Metal urge

While everyone else has been fretting about IT, oil and tourism, one company has been quietly hunting gold in the Eastern desert. They've just publicised their discoveries; and they are big - very big, writes Jasper Thornton
The office of Sami El-Raghy, chairman of Australian company Centamin Egypt, is at the top of a dusty, ill-lit flight of stairs in an anorexic concrete building near Alexandria's Sidi Gaber train station. Inside the gloomy meeting room, overweight 1970s black leather chairs crowd a schoolroom desk. The light is bad. There is no space. Everything's a squeeze; everyone has to watch their toes. As El-Raghy begins his interview with Al-Ahram Weekly, a distracting backbeat of hammering begins from the office above. The place should be despondent.
Except it isn't. Sami El-Raghy is excited. Really excited. As he discusses the intricacies of the mining industry, he often has trouble suppressing a delighted grin. After spending $14.7 million hunting gold in the Eastern desert, El-Raghy thinks he's on to something huge; huge for Centamin and huge for Egypt. He believes that there is enough gold in Egypt for mining to dwarf tourism, oil and receipts from the Suez Canal. His fellow directors, men like Mark Campbell, a mining finance expert formerly with City of London mining brokers, T Hoare, agree. Campbell believes that "Egypt can be the biggest gold producer in Africa." Bruce Hextall, in the Australian Financial Review, judging Centamin's prospects, said they were "the kind of thing that might set the market on fire."
Yet in modern times, Egypt has hardly been known for its gold. It used to be: just visit the Egyptian museum. But in the 1950s, the mining industry creaked to a stop. The British owned and operated Egypt's mines, mostly out in the parched sands of the Eastern desert between Aswan and the Red Sea. Then Nasser kicked them out. Then oil was discovered and the old mining haunts fell totally fallow, as capital chased the petrodollar. Just a few lonely phosphate quarries remained. In the 1970s, metal prices rose dramatically and the technique of lifting masses of rock and mineral from a mine and putting it through cyclones and then chemically treating it with carbon and cyanide to leech out the gold, took off. But the world's mining companies ignored Egypt. War with Israel just made the area too volatile. Since then no-one has properly looked. Until El-Raghy.
El-Raghy, who graduated from Alexandria University in 1962, and emigrated to Australia during his Masters degree, was in Egypt to visit a mineral sand plant in Rosetta 10 years ago. El-Raghy already enjoyed a reputation as a man attuned to the scent of gold. He discovered the massive deposits at Wiluna South in Australia. During his visit, El- Raghy happened upon the old gold site of Sukari. The Egyptian geological survey had prospected the area in the 1970s, judging that it contained a paltry 3,140 kg of gold. But when El-Raghy visited the forlorn site in the Eastern desert, his gold antennae suggested something quite different.
Centamin Egypt won a seven-year-concession in 1992 and bored 189 holes and took 10,000 earth samples from the main hill at Sukari. The testing was done according to the Australian JORC code; the world's toughest protocol for assessing a potential mine. An independent agency, ACA Howe, of England, produced a glowing resource statement. Their tests on a tenth of the hill predict 1.8 million ounces at a cut-off of one gram a tonne. If the other 90% of the hill is as rich, Sukari will be among "the top 10 mines in the world," explained Campbell. And that is only one of the mines in the 1,400-square-kilometre Centamin concession: there are nine in total. Gold has a spot market; in other words every ounce that is produced, after being refined to the appropriate quality, will be bought by a world mint, who then deal with marketing and distribution. Now that Centamin has announced its discoveries, it is preparing to raise money to develop its mines. The company will list on the London stock exchange within a few months, and on the Cairo Stock Exchange as soon as a listing is authorised.
These listings reflect how far Centamin still has to go before turning its discoveries into earnings. There is concern that Egypt is seen as too "exotic" a location, as Hextall in the Australian Financial Review puts it, to excite foreign investors. Hextall notes that Centamin has "failed to attract the (investment) support that might be expected for a potentially world-class gold project." Hextall remarks that worries about Egypt seem to be the main cause. Indeed, although no-one doubts that gold is there, no other company has yet begun prospecting in Egypt, though El-Raghy says that the big names are on the phone to him "daily." This discrepancy between discovery and investment may be the thinking behind the listings in Cairo and London. Campbell puts it differently: "We feel it is crucial that Egyptian investors can invest in the mineral and metal wealth of their own country," he says.
Whatever the reasons, Campbell stressed to the Weekly that Centamin wants "to ensure that Egypt as a nation benefits from its natural resources." Those benefits could come fast. Metal sold will help the ailing balance of payment figures. Skill development is a conspicuous advantage. "The cost of importing expatriates is high. We want a pool of domestic drillers," says Campbell, "So we've started a training programme. We take people off the streets of Ras Alam and ask if they want to become drillers. Now all our drillers are Egyptian. With their training they could work anywhere in the world," he adds. "We also take ambitious young geologists from the university, and will start encouraging mining engineers too."
Another fillip is the creation of stable communities around mines. Mines live long. "Sukari will be around when my grandchildren are grown," says El-Raghy. This longevity is conducive to small prosperous communities, with schools, hospitals and facilities for the workers who serve the mine. In other parts of the world, for every person employed by a mine, another 30 are indirectly given work, building roads, servicing the workers, and providing amenities. Technology is imported. Jobs are made. Welfare is paid for. "It's all to the government's advantage," remarks Campbell. "Foreign mining companies will invest millions of development dollars in Egypt. The government gets development free." Campbell reckons that Egypt has enough gold to support 500 mining companies, "each spending perhaps two or three million dollars a year."
But there are still ogres who may yet devour all these hopes. Centamin needs to persuade investors, who in Hextall's words, are "famously insular," that Egypt is an appropriate environment for mining. A big fear investors have is that government interference will lean so heavily on the nascent mining industry that it will asphyxiate it at birth. "Governments have never been successful miners," says Campbell. "Competition for the development dollar is global," he adds. "If governments interfere in the operation of mining, international mining companies will just spend their money elsewhere." El-Raghy points out that Centamin's concession is good, but that the government takes a share of profits. This, El-Raghy says, presages government interference, and is off-putting to foreign companies. "We want to change this. We'd rather just pay tax," he says. It is these worries that make investors cautious. Aaron Colleran, of brokers CIBC Wood Grundy, called Centamin's stock a "high risk" buy, saying that the problem is not the amount of gold discovered; it is the ability of the company to persuade investors to back it.
El-Raghy understands these worries. He remarks that, in Egypt, title to mines may not be secure. "The government needs to apply the investment law to mining," he said, adding that other quarters come into the picture, including the army and antiquities bodies. This array of interests could be disastrous for a fledgling industry. Mining law is antiquated: the government last comprehensively legislated for mines in the 1950s. Centamin's concession is secure: it is enshrined in law. But for it to take a one-off law to secure ownership to a mine is itself worrying.
Yet Sami El-Raghy and Centamin are still full of hope for mining in Egypt. They have the air of real believers, sure that their mine can turn Egyptian gold into Egyptian prosperity. With luck, and with proper support, they may well be right.
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