TORONTO (miningweekly.com) – Nevsun Resources, the Eritrea-focused gold miner that dropped 17% on Wednesday on fears that proposed sanctions for the Horn of Africa State would harm its business, said this week the move would not likely be successful and would “starve the people of Eritrea literally and economically”.
Reuters reported on Tuesday that the UN was considering a draft resolution that Gabon tabled seeking to ban mineral imports from the country and foreign investment in it.
According to the report, Gabon was seeking tougher sanctions as retaliation for Eritrea's alleged support of Islamist rebels in Somalia, which the country denies.
Gabon and Nigeria are sponsors of the draft resolution, and both countries, which met with US president Barrack Obama on Wednesday in Washington, are due to roll off their United Nations Security Council appointments at the end of 2011, Nevsun said.
The company owns 60% of the Bisha gold mine in north-western Eritrea, which produced over 278 000 oz so far this year, with the State-owned Enamco holding the rest.
“Nevsun believes that economic sanctions are unlikely to be adopted by the United Nations Security Council (UNSC),” the TSX-listed miner said in a statement to Mining Weekly Online, adding it understood the draft proposal had not yet been debated at the UNSC level.
“Eritrea is one of the poorest countries in the world and economic sanctions will simply starve the people of Eritrea literally and economically.”
The nation, bordered by Sudan, Ehtiopia and Djibouti, gained its independence from Ethiopia in 1993.
According to the CIA World Factbook, Eritrea’s estimated $3.6-billion GDP in 2010 ranks it the 169th poorest country globally, with half its population living below the poverty line in 2004.
The day after reports of the UN draft surfaced, Nevsun’s share price plummeted by 17% to close the session at C$4.61 apiece.
The stock has since edged up to C$4.73, with analysts saying the selloff was overdone.
“We would be surprised to see the UN take formal actions (sanctions) that would impact the country’s fragile economy, which is just starting to show signs of positive change,” Haywood Securities analyst Stefan Ioannou wrote on Wednesday, adding that Nevsun’s share price decline offered buying opportunity.
He gave the stock an C$8.00 target price, the same as Canaccord analyst Rahul Paul, who said that, while risk remained, Nevsun had been oversold.
“We see low odds of current proposed UN sanctions being passed, since they would amount to shutting down the economy of one of the world’s poorest countries,” Paul noted.
TSX- and ASX-listed Chalice Gold, which owns the Koka project in Eritrea, did not respond to a request for comment from Mining Weekly Online.
That company’s share price has lost around 8% on the Australian bourse this week.
Nevsun has long touted the positive economic impacts Bisha has had for Eritrea.
“By collaborating with international companies, Eritrea is developing a mining industry that will bring direct and indirect benefits to the people of the country,” it said.
“Through these cooperative efforts, sustainable development from the industry can positively impact the Eritrean economy for decades to come.”
In August, Nevsun announced it had reached an agreement with Eritrea that Enamco would pay $253-million for its 30% stake in Bisha, after it received a 10% free-carry interest.
Chalice said in a September presentation that it aims to start production at Koka in 2013, averaging 104 000 oz/y over seven years.