Eritrea Resource play (ERP)

[Ed Monton]

Eritrea ban jangles mining political risk nerves

Tue Sep 21, 2004 02:46 PM ET

By Nicole Mordant

VANCOUVER, British Columbia , Sept 21 (Reuters) - Political risk is again high on mining investors' minds after Eritrea slapped a sudden, unexplained ban on foreign miners, unsettling the shares of small companies invested in mineral projects in remote places.

"In the small institutional community in Canada and the United States, where resource exploration finance is a relatively new activity, there has been a knee-jerk reaction out of Africa as a result of Eritrea," said Rick Rule, senior analyst at Global Resource Investments, a California-based brokerage firm focusing on natural resource investments.

Shares in Canadian explorers Nevsun Resources Ltd. (NSU.TO: Quote, Profile, Research) , Sanu Resources Ltd. (SNU.V: Quote, Profile, Research) and Sunridge Gold Corp. (SGC.V: Quote, Profile, Research) , which were looking for gold in the politically volatile East African country, have lost half or more of their value since the government edict on Sept. 2.

Despite hastily arranged talks with Eritrea's mines minister in the past two weeks, the firms remain in the dark on reasons for the work ban and when, or if, it might be lifted.

"I'm sure there is a concern, people saying 'Oh Africa, we don't want to touch that'," said Tony Hayes, vice president of corporate development at Etruscan Resources Ltd. (EET.TO: Quote, Profile, Research) , whose stock is down 12 percent since the start of the month.

Etruscan has gold projects in Burkina Faso, Ivory Coast, Niger, Mali and South Africa.

"If we are being dragged down because of Eritrea then this is a tremendous buying opportunity...As Baron Rothschild said, you should be buying when blood is running in the streets," Hayes said.

Even outside Africa, some explorers have been been tarred with the same brush. A small firm looking for gold in Latin America told Reuters of a fund manager demanding reassurance in the region's safety after being burnt in Eritrea.

Analysts said North American investors are generally more skittish than their London counterparts when it comes to investing in riskier enclaves, where explorers are increasingly being pushed to as traditionally "safe" regions get mined out.

But Greg Bowes, corporate vice president at Orezone Resources (OZN.TO: Quote, Profile, Research) , said the West African emerging gold producer had found that investors were becoming better informed because of the Internet and were not rushing for the exits because of another African country's actions.

"We have had surprisingly few phone calls after the Nevsun story...It's a very unfortunate situation but I don't know that a lot has changed in terms of other countries because investors look at them on a case-by-case basis," he said.

Orezone's stock is off 4 percent this month.

Global Resources' Rule said it was wrong to think that only less developed countries were politically risky for investors.

"If you have a deposit stolen from you in British Columbia and California by 'due process'...there is no difference," he said, referring to rigorous environmental standards in both regions that have killed off mining projects.