Eritrea: Chalice Gold Listed in Toronto Stock Exchange

Gold trades above $1,300 per oz

Matthew Hill – 26November 2010

Perth-based Chalice Gold, exploring for gold in Eritrea, listed on the TSX on Friday, and chairperson Tim Goyder predicted its Zara project would have a capital payback period of “slightly over two years” at a $1 200/oz gold price.

According to a feasibility study, the Koka deposit at Zara would produce an average 104 000 oz/y with low cash operating costs of $338/oz and an initial mine life of seven years.

“With these robust economics, Chalice has, in cooperation with the Eritrean government, commenced the permitting process for the Koka project to facilitate the grant of a mining licence to enable development to commence during 2011,” Goyder told shareholders on Thursday at Chalice’s annual general meeting in Perth.   

The government has told the company it would exercise its right to buy a further 20% stake in the project, to add to the 10% it already owns.

The Zara project is located in the geological province known as the Arabian Nubian Shield, which straddles the Red Sea.

“We believe the Arabian Nubian Shield offers numerous outstanding opportunities to build our gold resource base in East Africa,” Goyder said.

Zara is located some 100 km north of Nevsun Resources’ Bisha operation.

Earlier this month Vancouver-based Nevsun Resources said it expected to complete the first gold pour at Bisha before the end of the year. The mine is expected to produce 450 000 oz of gold in its first year of commercial production, at a cost of less than $250/oz.

Chalice believed the Koka open pit mine would cost $122-million to build.

“We believe the high grade, low cost Koka deposit and surrounding exploration potential in Eritrea will generate significant interest in Canada, particularly as the company’s profile increases in the North American investment community,” Goyder said of the TSX listing.

Chalice previously had an exploration joint venture at Zara with US gold giant Newmont Mining, but it decided to ditch this in September, and rather press ahead alone.

POLITICAL CONCERNS

In May, the US Commission on International Religious Freedom (USCIRF ) released a report saying the US government should “prohibit any foreign company’s raising capital or listing its securities in the United States while engaged in developing Eritrea’s mineral resources”.

This was because of religious freedom violations, including “torture or other ill-treatment of religious prisoners, sometimes resulting in death,” the USCIRF said.

Last year, the United Nations imposed sanctions on Eritrea for its alleged role in Somalia.

Ethiopia borders Eritrea in the South and Sudan in the north west. The Red Sea lies to the east of the former Italian colony.

“Border tensions and humanitarian concerns provide an elevated level of risk for operating in the authoritarian country,” Toronto-based Stiefel Nicolaus analyst Josh Wolfson said in a September report.

Eritrea ranked 165 out of 182 countries in the UN’s 2009 Human Development Report.

Wolfson initiated coverage of Chalice with a one-year target price of A$0,80, while the company closed on the ASX on Friday at A$0,63, giving it a market capitalisation of around A$130-million.

Haywood Securities analysts Joe Mazumdar and Sasha Bukacheva gave the company a 12-month target price of A$0,85 in a note released on Thursday. They said Chalice “offers the opportunity to invest in a near-term gold producer with significant resources upside as a ‘first mover’ in Eritrea”.

Goyder owns 12% of Chalice.

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