By Jeremy Clarke

01/02/10

ASMARA (Reuters) – An impending mining boom in Eritrea will challenge oil-rich neighbours to make it easier for foreign companies to prospect across a massive geological structure in the region rich in base metals and gold, analysts say.

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

The relatively liberal mining terms have led more than a dozen foreign companies to get licenses to explore in Eritrea which analysts expect to accelerate dramatically in the next five years and provide a lifeline for the impoverished economy.

Advanced projects are at Bisha, run by Canada’s Nevsun Resources Ltd, with gold production expected by the end of the year, and at Zara, run by Australia’s Chalice Gold Mines and expected to start producing a year later.

“In the next ten years other nations in the region will look at Eritrea’s mining boom and they will want in. They will relax their laws and it will become a regional boom,” Timothy Strong, Eritrea manager for British company London Africa, told Reuters.

“If you look at the geography, Eritrea is a relatively small nation compared to African giants Sudan and Egypt, but it has many more foreign mining companies than the others combined. Geologically speaking, they are just as prospective as Eritrea.”

The companies are attracted to Eritrea because it sits on a patch of the Arabian Nubian Shield, a geologic feature that stretches from Saudi Arabia and Yemen in the east to Sudan and Egypt in the west.

PRESSURE ON THE NEIGHBOURS

Tucker Barrie, an economic geologist and an expert on the Arabian Nubian Shield, says neighbouring countries have already taken note that foreign companies are now prospecting nearby.

“It is not going to wash with any foreign company if Khartoum keeps asking for 60 percent of gold mining projects. That’s why even though it’s 50 times the size of Eritrea, there is only one foreign company mining there,” he said.

“However Khartoum is well aware it needs to revise its mining law. In fact, they asked me to show them a copy of Eritrea’s mining law. The bottom line is, these are poor countries and they should take as much as they can of their own resource, but it’s a balancing act, they still need to invite foreign companies into their country.”