Bermuda's Sahar joins Eritrean mining surge

Fri Feb 19, 2010 9:41am EST

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* 16 foreign mining companies now operating

* Investors attracted to liberal mining laws

By Jeremy Clarke

ASMARA, Feb 19 (Reuters) - Eritrea granted a mining exploration licence to Bermuda-based Sahar Minerals on Friday as the Red Sea state continues its drive towards a highly anticipated mining boom, industry officials told Reuters.

Sahar is the 16th foreign mining company now operating in the country, joining groups from Australia, Canada, China, Libya and Britain.

Eritrea sits on a patch of the Arabian-Nubian Shield, a geological feature that stretches from Saudi Arabia and Yemen in the east to Sudan and Egypt in the west.

Foreign investors are attracted to Eritrea because of its liberal mining laws.

"In the last 12 months we have assessed opportunities all over east Africa where there is a lot of similar geology and prospective areas, but Eritrea's offer to foreign companies is by far the most attractive," Alasdair Smith, Sahar's managing director, told Reuters.

Sahar Minerals was established in 2009 by mining professionals specifically to target opportunities in east Africa. Eritrea is its first licence.

"Eritrea has the most advanced mining act in the region," said Smith, who has been working in the local industry for 10 years. "We will begin drilling by the middle of the year."

In 2008, Eritrea set the government's stake in any mining project at 10 percent with an option to buy a further 30 percent, a small claim compared to other countries in the area such as Egypt, which mandates a 50 percent stake, or Sudan at 60 percent, according to industry experts.

Analysts say the country's impending mining boom will challenge neighbours to make it easier for foreign firms to prospect across the Arabian-Nubian Shield. [ID:nLDE61008D]

The mining surge may prove a lifeline to Eritrea's agriculture-based economy that has suffered from irregular rains and the global economic downturn.

Asmara is not expected to see a return on its mining investment until 2012. But some of Eritrea's poorest people are cashing in on the nation's mineral potential, working in family groups to collect rocks and crush them by hand. [ID:nLDE61008D]

Apart from this small-scale artisanal mining and some minor extraction by Italians during the colonial era, Eritrea's mining potential is largely unexploited.

Sahar's license covers 373 square km (144 square miles) near Sudan. Gold and base metals are the main interests.

The most advanced projects are at Bisha, run by Canada's Nevsun Resources Ltd (NSU.TO) with gold production expected by the end of 2010, and at Zara, run by Australia's Chalice Gold Mines (CHN.AX), expected to start producing a year later. (Editing by David Clarke and William Hardy)

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