The Egyptian government is working with the World Bank to update its mining legislation, in the hope of drawing international investors to the country’s untapped gold reserves.
The International Finance Corporation (IFC), the private arm of the World Bank, has been working with the government since last year on the new legislation, which is expected to see the sector move toward a greater emphasis on royalties and taxes, as well as a greater stream-lining of bureaucracy. According to Amgad Ghoneim, undersecretary for mineral resources, the new laws will be ready within the next three months.
The current legislation requires foreign companies to enter into joint ventures and production sharing agreements with the government. The practice is common for the oil and gas industry, but makes gold exploration a risky business. Mineral deposits are harder to determine than oil and gas plots, making gold miners uneasy about entering into long-term agreements without a comprehensive understanding of a block’s potential. According to Frank Sader, senior operations manager for Middle Eastern policy reform at the IFC, under the current system more than half of a company’s revenues end up going to the Egyptian government.
“We realize that the legislation in place is not satisfactory for foreign operators,” says Ghoneim. “The new legislation will make us more attractive to foreign investors who want to operate in the Egyptian gold mining industry.”
A handful of gold mining companies already operate within Egypt. The Australian-Egyptian company Centamin runs an open-cut mine at Sukari, in southern Egypt’s Red Sea hills area. Hemsh Egypt, a joint venture between the government and Cyprus-based Matiz Holding, is also operating in the country, as is SMW Gold, a subsidiary of the international firm SMW Engineering.
Time to mine
In 2007, Centamin estimated that the Sukari deposits contained some 9 million ounces of gold, worth around $6 billion at the time. With commodities currently experiencing a bull market, the Egyptian government has clearly decided it is time to exploit the nation’s potential for gold. The Ministry of Petroleum and Mineral Resources recently announced plans for the creation of a new company to explore gold reserves in the country’s eastern desert.
Sameh Fahmi, Minister of Petroleum and Mineral Resources, said on the ministry’s website that after establishing the new mining corporation, the government would sell part of its shares on the open market in order to fund feasibility studies for other potential gold mining plots.
Greater liberalization of the sector is being welcomed by the industry. According to Karim Matar, managing director for SMW Gold in Egypt, the new reforms will “reduce government intervention in the sector and allow it to develop faster. There is huge potential”.
One issue yet to be resolved though involves complicated licensing procedures that can hold mining operations back. Exploration permits for land plots need to be obtained from such diverse authorities as the ministry of petroleum and mineral resources and the Egyptian army. “There is a lot of overlapping,” says Matar. In addition, input prices for the sector are currently high due to a global shortage of parts and labor.
“There are not too many companies that can do drilling, for example, and that means they can charge more for their services,” Matar says, adding that most senior gold mining engineers currently operating in Egypt are foreign.
Despite the challenges, there is already extensive interest in Egyptian gold from a number of companies. SMW Gold plans to spend $15 million during 2008/09 in order to develop two concession blocks in the eastern desert, at Um Balad and El Fawakheir. Having completed initial studies, the company is in the process of testing mineral samples and plans to start drilling this summer. Meanwhile, Josef El Raghy, the chief executive officer of Centamin, recently told local press that five of the world’s top 10 gold producers had visited Egypt in the last two years.
“There are definitely lots of mining opportunities here,” says El Raghy. “The key to unlocking them is in applying the new framework. Reform is long overdue.”
