By Jeremy Clarke

ASMARA, Oct 7 (Reuters)

Three Eritreans working for Australian company Chalice Gold Mines Limited (CHN.AX) have been killed in a shooting incident in the Red Sea state, the company said in a statement on Wednesday.

Such violent deaths, uncommon in Eritrea, are likely to raise concerns among foreign investors in an industry many see as a lifeline to its agriculture-based economy, weakened by the global economic downturn and at the mercy of irregular rainfall.

“(The incident) on a public road 110 km south of its Zara Gold Project earlier this week has resulted in the tragic death of one of its Eritrean employees and two of its Eritrean contractors,” a statement said.

“Based on the information available, the incident was an isolated event unrelated to the company and its operations at the Zara Gold Project,” it added.

The Zara project is one of the largest in the country and is believed to hold 1 million ounces of gold. The company is still undertaking a study and does not expect to start production before 2011.

The deaths come only days after another Australian mining company, Gippsland Limited (GIPq.L), was granted three prospecting licences in the country. [ID:nL5109053]

More than a dozen foreign companies are now exploring or about to explore in the Red Sea state, a nation seen on the threshold of a minerals boom that could boost its economy.

Mining officials are adamant the deaths will not destabilise the industry.

“This is very uncommon in Eritrea. It has nothing to do with the project,” said Alem Kibreab, director general of mines for the Energy and Mines Ministry.

“This will not destabilise (the industry) because it is such an isolated incident. It is distressful but it will not have a big impact,” he said.

Eritrea’s mineral potential is largely unexploited, apart from small-scale artisan mining and some minor extraction by Italians during the colonial era. Some bigger miners were scared off by the 1998-2000 border war with Ethiopia.

Eritrea’s most advanced project is Bisha, run by Canada’s Nevsun Resources Ltd (NSU.TO), and in which the state holds a 40 percent stake. Its 27 million tonnes of ore are believed to contain 1 million ounces of gold, 700-800 million lb of copper and 1 billion lb of zinc. (Editing by Simon Jessop)