Eritrea’s Mining Boom: It’s Going To Be Great For Job Creation, Eventually

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Written by Dana Sanchez

The contribution mining will make to the Eritrean economy will be tremendous — at least that’s what’s being hyped.

The country’s economy is expected to get a boost when new gold, copper and zinc mines begin production. The government is banking on mining to provide much-needed jobs despite the commodity crisis, according to TheAfricaReport.

The Bisha copper and zinc mine is Eritrea’s first operational mine and the government hopes three more mines will jump-start the economy when they come online in the next two years.

Bisha has contributed more than $755 million to the Eritrean economy since it began production in February 2011, according to Nevsun Resources, the Canadian mining company that owns 60 percent of the mine.

The government says most of this revenue goes towards operating costs and debt repayments. Eritrea’s economy, meanwhile, struggles with diplomatic isolation, mass migration, and U.N. sanctions.

Hagos Ghebrehiwet, an adviser to Eritrea’s President Isaias Afewerki and an architect of of the country’s mining industry rebirth, downplays the importance of the sector today, although he says it will be transformational in the future.

Eritrea earns about $200 million a year from Bisha, Hagos said. “What is $200 million a year in Eritrea? Nothing. Our annual fuel bill is over $300 million. Food imports are about $200 million. Almost 85 percent of the revenues from mining are spent through foreign currency on fuel, trucks, spare parts. So it’s going out, not into the economy.”

Still the potential for mining in Eritrea cannot be ignored, said TheAfricaReport. The Arabian Nubian Shield, a stretch of minerals that straddles both sides of the Red Sea, runs under Eritrea’s mountains. Many gold, copper, zinc and potash deposits are buried deep in the ground and some, not so deep.

The country is attracting explorers and miners keen to discover world-class assets and sell them to major companies or bring in investors to develop them.

At least 14 foreign firms are exploring near Eritrea’s active mines including from Canada, Australia, China, Russia, India and Sudan, according to the mines ministry.

The Eritrean National Mining Corporation (Enamco) gets an automatic 10-percent  stake in every mining project plus the option to buy an additional 30 percent share. Eritrea based its mining laws on Western Australian mining code. Eritrean state-owned companies, mainly Segen Construction Company, have also earned money from the mines building roads and housing, according to TheAfricaReport.

Eritrea’s economy grew by 2.1 percent in 2015, up from 1.3 percent in 2013, according to the World Bank, which put Eritrea’s 2014 gross domestic product at $3.9 billion.

Gold, copper and zinc saw its value drop with the recent global downturn in metal prices but with three more mines scheduled to begin production by 2018, revenue from the sector could earn the government more than $1 billion per year, said Alem Kibreab, director general of Eritrea’s energy and mines ministry.

“It’s not like when gold was $1,700 an ounce, but still with the current price we are making profits because (Bisha) is a very low-cost operation,” he told TheAfricaReport.

Eritrea’s first mine, Bisha Mining Share Company, is a 24- hour operation that employs about 1,500 people. It is expected to produce copper and zinc until 2025. More exploration in nearby Harena and Mogoraib River could extend its life.

“We expect that the Bisha mine will go on for decades, with the state as its partner,” said Cliff Davis, Nevsun CEO.

Next in line to start production this month is the Zara gold mine, joint-owned by Enamco and China SFECO Group.

The Asmara project — three deposits on the outskirts of the capital — is set to start production by the end of 2016. It is majority owned by Canadian mining company Sunridge Gold and holds copper, gold and zinc.

The Colluli potash project — one of the shallowest potash deposits in the world — is expected to begin production by 2018. Owned by Australian company Danakali, the mine sits in the Danakil Depression, one of the hottest and lowest points on earth. More than 6 billion tonnes of potassium-bearing salts have been identified there to date. To illustrate the mine’s potential, Enamco bought an additional 40 percent stake, bringing its total ownership to 50 percent of the deposit, according to TheAfricaReport.

Prospector Michael Tekele is credited with being the first person to discover a mineral deposit in Eritrea, which was a former Italian colony, then a British protectorate, and finally a province in Ethiopia until it gained independence in 1991.

In 1996, after Eritrean independence, foreign companies began to return. Companies like Phelps Dodge, a now-defunct U.S. mining firm called Sub-Saharan Mining and a host of Canadian companies began to scour Eritrea for mineral deposits, according to TheAfricaReport.

Civil war, which devastated the region for almost 30 years, stalled earlier mining efforts. An estimated 70,000 people died in a border war between Eritrea and Ethiopia from 1998 to 2000.

The government has promoted a unique brand of self-reliance by shunning foreign aid and instituting a national service program to develop the country, according to TheAfricaReport.

The government’s priorities are “social justice, self-reliance, public and private investment – these are the key pillars of the Eritrean economy,” said presidential adviser Hagos, who is also director of economic affairs for the ruling People’s Front for Democracy and Justice.

Eritrea’s strict national service program requires citizens over age 18 to work for as little as $30 a month US (and $10 on the black market) — just to defend itself against Ethiopia, the government said. This program is one of the main reasons an estimated 4,000 people leave Eritrea every month, according to the U.N. High Commissioner for Refugees.

The government says that the real number of people leaving Eritrea is distorted by Ethiopians and other nationalities masquerading as Eritreans in the hopes of getting asylum in Europe, according to TheAfricaReport. President Isaias says people leave Eritrea strictly for economic reasons.

Three former conscripts of the Eritrean national service said they were forced to work at the mine. They sued Nevsun in the Supreme Court of British Columbia in Canada, saying that the company failed to protect their human rights, according to Human Rights Watch. Davis, Nevsun’s CEO, said he is “confident that the allegations are unfounded.”