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Tuesday, 24 January 2017

More concerns about EMRA’s insistence on production sharing agreement

The terms of EMRA’s gold exploration tender causing more concerns: Following remarks from Mark Campbell, CEO of Aton Resources, and Patrick Werr’s column in The National about, more concerns are being raised about the terms of the gold exploration tender the Egyptian Mineral Resources Authority (EMRA) put out. “I would be very surprised if anyone participated in this bid round with the current terms,” David Hall, CEO Thani Stratex Resources, told Bloomberg’s Salma El Wardany. Campbell phrased his view more diplomatically saying, instead of bidding for the new concession areas, his company “would rather focus on existing projects it has in Egypt.” Hall’s concerns center around the production sharing model EMRA insists on adopting, which, he says, give the government a share of the output but requires the company to carry “the full exploration expense.” Hall says that Egypt has an excellent geological potential, but a change is needed. “ [A production sharing agreement] can only work for oil investors, because they can recover their costs in a much shorter timeframe … In the case of gold, this doesn’t simply work, he says.

EMRA’s head Omar Taima said a number of companies have expressed interest in participating in the tender, but refused to identify any of them. He says “Egypt’s potential will put it, in under 10 years, among the biggest producers of gold in the world based on our level of gold reserves and the studies and expertise we have.”

One company not on Taima’s list is Centamin. The company, Egypt’s largest gold producer, will not be entering the bidding round as CEO Joseph El Raghy told Reuters bidding under EMRA’s terms is not economically viable. He says the terms include a 6% royalty payment, at least 50% production share, partial cost recovery before reaching cost sharing, and three bonus payments to EMRA, including one of at least USD 1 mn. “Combined, the proposed terms result in an effective tax rate that is by far one of the highest for mining globally,” El Raghy says. He believes the bid round, under the proposed terms, should be canceled “otherwise ground will be held by small companies for many years with no significant investment as was the case with all areas offered in 2006 and 2008.”

For the record, EMRA has withdrawn exploration licences from companies awarded concession areas in the Eastern Desert from 2007 to 2009 last June as well as 120 “abandoned” gold mines. The licences were withdrawn from the “smaller companies” as they were unable to meet production targets due to financial and operational challenges. Taima then said EMRA’s move left only four active mining companies in Egypt. One of them is Matz Holding, which at the time, had already seized operations on one of its two concession areas altogether and was forced by EMRA either to give up the rights to the other or find a new development partner for it. The other three active operators Taima mentioned at the time were: Centamin, Thani, and Aton Resources (then Alexander Nubia) — who all will indicated disinterest in entering EMRA’s bid round.

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