Bloomberg News

Chalice Gold Sees Sale of Eritrea Stake to China SFECO by August

April 27, 2012

Chalice Gold Mines Ltd. (CHN), an Australian explorer for the metal, expects China SFECO Group to complete an $80 million purchase of its stake in Eritrea’s Zara mine by August, Chief Executive Officer Doug Jones said.

China SFECO, a unit of Shanghai Construction Co. (600170), agreed to buy the 60 percent stake after Chalice faced difficulties raising finance for the project because of United Nations sanctions against the Horn of Africa country, Jones said in an e-mailed response to questions on April 23.

“The main reason for the sale is the difficulty in raising development funds in the current market,” he said. It’s “a problem exacerbated by the UN sanctions against Eritrea.”

Eritrea, which has been ruled by President Isaias Afwerki since winning independence from Ethiopia in 1993, is under sanctions for its alleged support of al-Qaeda- linked militants seeking to topple the UN-backed government of Somalia. The government denies the accusations. In December, the UN Security Council asked mining companies to “undertake appropriate measures to promote the exercise of vigilance” in dealings with Eritrea’s mining industry.

The state-owned Eritrean National Mining Corp. bought a 30 percent interest in Zara, which includes the 840,000-ounce Koka gold deposit, for $32 million in July, taking its holdings to 40 percent, according to Chalice’s website. China SFECO plans to begin production from the mine in 2014, said Jones.

“The transaction will help the group further expand the business scope in Eritrea,” Shanghai-based SFECO said in a March 22 statement on its website.

UN Sanctions

In 2009, the Security Council voted 13-1 to impose an arms embargo on Eritrea and asked a sanctions committee to ban the travel and freeze the foreign assets of designated individuals. Libya voted against the resolution, while China abstained. No Eritrean officials have been identified by the committee, according to a Feb. 17 statement on the Security Council’s website.

The UN expanded sanctions in December because of the “potential use of the Eritrean mining sector as a financial source to destabilize the Horn of Africa region,” according to the resolution. Investment in Eritrea’s mining industry would have been banned if an initial draft of the resolution had been adopted.

Other companies with operations in Eritrea include South Boulder Mines Ltd. (STB), a West Perth, Australia-based company developing a potash mine, and Canada’s Nevsun Resources Ltd. (NSU)

Chalice plans to continue exploring for precious metals in Eritrea at the Mogoraib North VMS Project, it said in a statement on its website.

To contact the reporter on this story: William Davison in Addis Ababa via Nairobi at pmrichardson@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson in Nairobi at pmrichardson@bloomberg.net.


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