Originally published in The Independent, 18 October 2011
The fall of Hosni Mubarak could trigger an Egyptian gold boom as the government looks to carve up precious reserves in the Sinai desert which have remained untapped for decades. Officials have known about the potential for finding gold in Egypt’s mountain wilderness for years, yet a combination of security concerns and the complicated mining process have so far hampered serious progress.
Egyptian mining chiefs now plan to invite investors to carry out gold exploration in the Sinai – an area which was once occupied by the Israelis during the 1970s and which has been plagued by security problems since the uprising which toppled Mr Mubarak.
According to Dr Hassan Bakheit, the head of geological surveys in the Egyptian Mineral Resources Authority, the government wants to start receiving contract bids next year.
“We’re trying to develop the Sinai desert,” he said. “I think in the future there will be more explorations. I hope that if the revolution goes the right way and is not stopped by any further problems, Egypt will become known as a big gold producer in the region.”
Egypt is no stranger to the gold mining industry. As long ago as the third century BC, workers living under the realm of the Old Kingdom were unearthing the precious mineral from the volcanic rocks that line the country’s Red Sea coast.
Yet since the 1950s there has been virtually no serious investment in the industry. Only one company is currently producing Egyptian gold, the Australian firm Centamin, which is listed in London and Toronto and which started commercial production last year.
With an estimated 6.7 million ounces of the metal lying under more than 100 possible mining sites around the country, analysts say the potential value of Egypt’s untapped reserves runs into billions of pounds – a literal gold mine in a nation which could sorely use the receipts of its own mineral wealth.
Louise Collinge, a mining analyst for Evolution Securities, said there was “a lot of interest” about investing in Egypt. She said its location in the Arabian- Nubian Shield – a band of rocks that stretches down from north of Cairo as far as the Horn of Africa – meant it was ripe for gold prospecting.
But she added that with the current political insecurity it would be difficult for the gold boom to really take off. “It’s a big worry for any investor,” she said. “In theory there should be no problems at all. But the market is a bit worried as to what might happen.”
Centamin lost millions of dollars during the Egyptian uprising and saw its stock plummet by more than 25 per cent following the toppling of former President Hosni Mubarak in February.
“The worst case scenario for potential investors is whether they will still own their assets at the end of events like those in Egypt,” said Ms Collinge.
There are now six companies carrying out gold exploration at various locations along the Red Sea coast, though none have yet started producing commercially.
According to Centamin’s chief executive, Harry Michael, one of the main reasons Egypt did not open up to investors until only relatively recently is because previous governments simply did not think the industry was viable. When company bosses tried to tell Mr Mubarak’s officials that they were sitting on a fortune, the response was incredulous. “They said, ‘you guys are crazy’,” claimed Mr Michael.
“There is not much rainfall in Egypt,” he added. “A lot of the country is desert. Nobody goes there, and there was an opportunity for us to get something from that land for the nation and our investors. It was crying out for some kind of use.”
Yet according to Dr Bakheit, the reason that the Sinai desert’s reserves have so far remained off-limits is more political than economical.
He blamed the hidden “agenda” of Hosni Mubarak’s relations with Israel, saying he believed the government had a deal with Tel Aviv under the 1979 peace treaty not to develop large scale mining operations in the area.
It is a view not taken seriously by Bruce Maddy-Weitzman, an expert on Egyptian-Israeli relations from Tel Aviv University. “It makes no sense,” he said. “After 1979, Israel was interested in Egypt developing economically.”
Nonetheless it is clear the precarious security situation in the Sinai has hamstrung economic development. Centamin’s Mr Michael said it had “definitely been an issue” when it came to the government failing to pursue mining projects in the region.
And there are other political ramifications of a future gold boom in Egypt. Under Centamin’s deal with the government, it is obliged to pump half of its profits back into the state treasury.
Given that geologists believe the nation’s gold reserves could be worth many billions of pounds, the next few years could be critical in determining how well Egypt’s first post-Mubarak government can exploit the nation’s substantial mineral resources.
In a nation where 40 per cent of the population live on less than a dollar a day, a profitable gold mining industry – and the thousands of jobs needed to sustain it – could be a significant boon.
“I’m optimistic,” said Ibrahim Shalaby, the former deputy minister of the Egyptian Mineral Resources Authority. “We just need someone with some money who is not afraid to come here, invest their cash and see the benefits.”