Sudan hopes gold rush will soften loss of southern oil

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For Sudanese worker Mohamed Taher, hunting for gold with a metal detector in the Nubian desert is a way to end years of unemployment.

“Sometimes I find one to four ounces, sometimes nothing. But if I find something it will cover all my expenses,” says Mohamed, who regularly camps out with friends to search for gold.

Like tens of thousands of other Sudanese, Mohamed has been lured by a gold rush in the remote northeast of the vast country, where experts say large amounts of valuable minerals may lie buried. Some government officials estimate 200,000 people or more may have taken part in the rush since last year, Reuters reports.

Mohamed’s home village, Bir Ajam, is located some 30 kilometers (20 miles) from the Hassai mine, Sudan’s biggest, in the mountainous desert hinterland of the Red Sea city of Port Sudan.

The venture which runs the mine, Ariab Mining Co, in which the Sudanese government holds a majority stake and Canada’s La Mancha Resources owns 40 percent, is investing millions of dollars to expand gold output and look for other minerals such as copper.

The gold fever is spreading some wealth to one of Sudan’s poorest regions, where nomadic life for much of the population has changed little from centuries ago. Lured by record international gold prices above $1,600 an ounce, villagers like Mohamed search for gold on the outskirts of the Hassai mine. Hundreds of others work in the mine itself.

A mining industry conference this month in Port Sudan, the country’s first in decades, attracted dozens of foreign executives and experts — a rare sight in a country shunned by most Western firms because of U.S. sanctions imposed over a decade ago amid charges that Sudan sponsored terrorism.
“Sudan represents one of the last remaining African countries that has significant gold potential and has not been subject of intense, systematic exploration in the modern era,” Howard Bills of the British-based mining firm Toro Gold told the conference.

ECONOMY

The Nubian desert has been a source of gold since the time of the Egyptian pharaohs, but only in the past few years has the government stepped up exploration efforts.

Sudan hopes an expansion of gold exports will bring in much-needed foreign currency and compensate for oil revenues lost with the secession of the south of the country in July this year. Before the split, the country produced about 500,000 barrels of oil a day and earned around $5 billion from oil exports annually; secession meant the north lost some 75 percent of that.

Annual inflation was 21 percent in September, partly because the loss of oil revenues has caused the Sudanese pound to depreciate in the black market, driving up the cost of food and other imported goods.

The government has handed out almost 100 new gold exploration licences to foreign and local firms in the past 12 months, bringing the total number of outstanding licences to about 200.
“Sudan is right now high on the list globally in terms of the likelihood of gold discoveries,” said Tucker Barrie, a Canadian mining expert who regular visits Sudan’s industry. “I see it as pretty positive…There will be more discoveries.”

However, mining industry executives warn it will take years to build up gold output as only about three mining firms have started production — the rest are still exploring.

The government predicts gold output will reach as much as 70 tonnes this year and bring in $3 billion of revenue, potentially making Sudan the third largest gold producer in Africa, after South Africa and Ghana and before Mali. But the executives say that goal is well out of reach for now.
“I think if they make 20 to 30 percent of the $3 billion, that would be good,” said a managing director of a Sudanese mining firm, declining to be named because of the sensitivity of the issue. The official target is “way too optimistic”.

Even the mining ministry admits that only 7 tonnes will be produced from mines such as Hassai; the rest is projected to come from “artisanal” seekers like Mohamed, whose success is hard to track. A foreign mining expert working in Sudan said 4 tonnes of gold from mines would be a realistic target for 2011.

Another obstacle is the U.S. trade embargo, which deters many Western firms from getting involved, leaving the field mainly to local or Chinese companies which may lack experience.
“It’s a bit of a hit and miss business with Sudanese firms. Chinese firms are good at building mines but poor explorers,” said a Western expert in exploration.

Also, few of the small entrepreneurs are selling their gold to the central bank; much of their output ends up with traders who smuggle it to Dubai or other major gold markets. As a result, Sudan made only $1.1 billion from gold exports in 2010. This year might see a modest increase due to a higher gold price, but revenues will be way below $3 billion, experts say.

The government is offering incentives to persuade unofficial seekers to sell their gold to the central bank, and plans to establish a refinery to enhance the value of gold products.
“You have to intervene to regulate the sector,” said Abdelbagi Gailani, the minister of minerals.

VILLAGES GET WATER

Despite the problems, Sudan’s gold output is likely to rise continuously over the next few years, experts say. Barrie estimated annual production could increase by a further 2.8 tonnes every three or four years as new mines came on stream. Meanwhile, a “significant profit” from the unofficial output would eventually end up in government coffers if regulation improved.

Barrie said the gold rush had helped make the northeast one of the most stable regions in a country hit by insurgencies such as the rebellion in Darfur.
“We have benefited a lot from the gold mine. The company built a health centre, which you rarely find here,” said Mohammed Mahmoud, another resident of Bir Ajam.

Under an expansion plan, the Hassai mine will build a pipeline from the Nile to obtain more water which engineers will use to drill deeper. As a byproduct, villages on the way will be connected to the pipeline.