Wikileaks expose Nevsun's Eritrean ploys

Published by MAC on 2012-04-24
Source: Visit Eritrea

World Bank: mining company Nevsun "mislead" its investors

Visit Eritrea blog

17 April 2012

The World Bank and European Commission officials have accused Nevsun, the Canadian mining company operating in Eritrea, of misleading its investors.

A Wikileaks cable, dated 15th June 2006, describes a visit organised by Nevsun and the Government of Eritrea for export credit agencies from Canada and South Africa, as well as Proparco, Standard Bank, and the European Investment Bank.

The American Ambassador to Eritrea, Scott de Lisi, stated that "according to staff of the European Commission and the local director of the World Bank, the GSE [Government of the State of Eritrea] and Nevsun gave an Oscar-worthy performance which, in their view, mislead those who visited."

The full cable is copied below.

The Visit Eritrea team is the only organisation systematically working its way through the 1,127 cables from the embassy in Asmara released by Wikileaks.

The team commented: "Foreign capital and skills have an important part to play in Eritrea's economy. However, if this is how Nevsun treat potential investors, how likely are they to be a responsible employer in the country?"

For more information about this story, please contact info@visiteritrea.org

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C O N F I D E N T I A L ASMARA 000515

SIPDIS

LONDON FOR AFRICA WATCHER
PARIS FOR AFRICA WATCHER

E.O. 12958: DECL: 6/15/2016
TAGS: EMIN ETRD ECON ER
SUBJECT: FINANCING MINERAL EXTRACTION IN ERITREA: WHO WILLPAY?

CLASSIFIED BY: AMB Scott H. DeLisi, for reasons 1.4 (b) and (d).

REFTEL: ASMARA 250

1. (C) Summary: Despite on-going concerns about the practicality of foreign investment in Eritrea, privatemining companiescontinue to actively seek foreign investors to bankroll the mineral extraction. Since March several development banks, private banks and privatecompanies have traveled to Eritrea to further explore the viability of investment in the Eritrean mining sector.

And as financing is sought, exploration continues with two companies reporting significant finds. Yet, despite enthusiasm from some for the possibilities, political realities combined with burdensome GSE requirements and restrictions may prevent the GSE from reaping the greatest of rewards. End Summary.

IMPRESIONABLE INVESTORS COME TO TOWN AND THE GSE IMPRESSES
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2. (C) Both Nevsun and Sanu Resources supported visits from potential investors in the past 2 months. The style and approach differed greatly. For three days Nevsun together with the GSE entertained export credit agencies from Canada (EDC) and South Africa (ECIC), Proparco (investment arm of the French development agency) Standard Bank, and the European Investment Ban (EIB).

The IFC and the Dutch and German development funds were invited but did not attend for various reasons.

The entire visit was planned without prior discussion or input from the development banks' country missions in Eritrea, many of whom are skeptical about the wisdom of investment in Eritrea for reasons ranging from concern over lack of transparency in terms of mining sector policies to broader unhappiness with the GSE's record on economic policy, governance, and human rights generally. In the end the German development fund and the IFC did not attend after last minute discussions with their local missions.

3. (C) According to staff of the European Commission and the local director of the World Bank, the GSE and Nevsun gave an Oscar worthy performance which, in their view, mislead those who visited.

The visitors met with the Ministers of Mining, National Development, and Finance, toured sites, and even had an 'unexpected' meeting with President Isaias. A bootleg (not for public discussion) copy of the EIB report of the visit states 'The Bisha Project itself, which can expect to become a highlyprofitable operation does not feature any serious technical or market difficulties.

Environmental and social issues are being adequately addressed. The report goes on, The Government seems to be fully committed to the project and Nevsun receives all necessary supports. (Note: Nevsun has established its own subsidiary for the mining and is seeking investors in this new company. End Note.) The French Ambassador told us recently that the French participants in the visit were, like the EIB, very impressed by the GSE's seeming openness and enthusiasm for foreign investment.

4. (C) Even when the EIB in its report later acknowledged potential problems, its articulation of these challenges suggests that the EIB views were colored by the GSE's salesmanship.

The EIB report, for example, acknowledges that the GSE unapologetically voiced its unwillingness to adhere to policies of the Extractive Industries Transparency Initiative (EITI).

It went on, however, to seemingly accept at face value the GSE's explanation that in consenting to EITI the GSE would have to accept that the international community did not trust them, and when according to the EIB report given Eritrea's history of abandonment by the international community, it is they, the GSE, who have reasons to mistrust the international community.

Thus, insistence by development partners to the conditionalities of the EITI questions the sincerity of Eritrea's commitment to just and fair development and as such is unacceptable.

Second, efforts to address the 'resource curse' and the risks associated with large financial windfalls for poor countries insult the GSE's capabilities, intelligence and its sovereignty over the use of its own resources.

5. (C) Contrasted with Nevsun's big show, Sanu Resources quietly brought in one analyst from a private Canadian firm the middle of April. According to Sanu's country director, Estaphanos Ogbasghi, several more potential investors could visit in the next few weeks, however, it is possible that their visits could be delayed until the fall. While Nevun will do its own mining, Sanu anticipates completing all of the assessments and then selling the mining rights. Thus, Sanu is looking for potential buyers while Nevsun is looking for potential investors.

BUT WILL INVESTMENT REALLY FOLLOW?
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6. (C) Yet, even with the hullabaloo around the GSE/Nevsun engineered presentation for possible investors and despite the GSE's assertion that everything is order, concerns and difficulties lurk in the background. Demetrius Pohl, the Director of Sanu Resouces shared with Poloff his major concerns regarding mining operations in Eritrea.

First, is the GSE's history of taking over profitable businesses.

Second, under the current mining law the GSE could potentially reap up to 48% of the mining profits; complicating raising funds or securing buyers for the mining rights.

Third, the potential under the existing law for the GSE to have nearly 30% ownership in a mining extraction company is inconsistent with the 10% ownership that has become the standard in other parts of Africa.

ENVIRONMENTAL IMPACT
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7. (U) Pohl further explained that while the GSE and others may attempt to minimize the potential environmental impact, the effect of mining on the local communities will be significant.

Of primary concern will be issues with water. While different mining techniques may be employed to minimize the impact, regardless all mining requires a substantial amount of water. He expects extraction companies will need to develop dams to collect water for at least 18 months prior to extraction beginning.

While the pumping of groundwater for mineral extraction is possible, the long term damage to the already precarious water table and to the environment offers a strong disincentive for this practice.

AND STILL MORE DISCOVERIES
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7. Q(U) As mining companies plan for the future of extraction and begin looking for financing, the timeline keeps being extended. While Nevsun planned to have their environmental assessments and final deposit reviews completed by June 2006, they are still in process and now late fall is a more realistic deadline. Meanwhile, the mining companies continue to invest in new exploration. Sanu believes they have found another significant deposit near their initial discovery in Western Eritrea, although they will know more after the drilling is completed in the fall. Sunridge Gold Corp announced in May more promising results from the drilling of the Emba Derho volcanogenic massive sulphide (VMS) project near Asmara.

COMMENT
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9. (C) Comment: The development of the mining sector continues to be perceived as critical to Eritrea's economic health and perhaps even as the cornerstone of economic recovery.

Yet, the GSE's policies toward foreign investment and its repeated practice of nationalizing successful private firms undermine its ability to attract investment.

While they may be able to impress some visitors, you can not fool all of the people all of the time. Eventually, investors will dig past the topsoil and question the GSE's political unpredictability and its economic practices. In the interim, mining companies will continue to do their job, prospecting and encouraging high risk investment, with the hope that the payoff will be enormous. End Comment.