Egypt’s revival in gold mining to boost exports, generate foreign reserves

JOHANNESBURG (miningweekly.com) – London-based research firm BMI Research has earmarked Egypt as a mining country to watch, given that its gold mining sector is expected to record strong growth of about 6% a year between 2017 and 2021.

The firm noted that the country, which could see output of 740 000 oz/y by 2021, was inviting international gold mining companies to explore for the precious metal for the first time since 2009, with the government to hold a tender for concessions on January 15.

These will be located mostly in Sinai and the Eastern Desert. “Currently, much of Egypt's gold mining capacity remains in the hands of the government, although a handful of privately-owned companies are becoming increasingly influential,” BMI said in a statement.

The firm noted that gold could help Egypt boost exports and generate foreign reserves, which would assist in combating structural weaknesses in the country's economy.

While of all Middle Eastern and North African countries, BMI expects Egypt to most significantly undershoot market expectations in 2017, as low base effects have worn off and structural impediments remain, over the longer term, the outlook is more positive.

In November 2016, the International Monetary Fund approved a loan facility to Egypt worth $12-billion over three years, which will go a long way towards easing budgetary pressure and ensuring a fiscal crisis does not materialise.

“An agreement with the IMF is symbolically important, as it will show investors that the government is committed to reforming its economy, which will trigger an uptick in investor sentiment and thus fixed investment,” BMI enthused.

It added that it expected amendments to the government's mining policy in the coming months as the new administration attempted to attract investment, especially from international players.

“Currently, the country uses the production-sharing method of raising revenue from miners. The international norm is to charge miners royalties and taxes, whereas the Egypt government imposes royalties and production sharing, about 50% of profits, on miners,” BMI said.

The government's rationale in taking this approach has been based on the assumption that the ancient mines that populate the desert indicate known areas of mineralisation, thus ensuring low cost and limiting the risk in exploration, thus justifying the profit-sharing method.

“However, the lack of information on exactly how much mineral is available and in which precise location, deters investors, along with the unstable political climate of the country and region. As such, despite a weak currency which helps keep input costs in check, the number of prospective new entrants and investors remain thin on the ground at present,” the firm noted.

It added that LSE- and TSX-listed gold miner Centamin will remain a key player in Egypt’s gold sector in the coming years with growing output from its Sukari mine, in Egypt’s Eastern Desert.

The mine was the country's first modern large-scale operating gold mine. It started as an openpit operation and was extended underground in 2011.

With a total measured and indicated gold resource of 8.8-million ounces, Sukari's life-of-mine is projected to be around 20 years.