By Eric Knecht
EASTERN DESERT, Egypt, June 8 (Reuters) - Careering around
Egypt's rocky Eastern Desert, Alexander Nubia AAN.V CEO Mark
Campbell peers from his jeep and sees hills so rich with gold
they could lure billions in investments and jumpstart the ailing
economy. His company just has to find it.
Egypt's gold mining industry has for years been long on
potential and short on investment -- the result of a jarring
mismatch between spectacular geology and an unattractive
commercial framework for mining.
Despite a history of gold mining that stretches back to the
pharaohs, the industry is largely dormant. With just a single
gold-producing mine, Centamin's CEY.L Sukari, the sector
contributes a fraction of one percent to gross domestic product
(GDP).
But last year, Egypt's government said it wanted mining to
contribute upwards of 5 percent to GDP within 10 years.
This month it will launch its first bid round for new mining
concessions since 2009, when a global gold-mining boom brought a
handful of first-time investors to Egypt, despite what many of
them say were poor commercial terms.
Most of these investors left after the 2011 uprising, driven
away by rising political turmoil and falling global gold prices.
Now, armed with a 2014 mining law that helps streamline
investment, Egypt wants to lure them back.
If successful, the industry could create jobs and attract
foreign currency to an economy that is in dire need of both.
Paul Jones, CEO of Nuinsco, a Canadian explorer that left in
2011, likens Egypt's mineral-rich Nubian shield rock formation
that straddles the Red Sea to the Canadian shield of a century
ago, before it "developed the northern part of Quebec and
Ontario with tens of millions of ounces of gold, and billions of
pounds of copper, zinc, and lead."
Leonard Karr, a geologist with Vancouver-based Alexander
Nubia, says the ancient continental crust upon which the
company's two concessions sit is chock full of potentially
recoverable mineral wealth.
"There are hundreds of good plays," he said.
TOUGH TERMS
That the allure of Egypt's geology has yet to spur a gold
rush is down to regulation, investors and analysts say.
Despite the mineral-rich concessions on offer and the 2014
law, they predict a tepid response to this month's tender.
Rather than levy a modest royalty on mineral production and
collect tax -- a system that helped Peru and Mexico launch their
mining sectors -- Egypt offers investors a production-sharing
agreement similar to its oil and gas deals.
Mining companies say the model does not fit their work.
Unlike companies drilling wells, their capital costs can stretch
for decades as they build out mines requiring hundreds of
millions of dollars in investment.
They say production sharing, on top of a royalty payment,
makes Egypt a prohibitively expensive play.
"Production sharing works for the oil and gas industry,
however it does not work anywhere in the world for mining,"
said Centamin chairman Josef El-Raghy.
"As such, companies will not come and invest in Egypt
despite the hugely prospective mineral resource area."
For Abdelaal Attia, an adviser to the Egyptian Mineral
Resource Authority (EMRA), Egypt's commercial terms reflect the
lower risk of exploration in a country where ancient mines
populate the desert, indicating known areas of mineralisation.
"You will not go to an area and start from scratch ... you
know you have gold there. It's just about how much," said Attia.
"The tax and royalty system can be applied in countries that
don't have any information about their lands ... but EMRA has a
century of work, reports, and maps."
EMRA has yet to announce the commercial terms for this
month's bid round, but Attia says it will likely stick to the
production-sharing model and offer five to seven concessions.
Yousef Husseini, an analyst with EFG Hermes, said the data
available is not enough to lure investors on the current terms.
"It's clear there is a lot of potential but investors want a
more definitive answer. They want to know where minerals are and
how much is present," he said.
BACK TO THE FUTURE
Alexander Nubia, just one of three active explorers in
Egypt, is nonetheless bullish.
Campbell says a prospect his firm began exploring in 2011
will likely yield a commercially viable discovery next year. He
plans to begin building Egypt's second mine there by 2019.
For Alexander Nubia, an exploration junior that takes on a
multitude of high risk bets in hopes of occasionally striking it
big, Egypt's mining history makes it a sound wager.
The work of past miners dots the hilly expanse of the
company's concession -- a crumbling Roman fort and an abandoned
20th century British mine are not far from its own drill holes.
Campbell says these relics are cost-saving guides to future
discoveries, while new technology allows modern miners to drill
deeper and extract lower grade minerals than their predecessors.
"There's about 6,000 years of mining history here and a
large part of it was gold ... It offers almost a roadmap to the
opportunities," said Campbell.
(Editing by Lin Noueihed and William Hardy)