Claire Brownell and Peter Koven, March 23, 2015
In a statement released Sunday, Nevsun said vandals caused minor damage to the base of a tailings thickener at the mine during the night shift on Friday, releasing water into the plant area.
But the Ethiopian news site Tigrai Online said it had confirmed a report that the Ethiopian air force bombed the mine on Friday. Sudanese newspaper Al-Sahafa was the first to report that the attack was a military operation from Ethiopia.
“The Bisha gold mine which is about 150 km from the city of Asmara is on fire and a huge fire and smoke can be seen from far away,” the reports claimed.
But Haywood Securities analyst Stefan Ioannou said he believes Nevsun’s account over the online news report. He noted that the company’s shares opened just 3% lower than Friday’s closing price of $4.55 on the Toronto Stock Exchange, suggesting most investors weren’t taking reports of an air strike very seriously either.
“Yes, something happened, but it’s not to the scale that some of these media reports are suggesting,” Mr. Ioannou said. “If there was an air strike, there would be a lot more collateral damage.”
The Tigray region, in Northern Ethiopia, borders Eritrea, which won independence from Ethiopia in 1993. The relationship between the two countries has been tense, including a 1998 war over border territory. Tigrai Online advertises itself as independent, but its stance is pro-Ethiopian. The report suggests the purported attack was supposedly related to an Ethiopian helicopter held by Eritrea.
A source close to Nevsun said the company is not sure what happened and isn’t ruling out any possibilities until it completes an investigation. Nevsun’s statement said the company has implemented additional safety precautions and no employees were harmed.
Nevsun owns 60% of the Bisha mine, with the Eritrean government owning the remaining 40% through the Eritrean National Mining Co. The mine is extremely important to the Eritrean economy, which would make it a logical target for the government’s enemies.
Nevsun has faced a very rocky ride to develop Bisha. Back in 2004, Eritrea’s autocratic government kicked all the mining companies out of the country for no apparent reason. They were welcomed back a few months later, and Nevsun was able to strike a development agreement.
When Nevsun started building the mine in 2008, the government forced the company to use a state-owned contractor called Segen Construction for some of the work. Allegations eventually surfaced that Segen employed slave labour at the site. Nevsun could not say for certain that slave labour was never used at Bisha, but it did take measures to prevent it from happening in the future.
Ultimately, Nevsun endured and built a very profitable and successful operation. But the Eritrean political risk continues to hang over the company, making the stock very cheap compared to its peers. Last year, rumours surfaced that a Qatar-backed private equity fund called QKR Corp. was eyeing a bid for Nevsun, but no offer ever surfaced.