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Eritrea mulls more foreign mining licences

- Eritrea will decide this year on five more applications for mining exploration licences from companies in South Africa, Canada and China, the energy and mines minister said on Friday.

"The interest is very good, from many quarters," Tesfai Ghebreselassie told Reuters of the gold-rich Horn of African nation's fledgling minerals' industry.

"Decisions will be taken soon, during this year."

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He did not name the five new companies. But if their licences are approved, they will join six other companies from Canada, China and Australia already exploring for gold and industrial metals in Eritrea.

Mr. Tesfai also reassured investors there would be no repeat of a temporary freeze on mining work in 2004 that hurt some firms' stock prices.

"That was a one-off, exceptional situation," he said, explaining the halt was to allow Eritrea develop regulations to buy an extra 10 per cent government stake in all projects.

Current mining laws give Eritrea the right to a 10 per cent free stake, and a further 30 per cent purchased at market prices, in mining ventures.

"It was damaging to an extent," Mr. Tesfai said of the 2004 freeze, which was lifted in early 2005. "But it's a problem behind us, and nothing of that sort will happen again."

In charge of the ministry since its start in 1993, Mr. Tesfai previously studied physical sciences in Poland and was a member of the pro-independence rebel movement that brought the government to power in 1991 after a 30-year war.

That conflict, followed by a 1998-2000 border war with Ethiopia, has kept big mining companies wary over Eritrea.

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The country's most advanced project, run by Canada's Nevsun Resources Ltd., should start producing by the end of 2009, the minister said. Nevsun expects its Bisha project to produce around 1 million ounces of gold, 750 million pounds of copper, and 1.1 billion pounds of zinc over a 10-year life.

Tesfai said Eritrea had made a $20-million (U.S.) advance payment for a 40 per cent stake in Bisha, and was working out what participation it would have in other projects.

"We want the first contract with Nevsun to be a model. Both parties have to be comfortable," he said.

Production at the Zara project, run by Australia's Sub-Sahara Resources, and the Asmara belt, headed by Canada's Sunridge, should start soon after Bisha, he added.

Zara is mainly a gold deposit, while the Asmara area has metals like zinc and copper, as well as some gold.

"There are very exciting discoveries made so far," Mr. Tesfai said.

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Apart from some small-scale, artisan gold-mining - which the minister estimated at about half a tonne a year - and minor extraction by Italians during the colonial era, Eritrea's mineral potential is virtually unexploited.

Mr. Tesfai did not give overall reserve estimates, but said the sector, if managed carefully, could play a big role in alleviating poverty and helping development in the nation of 4.5 million people that is one of the world's poorest.

"We have to wisely use what we have," he said, adding that as well as direct revenues, Eritrea would benefit from employment possibilities on projects and in the service sector as the industry developed.

Investors should not worry about political risk in Eritrea given the legal resolution - or "virtual demarcation" - of its border dispute with Ethiopia, and the government's commitment to equitable partnership with foreign firms, he said.

"Eritrea is a law-abiding country. There is nothing bad or illegal we have done," he said. "The important thing is making the rules of the game fair and transparent, which is just what we are doing."

Mr. Tesfai also noted Eritrea's offshore hydrocarbon potential under its Red Sea waters. "There is justification to anticipate potential," he said, even though past drilling had come up dry. "This is one of the least exploited regions."

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