The gold beneath Egypt's desert could make it a top global producer, but the investment terms on offer are driving away small explorers whose skills the country needs to unlock its mineral wealth.
The Egyptian government launched its first international tender for gold mining concessions in eight years last week, potentially an exciting opportunity for global miners to help develop a relatively untapped gold-mining frontier.
Though it has a history of gold-mining stretching back to the pharaohs, Egypt today has a single commercial gold mine, Centamin's Sukari, which produced 551,036 ounces last year.
In Egypt's mineral-rich Eastern Desert alone, some exploration companies estimate potential gold reserves could be higher than 300 tonnes, although the government declines to give an estimate.
But mining companies active in Egypt and Africa say the new exploration round, which offers five concession areas and closes on April 20, is unlikely to lure investors because of commercial terms they say are among the least attractive in the world.
A poor response from the mining firms would be a setback for Egypt, which has struggled to lure foreign investors ever since a 2011 uprising and subsequent turmoil drove many away.
The gold tender terms include a six percent royalty payment, only partial cost-recovery before the start of production-sharing, and three bonus payments to Egypt's mining agency, EMRA, including one of at least $1 million.
At least 50 percent of any gold revenues companies generate would have to be shared with the government.
The country's three main foreign players -- Centamin, Aton Resources, and Thani Stratex Resources -- have all told Reuters they would not bid under the current terms.
Centamin, which pays a three percent royalty on Sukari, said the new terms collectively "create a non-commercial operating environment for any mining investor".
The terms of the new exploration round have dashed investors' hopes, raised by a more flexible 2014 mining law and a government goal of expanding the mining sector to 5 percent of GDP by 2024, compared with a fraction of one percent now.
Miners say the terms price out the most critical early investors: junior explorers that operate like venture capital, raising funds to take high-risk bets in the hope of stumbling on a commercially viable discovery.
"I've been really excited about them making changes. But unfortunately the terms don't seem to be getting any better," said Omar El-Alfy, head of precious metals at Qalaa Holdings, which has invested in exploration in nearby Ethiopia but so far shunned its home market Egypt.
"The framework that's currently on offer in Cairo isn't really attractive for the smaller players to really get involved and hence the reason you've only got one gold mine."
Miners say the international norm is a royalty and tax regime where the government takes a small royalty fee from production revenues, a model that has created booming industries from Chile to Ethiopia.
But EMRA head Omar Teama told Reuters the government has no intention of applying this model and expects a "beyond excellent" turnout in the round.
"For those who find the bid round suitable for them under these terms, they are welcome in Egypt. For those who don't find them suitable, I don't want to hear anyone's advice," said Teama.
Egypt's Petroleum and Mineral Resources Ministry declined comment.
David Hall, CEO of Thani Stratex Resources, said juniors like his firm are unlikely to enter the round based on the high bonus payments alone.
"(Juniors) don't want to pay money for signing-on bonuses... they'd rather put that money in the ground," he said.
"You see the cash generated by Sukari, and if you make one of those discoveries every four to five years you have the ability to generate billions of dollars, but you've got to get the company to take the risk to do the exploration to see if the potential is there first."
Editing by Lin Noueihed and Adrian Croft
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