Gold rush

Egypt, it seems, has a lot of gold. But there is already controversy about how best to turn it into wealth. Jasper Thornton writes
In the dry dunes of the Eastern desert stands a hill. At first glance, it seems like any other hill: it has nothing to recommend it, no sign to catch the eye. It is brown and dusty and beaten by sun and wind. Yet this hill holds a secret, a secret that could change Egypt's future. It is full of gold.
Last Tuesday, Industry Minister Mustafa El-Rifa'ie held a press conference to announce the discovery of gold in the Eastern desert to the world. At the conference, he introduced Centamin Egypt, an Australian company led by Egyptian geologist Sami El-Raghi. Seven years ago, the government granted Centamin a concession to explore for gold in the desert. Raghi and his team have spent those seven years and 17 million dollars exploring Sukari, a hill in their concession area. After drilling over 200 holes in 10 per cent of the hill, they concluded that within that 10 per cent lay 1.66 million tonnes of gold. From that they judged that concealed in the entire hill were 16 million tonnes of gold, at 1 tonne of ore to every 3.3 tonnes of waste.
International consultants agree. After examining the data according to Australia's JORC code, the world's toughest protocol for testing gold claims, AC Howe, Lavelan and Helman & Schefield verified Centamin's estimates. This puts Sukari in the league of the world's largest mines; it could produce 750,000 ounces a year. Centamin's concession also includes eight other potential mines. To explore and develop them fully, Centamin wants to spend $691,000,000. Even grander are the hopes for Egypt's mining potential: Centamin thinks that minerals in its concession could earn $942,920,000, a year. And that's just the concession granted one company.
Enter the ministry. Appetites whet by the prospects of an industry that could outstrip oil, tourism and Suez canal receipts combined, the ministry has accepted Centamin's opinion that recovering the gold from its mines is economic. It has turned its exploration concession into a production concession lasting 30 years. So far so good. But as hopes have grown, so have differences. An early sign of this occurred at the press conference announcing the discoveries. Taking questions from the floor, El-Raghi told Al-Ahram Weekly that the mining laws urgently need updating. But the minister thought otherwise. He told the Weekly, "There's nothing wrong with the laws. They will not change." Nor have they changed since they were written: in 1958.
This issue is not trivial. Essentially, it is a dispute about how best to attract foreign companies to spend money exploring for minerals in Egypt. Centamin wants to employ 800 people at its mine, jobs that will last as long as the mine does. Taxes and profit share agreements from gold will be a giant boost to Egypt's ailing coffers. There could be a whole raft of companies producing and spending in the country. Australia, Canada and the US all built their economies on mining: other countries are now trying to do the same. And there's the rub. Egypt is competing with countries (and other industries) across the world for the exploration dollar. And Centamin feels that Egypt is not yet attractive enough to foreign companies to compete.
Mining in Egypt is governed by Administration law number 86. That law applies to all extraction from Egyptian soil, including oil and gas. Centamin's concession provides for a holding company part owned by Centamin Egypt's subsidiary, Pharaoh Gold Mines. The government owns the rest. The centre piece of the agreement is a profit share. After recovery of costs -- exploration, capital, and operating -- the government gets 40 per cent of all profits, rising later to 50 per cent. Government also gets a net smelter royalty of three per cent, whatever is sold. The agreement is essentially a port from the oil industry, last used for mining, El-Raghi told the Weekly, in the former Soviet Union.
Mark Campbell, corporate development director of Centamin Egypt, told the Weekly that this approach is unlikely to attract other foreign companies. "The mining and oil industries are as different as night and day," he argues. "There is far more exploration in mining, far more capital investment. No other country has profit share for mining. It works in the oil industry because Egypt already has an excellent infrastructure for those industries, and EGPC [the national oil company] is very active selling Egypt's energy resources around the world." Essentially, that is what the oil majors pay for. "But there is no mining infrastructure in Egypt," observes Campbell, adding, "foreign companies are unused to the heavy government involvement and profit share they will find in Egypt."
