20%) and Africa Wide (owning 11%); Sub-Sahara owns the remaining 69%. Africa Wide is considered "dead weight" in the mining community and will likely be part of Chalice's purchase, bringing the Sub-Sahara total ownership to 80%. The Eritrean government (GSE) currently owns 10% of the profit off the top, with a contractual right to purchase an additional 30%, if it has the funds to do so. This would leave Sub-Sahara/Chalice with anywhere from 72% to 48% of the profit after the GSE takes its share. ¶2. (SBU) Mining companies across the world are either shutting down or scaling back on exploration, according to Sub-Sahara. The four major mining firms in Eritrea (Sub-Sahara, Nevsun, Sunridge, and Sanu Resources) have all had to scale back on international staff and exploration efforts over the past several months due to economic downturns. The one field that remains open for business, however, is gold. Every company is looking for a flagship gold project that will potentially last through the global economic recession. Existing gold explorations are looking for financiers to help bring them through the production stage. There is enough potential in the Zara mines that Sub-Sahara may serve as Chalice's flagship project. Although the acquisition is not complete, Chalice has already provided Sub-Sahara with a $500,000 soft loan to complete its feasibility study, which must be finished by May 2010 per the GSE's orders. ¶3. (SBU) The new mining licenses recently granted by the GSE (reftel) will increase the mining sector's visibility, according to Sub-Sahara, and will attract more much-needed financiers in the unstable mining market. Although not all the new licenses are for gold, he continued, every new license is an opportunity to put Eritrea on the radar for a larger company, which means more investment potential for Sub-Sahara. TABLER-STONE