 The Inside
Scoop on Sanu and Nevsun
Behind the Scenes in Eritrea
Doug Casey
The International Speculator
September 10, 2004
On September 2, the Eritrean
government halted mineral exploration activities, shutting down
Nevsun (NSU - website),
Sanu (SNU - website),
Sunridge (SGC.V - website)
and other companies currently working on highly prospective mineralized
zones, such as the Bisha. [read
here]
The government has yet to officially
provide a reason for the halt, and the uncertainty around same
has had a dramatically negative impact on the shares of the companies
involved.
After numerous attempts a member
of our staff finally got through to a high-level member of the
Eritrean government who spoke to us only on the condition of
anonymity.
He informed us, in a nutshell,
that the government of Eritrea has come to realize that the Bisha
deposit is substantial. The order to halt production is, according
to our source, simply a matter of business negotiation. He went
on to state that the government wants clarification on how the
companies intend to develop any mineral deposits they find and,
more to the point, how the revenues will be distributed.
Or, as our contact put it,
"If you find twenty barrels of oil it is one thing. If you
find a million, you must renegotiate."
He went on to say that the
country is pro-business, but young and inexperienced when it
comes to mining and mineral exploration, and that any of a number
of models might be applied to be sure that the environment is
protected and the citizens properly looked after.
As far as the length of the
halt, he speculated that it would be short in duration, pending
a successful renegotiation with the mining companies.
Do shareholders need to worry,
we asked. "Absolutely not!" he said, but then added
something a bit disconcerting. "Even if a larger company
came along and made us a better offer, which we would legally
be obligated to accept, the smaller companies would be compensated
for their capital expenditures."
"Are you saying that may
happen in this case?", we pressed. "No, no " he
replied, "I am simply using an example to say that this
is a business negotiation, and various outcomes are possible."
While the story is far from
over on Bisha, it seems increasingly likely that the Eritrean
"renegotiation" is not going to inure to the benefit
of shareholders. In fact, based on the conversation we had, it
is not out of the question that a major gold company has been
positioning itself behind the scenes and will soon move into
the pole position on Bisha. But that is conjecture.
Regardless, if you own a junior
exploration company with significant interests in Eritrea, it
may be time to begin heading towards the exits.
Proof, once again, that mining
is a tough business, especially when it comes to dealing with
third-world politics.
____________________
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