Campbell goes on to explain why he thinks this will impede progress in Egypt's mining industry. "Egypt is not known for gold. There's no infrastructure, the law is old. Why should companies come here? Gold has been recently discovered in Yemen, Saudi Arabia, Morocco, Algeria, Turkey, China, Pakistan, Africa. Egypt is competing with all of those countries for the 24 billion dollars that are spent on exploration each year. Egypt needs to be proactive in making itself attractive. That means updating the law, advertising Egypt's resources." Campbell says there is no lack of interest from international majors in Egypt's gold. But they are shy of the environment. And if they don't come, Egypt's mining infrastructure will never develop.
Campbell recounts the example of Tanzania that had no mines 10 years ago, and now boasts 100. "The Tanzanian government has bent over backwards listening to foreign companies. It has revised its mining law. And revised it, and revised it and revised it. It has a modern mining law based on tax and royalties, with a clear system of tax holidays." That accounts for its success. "It wants the mines for the jobs, development and tax they can provide, and is prepared to compete for them."
Not everyone feels Egypt's legal environment is such a millstone: Salah Hafez, chairman of Energy and Environmental Services and Systems, told the Weekly that the law "is very flexible. It gives the minister the right to adjust the law according to the needs of Egypt and the foreign company as he sees fit." But what Egypt wins in terms of flexibility, it loses in terms of ease, thinks Campbell. "Foreign companies will have to negotiate agreements from scratch. They may find it easier to spend money elsewhere." Campbell concedes, though, that the government is listening. and learning. "Remember, this is all new in Egypt," he says.
He doesn't doubt, though, that Egypt has the minerals it needs to become very prosperous. But there are dissenters. Rushdi Said, a former head of the Egyptian Geological Survey, who surveyed the Sukari mine himself in the 1970s, argued in this newspaper a few months ago that, according to the information the company has made public, extraction of the gold is not economically viable. He said that a survey done under his authority, and with an awareness of modern mining techniques, found that developing the mine would be too costly. Said wrote that the capital cost of developing the required infrastructure in the desert would be forbidding. On Tuesday, Said told the Weekly that the published data has done nothing to change his view.
Campbell disagrees vigorously. He says that the operating and capital costs of the hill are 160 dollars an ounce, which will fall to less than 100 dollars an ounce, and that this has been accepted by international consultants. The current gold price is well above that. He says that tests show that 95 per cent of the gold can be recovered, "an astonishingly good figure in the industry." He also remarked that Centamin was a commercial company, not a government body. "Look, we're not doing this as a hobby," he said. "If, after spending 17 million dollars scrutinising the site, we had decided that the site was uneconomic, why would we stay and waste our shareholders' money? We didn't have to come to Egypt, we could easily go elsewhere. We think Egypt's a winner." When the Weekly asked Campbell how his and Said's views could diverge so, Campbell commented, "Said has never been a miner, never been a metallurgist, never been in a commercial company. He is entitled to his views, but his views are of his time."
There are other disputes. Said commented in the Weekly that the cyanide process used to extract gold from ore, in the quantities Centamin proposes, would be environmentally "deadly." "Nonsense," replies Campbell. "The old heap-bleaching process is not used any more. The amount of cyanide we now use is very small. In any case, it never comes into contact with the desert. And even if it does, it disappears without trace in two hours. We have to abide by the highest environmental standards to be listed in Australia. All Said's complaints are about out of date problems."
The ministry agrees with Centamin. In granting a concession, it has accepted the Australian company's view of the economics of the mine. That is a huge fillip to El- Raghi and his team. But they are less delighted at the prospects for the industry as a whole: so far. Until the mining law is overhauled, and Egypt is made attractive to foreign companies not lucky enough to be headed by an Egyptian who knows how to do business in the country, the industry may not develop. By trying to get more out of its mines, they fear, Egypt's government risks getting less. And then we won't get to discover how many nondescript hills, like that one at Sukari, truly have innards that glitter.
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