Australia’s South Boulder strikes Eritrea Potash deal

Australia's South Boulder strikes Eritrea Potash deal

NAIROBI | Wed May 15, 2013 11:53am EDT

May 15 (Reuters) – Australia-based South Boulder Mines has handed the state of Eritrea an increased stake in its Colluli potash mine under the terms of a new joint venture agreement, the miner said in a statement.

South Boulder, which had held a 90 percent stake in the potash project, said it and the Eritrean Mining Corporation (ENAMCO) would now each hold a 50 percent stake of a newly formed company, Colluli Mining Share Company.

South Boulder said last year the asset held 1.08 billion tonnes of 18 percent grade – or 194 million tonnes of contained potash.

In a statement dated May 14, the miner called the agreement a "major milestone" which would help advance discussions with potential investors. No-one from the firm was available to comment.

Long starved of foreign cash and widely considered to be one of the most tightly controlled and secretive governments in Africa, the Red Sea state is now on the threshold of a mining boom which should drive growth in the agriculture-based economy.

In 2008, Eritrea set the government's stake in any mining project at 10 percent with an option to buy a further 30 percent. It was not clear from South Boulder's statement how much, if anything, Eritrea had paid for the additional share.

South Boulder, which requested trading in its stock halt on May 10 ahead of the announcement, said the agreement proposed 70 percent of the project be funded by debt, 30 percent by equity.

Gold companies with projects in Eritrea include Toronto-listed Nevsun Resources and the small explorer Sunridge Gold Corp.

The country, which occupies a strategic strip of mountainous land overlooking the entrance to the Gulf of Aden's busy shipping lanes, has previously exported little to the outside world. (Reporting by Richard Lough; Editing by James Macharia and Patrick Graham)