Eritrea risk narrows Zara field
Michael Quinn, 15 December 2011
FINANCING challenges appear to have led Chalice Mines down the sale route the company is now on for its Zara project in Eritrea.
Chalice is understood to have been shopping the project around for some months, culminating in this week’s announcement that it had received a non-binding letter of intent setting out the possible terms on which Zara may be acquired. Further details are expected later this month.
Most suspicion has fallen on TSX-listed Nevsun Resources as the obvious party to be interested in Zara, with Nevsun the 60% owner of the new Bisha gold and base metal operation in Eritrea.
“At long last Chalice appears to have found someone brave enough to fund or otherwise take off their hands their Zara gold project in Eritrea,” investment banking outfit Libertas said this week. “All eyes are on Nevsun Resources ... who have the cash; whether they wish to double up on Eritrean risk is another matter.”
Sovereign risk and the Eritrean Government’s right to hold up to 40% of projects are seen as issues for miner and explorers keen on the country’s undoubted prospectivity.
It is understood that debt financing by banks is problematic due to the political risk, a situation that would appear to make a mockery of the assessment this year by industry publication Resource Stocks that Eritrea was ranked the 17th least risky mining jurisdiction out of 72 countries worldwide – an assessment Nevsun has used in its marketing.
Still, there is said to be plenty of corporate equity interest in Zara if reports about what the vendors are saying are to be believed.
Certainly first pass interest would seem assured given mooted annual production of 104,000 ounces per annum for seven years at cash operating costs of $US338/oz – starting late in 2013.
As with Bisha, the Eritrean Government has indicated it will be seeking a 40% stake in the project, with the 30% to be acquired (on top of the 10% free carry) costing about $US34 million.
Chalice was capitalised this week at about $A75 million, with cash of about $A6.7 million.
Disclosure: The reporter holds shares in Chalice.
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