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C O N F I D E N T I A L ASMARA 000250 
 
SIPDIS 
 
SIPDIS 
 
LONDON FOR AFRICA WATCHER 
PARIS FOR AFRICA WATCHER 
 
E.O. 12958: DECL: 3/14/2016 
TAGS: EMIN ETRD ER
SUBJECT: FROM ROCKS TO RICHES: MINERAL WEALTH IN ERITREA 
 
 
CLASSIFIED BY:  AMB Scott H. DeLisi, for reasons 1.4 (b) 
and (d). 
 
¶1. (U) Summary:  Biblical tales of wealth from the Pharaohs 
of the Fourth Dynasty and stories of old Italian gold mines 
shape the dreams and expectations of miners in Eritrea. 
Presently, five foreign companies are in various stages of 
exploration, some having made significant finds of gold, 
silver, zinc and copper and others still hopeful for great 
discoveries in the future.  With Eritrea's economy barely 
limping along, the GSE anticipates that mining will save 
the economy, however mining in Eritrea with all the 
political and economic uncertainties is a high risk 
operation.  End Summary. 
 
PROSPECTING, THE OLD FASHIONED WAY 
---------------------------------- 
 
¶2. (U) Looking at a topographic map of Eritrea and even 
seeing the rust red soil of the Eritrean countryside would 
excite most geologists.  Five companies, Explorations 
Minieres Du Nord Lte (Canada), Sanu Resources (Canada), 
Nevsun Resources (Canada), Sunridge Gold Corp (Canada) and 
Sub-Saharan Resources (Australia) are in various stages of 
exploration and drilling in Eritrea.  For those who have 
reached the drilling phase, the initial boring samples show 
large deposits of gold, silver, copper, zinc and lead. 
(Note: Given the geology of the region it is not unusual 
for these minerals to be found together, often layered on 
top of each other.) Nevsun, which has been operating in 
Eritrea since 1996, is the farthest along in exploration. 
 
¶3. (U) With the initial outcropping discovered by students 
in southwest Eritrea in 1995, Nevsun began drilling in 
¶2002.   The geophysical mapping, soil samplings and rock 
chip sampling progressed well until September 2004.  At 
that time, the GSE declared a ban on all foreign mining 
companies and work came to a halt.  For over six months, 
foreign companies' stock plummeted and the future of 
foreign investment in Eritrean mines was questioned.  Then 
in Summer 2005, without any coherent explanation of the 
reason for the initial ban, the GSE lifted its restrictions 
and exploration began again.  With the lifting of the ban, 
Nevsun was free to move forward with the analysis and 
planning for mining over 1 million ounces of gold, also 
known as the Bisha project. 
 
¶4. (C) In conversations with Poloff, Nevsun's Country 
Exploration Manager and Chief Geologist, Amanuel Waldu 
explained that while the gold is a significant find and one 
the GSE is eager to begin mining, he believes it will be 
the zinc deposit that makes headlines.  Nearly 1/2 a 
kilometer underground, the zinc deposit of the Bisha 
project is the largest discovery in nearly 30 years.   The 
GSE Department of Mines asked Nevsun for a full feasibility 
study for the extraction.  The study will include full 
environmental impact analysis, capital and financial 
analysis, a mining assessment and an evaluation of 
logistics.  With the feasibility study underway and 
scheduled for completion by summer 2006, Nevsun anticipates 
that mining could begin as soon as 2008. 
 
FROM ROCKS TO RICHES 
-------------------- 
 
¶5. (U) So how do all the rocks add up to riches for 
Eritrea?  With the current price of gold, the annual income 
from the gold alone is estimated at USD 150 to 175 million 
per year for at least three years.  Following Eritrean 
Mining Law, judged by Nevsun's General Manager, Stan Rogers 
to be a "pretty good law", the Government of Eritrea will 
automatically carry without charge(free carry) a 10% 
interest in the mining company.  In addition they will 
receive 3% in royalties and will be able to receive revenue 
from taxes and duties imposed on the company.  If the GSE 
wants to increase their ownership, up to 30%, they would 
need to add capital investment.  While the gold discovery 
is significant, the real money will be made in the mining 
of the zinc and copper. 
 
STAKING THE CLAIM 
------------------ 
 
¶6. (C) The GSE is increasingly investing their hopes for 
financial riches in the mining sector.  While some 
investors still run scared after the 2004 ban, an employee 
of one of the mining companies shared with PolOff, that 
"the GSE realizes they made a big mistake with that step" 
and are investing a great deal of time and energy to ensure 
the mining industry in Eritrea has the opportunity to 
flourish.  In further conversations between PolOff and 
Economic Advisor to the Ministry of National Development, 
Mathewos Woldu, he stated that the development of the 
mining industry will be key to Eritrea's economic 
development. 
 
¶7. (C) While most of the government is focused on 
demarcation of the disputed border with Ethiopia, the 
Ministry of Energy and Mines appears to operate with a 
clear mission to get the mining started. Toward this end, 
the World Bank in Eritrea has played an active role in the 
development of the mining industry, providing technical 
assistance and advice to the GSE on how to move forward. 
In addition, Nevsun and the GSE sent out initial feelers 
for funding, specifically from European development banks, 
who may be coming for a visit the end of March along with 
bankers from the African Development Bank and possibly 
representatives from the IFC. 
 
¶8. (C) Comment: The development of the mining sector is 
critical to Eritrea's economic health.  The influx of 
resources, revenue, and opportunities, including jobs, 
could help support demobilization and stimulate an economy 
on the brink of an economic abyss.  Keeping politics out of 
the mining projects will be the key challenge to the GSE so 
they do not lose valuable time.  Since rescinding its 
inexplicable ban on mining operations in 2005, the GSE has 
taken a wiser course seeking support and advice from the 
World Bank and from others.   However, the risk exists that 
the GSE will, in typical Eritrean fashion, allow 
ideological considerations to triumph over pragmatism.  As 
a result, private mining companies continue to tread on 
uncertain ground and politically, if not geologically, 
mining in Eritrea remains a high risk enterprise. End 
Comment. 
 
DeLisi