Engineering & Mining Journal

SEP 2018

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HORN OF AFRICA 52 E&MJ • SEPTEMBER 2018 Events moved quickly. In May, Ethiopia gained a youthful new prime minister, Abiy Ahmed. Within three months, the 42-year-old Ahmed had made peace with Eritrea and settled border disputes that straddled vast potash deposits. For 20 years, the countries fought a border war that claimed as many as 100,000 lives. Ethiopia was cut off from the Red Sea, and Eritrea sealed it- self off from the rest of the world. Right next door, Somalia lived on as a failed state, another no-go for all but the most intrepid explorers. Ahmed has also since brokered deals with Somalia's various enclaves to secure at least four port projects along the Indian Ocean coast. "What is happening in Ethiopia right now could be one of the most significant shifts in government policy that this region has seen for decades," said Christopher Hockey, head of information at WS Insight, a Mauritius-based and Africa-focused se- curity company. "The significance of an improved relationship with Eritrea are self-evident, recent talks with Somalia are also extremely important," Hockey said. But it is the peace agreement with Er- itrea that is especially significant, Hockey said. The relationship between the two nations that share ethnic bonds had be- come as ferocious as that between North and South Korea. "These are two coun- tries that have historically held significant animosity toward one another, animosity that is most vehemently expressed by ci- vilians of the two nations," Hockey said. For the mining sector, Eritrea is a tan- talizing target, and already firms are mov- ing. In July, Canadian Lundin Resources ended nine months of buyout talks with fellow Canadian Nevsun Resources, and launched a hostile C$1.4 billion take- over bid instead. Nevsun's main asset is Eritrea's only commercial mining opera- tion, the Bisha gold and copper produc- er in the country's hinterland. The mine is currently majority owned by Nevsun, in partnership with the Eritrean govern- ment. It cost an initial $250 million to build and opened in 2011. Bisha now consists of 10% of Eritrea's GDP, ac- cording to the World Bank. Eritrea has a lot more untapped re- source potential, including vast potash resources — a crucial element in modern fertilizers. Whoever owns Bisha will have a head start in future mineral licenses, but potential suitors will have to move fast. The need for speed is mainly why the Lundin board opted to go hostile, after failing to convince Nevsun executives to accept their initial offer of C$1.4 billion. "After having made a series of pro- posals and observing significant recent changes in the political landscape related to Eritrea, we have determined that the best course now is to make an all-cash of- fer directly to Nevsun shareholders," Paul Conibear, CEO of Lundin, said. Bisha is a large, high-grade volcano- genic massive sulphide deposit located 150 kilometers (km) west of the Eritrean capital, Asmara. The government holds a 40% stake in the mine — 10% acquired as free carry, but the other 30% paid for. "They took a loan to buy the stake, so they have skin in the game," Fraz- er Bourchier, former Nevsun COO, told E&MJ several years ago at the African Mining Indaba in Cape Town, South Afri- ca. "The key is risk management and cost control. With Bisha, it's not about how much money is in the ground with such an exceptional deposit, rather it's about how much money can be produced effi- ciently for the benefit of all stakeholders." As for Nevsun, its board has urged shareholders to turn down the offer. "The board unanimously recommends that Nevsun shareholders reject the hostile bid and not tender their shares," the company said in a statement. The Bisha mine, a gold and copper operation in Eritrea, is now the target of a hostile takeover bid by Canada's Lundin Resources (Photo: Nevsun Resources) Peace at Last Eritrea and Ethiopia have ended one of Africa's longest and bitterest conflicts, opening the Horn of Africa to new mining possibilities By Gavin du Venage, South African Editor

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