In January, the government announced an international tender for exploring and exploiting gold in five locations in the Eastern Desert and Sinai — Umm el-Russ, Bokari, Umm Samra, Umm Ud and Hangaliya — under a production-sharing scheme. The tender process is currently ongoing. Omar Taima, head of the Mineral Resources Authority, told Al-Monitor, “The [initial] results of the international gold bid so far show great interest by big companies in the gold-drilling field to operate in Egypt. We have received bids from 14 companies so far.” In August 2014, the General Committee of the Mineral Resources Authority had canceled agreements signed in 2009 with SMW Gold, Vertex and Z-Gold, after the companies failed to start operations due to financial problems.
Two systems govern Egypt's gold-mining sector, and agreements between the government and investors must receive parliamentary approval. The first system is a royalty and tax framework in which profit sharing begins after the investor recoups the money it pumped into research, exploration and project setup. The Australian Centamin Company operates in Egypt under this type of arrangement.
The second system involves the investor covering the full cost of exploration and setup and then the government and the investor sharing profits equally from the first day of production. The Canadian Alexander Nubia Company and the Emirati Thani Dubai Mining Company have these types of contracts and currently remain in the exploration and search phase.
Centamin was the first company to respond to the call for bids — but by announcing that it would not participate due to the production-sharing arrangement, which it said is commercially unprofitable.
Taima, however, denied disadvantage investors, asserting, “The results of the selections that will soon be announced will be the clearest response to those accusing the Egyptian government of including unfair conditions that chase away investors.” He further claimed, “The conditions that the government imposes for bids protect the rights of the Egyptian state and investors. The production-sharing system guarantees the rights of both.”
Sami al-Rajihi, Centamin founder and its main shareholder, manages the Sukari mine, the biggest in Egypt, in the Eastern Desert southwest of Marsa Alam. He told Al-Monitor, “Egypt is the only country working in the gold-mining field based on a production-sharing system. Other countries have been adopting the royalty and tax system, which has proven [production sharing's] failure, having not attracted any investors since its implementation in 1983.”
Rajihi further said, “The Egyptian government is restricting investors to certain locations to search for gold, based on old maps and information. Serious gold miners wouldn’t settle for the conditions that the government is setting in the bid.
“We agreed back in 1994 to a [modified] production-sharing system with the Egyptian government, which provided that if we discover a gold mine, the agreement would be changed. Despite getting all approvals and working for 18 months in the Sukari mine, a ministerial change took place, and the then-new government was not convinced of our contract. Thus a dispute emerged and went on for five years, during which no equipment was allowed to reach the company through the desert. We resorted to international arbitration but took back this step following promises from the Ministry of Petroleum to end the dispute and help the company resume work. But bureaucracy was always delaying the development of Sukari mine and the gold extraction process.”
Rajihi contended, “The current mining law does not encourage investors, whether in mines or quarries, and it has pushed many investors to retreat from quarries.”
Only two companies — Centamin and the Matz Holdings, a Cypriot outfit — have so far extracted gold in Egypt. As noted, Centamin manages the Sukari mine, which has estimated reserves of 14.5 million ounces worth $20 billion. Matz Holdings had operated the Hamash mine, some 62 miles west of Marsa Alam in the Eastern Desert, but it halted work in 2012, after producing only 65 kilograms of gold since 2007 due to financial and technical setbacks. Matz had started operations in 1999 and had begun commercial production in 2007.
Abdel Aal Hassan, a geologist and deputy head of the Mineral Resources Authority, told Al-Monitor, “The state amended the gold agreements after the Minex Company quit its operations in the 1990s due to the rising royalties to the state and taxes, which reached 8%, and due to the conditions of the production-sharing agreement. The requirements were amended to reduce the royalties in the Sukari mine agreement to 3%, but the new agreements set the minimum royalty rate at 5%, as per the constitution and the Mining Law.”
Hassan added, “The Mineral Resources Authority determined the locations for gold exploration according to specific data and geological maps and coordinates. But, investors have to take the plunge and embark on exploration to receive the 50% profit offered by the state in exchange for benefiting from its natural resources. The state cannot possibly give the investors full freedom to excavate any place they like, as the companies want.”
Having participated in several technical committees to review gold agreements with investors, Hassan said, “Although some companies have rejected the conditions set by the state to protect the right of the Egyptian people to their mineral resources, some companies are convinced that Egypt’s resources have not been fully discovered yet and are willing to work in the country.”
Egypt effectively pockets less than 5% of the money generated by the exploitation of its mineral and stone resources. Meanwhile, through its economic program, the government is trying to encourage investments in the mining sector in general in the hope of creating job opportunities and to expand in the gold industry beyond extracting and exporting.
Read more: https://www.al-monitor.com/pulse/originals/2017/05/egypt-bidding-tender-foreign-investment-gold-mining.html#ixzz4mRaz61Mr