Ossama El Maghraby | Positive Mining Reform is Creating New Investment Opportunities in Egypt

Egypt is on the verge of once again becoming a world-renown gold producer. The Golden Age is being rediscovered.  For millennia, ancient Egyptian kingdoms prospered from unparalleled riches. Pharaohs built their empires and flaunted their abundant wealth that was made possible by the country’s resource-rich gold deposits. Despite this rich history, modern Egypt remains one of the most underdeveloped gold mining countries in the world.

In this interview, Ossama El Maghraby shares how Egypt is currently undergoing a mining renaissance of which many are not aware.  He is the chairman of Gold Pyramid Group which currently represents and manages Resolute Mining’s Egyptian operations.  Ossama has over 12 years experience working in the mining industry in Egypt.  While working for Centamin he was in charge of handling governmental affairs.  Centamin owns the world-class Sukari gold mine which is the only operating gold mine currently in Egypt.  Ossama believes many of the positive changes proposed for mining reform in Egypt are on the verge of being implemented.

0:05 Introduction

1:40 Ossama El Maghraby’s background and mining experience in Egypt

3:37 Overview of mining in Egypt today

4:36 Egyptian government’s relationship with mining companies

7:34 How soon will Egypt implement positive changes to the mining code?

9:01 Ossama comments on the current law regarding joint ventures between the Egyptian government and producing mining companies

10:52 Foreign countries roles in helping Egypt with mining reform

12:18 How mining reform is legally implemented in Egypt

14:44 Mining in Egypt was unaffected by the 2013 governmental change

15:58 Current opportunities for investors and mining companies in Egypt

BEGIN TRANSCRIPT (edited for clarity and readability):

Bill: Welcome back, ladies and gentlemen. Thank you for tuning in to another Mining Stock Education expert interview. I’m Bill Powers, your host.

As investors, we look for upcoming catalysts for the shares of the companies that we invest in. Some of those catalysts are going to be internal, such as good drill results, or increased production, or lower cost of production, while other catalysts are going to be external. That could be an increasing price of a commodity that the mining company mines, or it could be something good that’s happening in the jurisdiction in which the mining company resides.

In this Mining Stock Education episode, we’re going to focus on the often overlooked yet up-and-coming mine jurisdiction of Egypt. And joining me today is Ossama El-Maghraby, who runs the Egyptian operations of the Australian company, Resolute Mining. Ossama, welcome to the program.

Ossama: Hi, Bill. Thank you for having me on.

Bill: I appreciate you taking the time to chat with me today. Let’s start by giving listeners an overview of your background and your specific experience working in Egypt.

Ossama: Okay, sure. I come from a background in finance and I started working in mining almost 12 years ago. I started off working for Centamin, and in mining in Egypt. In their Sukari operations, I was responsible for managing their finance operations, both on and off the mine. So, I did lots of management reporting to the Board and whatnot, and I had to establish their UK operations during the redomicile. And what I consider one of my most important achievements for Egyptian mining in total was developing the scoping study for stage four that took Centamin from a 5 million ton per annum operation to an 11 million per annum operation.

Then, I moved on. I parted ways with Centamin almost three years ago, started my own mining company, Gold Pyramid Group, of which I’m currently the chairman. And we have two arms. We are a project owner, and we do provide mining services for small and medium scale mines in Egypt. We managed, almost 18 months ago to convince Resolute of what kind of mining jurisdiction Egypt is, what the challenges are, what the opportunities are, and we managed to win Resolute two major blocks in the Eastern Desert of Egypt, namely Vakary [spelling?] and Musambra [spelling?], totaling around 2,500 square kilometers, and the last bid job that finished July last year. And I’m currently responsible for managing their Egyptian operations, and we’re getting there. We’re getting there in establishing Resolute’s first mine in Egypt.

Bill: Could you give us an overview of the current landscape of mining in Egypt today?

Ossama: Mining in Egypt today, it’s starting to redevelop again to where it should be. Egypt has been historically known as a mining country for quite a long time, maybe at the end of, that was, in the ’50s or ’60s where Egypt’s GDP was counting on mining and its operations. Then, we parted ways unfortunately due to oil and gas discoveries, but now we’re picking up the ball. The Egyptian government sees what mining is and what we can get. Egypt is still very, very strong in terms of quarrying, and we have a huge quarrying industry in Egypt, but mining is in base metals or in precious metals. It’s still not where it should be, but we are getting there. There are a few very good changes happening at the moment, and we’re going to discuss that in a few minutes.

Bill: How would you describe mining companies’ relationship with the current government administration?

Ossama: There has been a lot of push/pull over the last few years because we were not speaking the same language. The Egyptian government was speaking purely from an oil and gas perspective, seeing the profits come in early from oil and gas, and who have much shorter exploration periods, much shorter advancement periods than we do. So, they could not fully grasp the idea of mining, how long it takes, and the magnitudes of the operations, but this is changing. We see change has been happening over the last six months specifically, that have been moving at a very fast pace and are getting us to very good results. It’s very exciting times, exciting times in Egypt in the mining sector and for investors willing to invest in Egypt.

Bill: What was the catalyst? You mentioned that, six months ago, you know, things began to change. I believe that’s when the government asked Wood Mackenzie to come in to help them review. Was the catalyst internal to the government, or was it mining companies approaching the government saying, “Hey, can we re-look at our relationship?”

Ossama: It’s both. It’s both. Look, mining companies have been speaking to the Egyptian government for the last few years. When I was part of Centamin, I was handling governmental affairs and the governmental side of the business, and we always spoke to the government about where we see the Mining Code should be, where we see the government, how we see the government should act with the investors and with the mining operations.

And it’s also internal because there are a few change agents in the government that have been listening to what we as mining companies have been saying. One of the people who has been speaking to the government, I saw you just had him on your podcast a few weeks ago, Mark Campbell from Aton Resources, he’s been doing a lot of work; David Hall from Thani Stratex. Us, from Resolute, have been talking a lot with the government and working with them hand-in-hand, pointing what we believe is the right direction. And it seems we’re in luck because the change agents are currently in government and they are accepting, they’re understanding, and they push the change.

And one of the major areas of support, I have to admit, is President Sisi and his 2030 plan. A big chunk of it includes improvement in mining and improvement in GDP contribution by the mining sector. So, he and his team have been exploring why mining isn’t delivering what it should in Egypt, and I reckon getting Wood Mackenzie and having them do the job they’re doing has been a direct result of that.

Bill: Wood Mackenzie helped the Ecuadorian government become more mining-friendly recently. Do you know when their report will be issued and how soon the government might begin to implement some of those recommended changes?

Ossama: From what has been published, disclosed by the Ministry of Petroleum, specifically over the last three to four days, is that they are, Wood Mackenzie are delivering, are actually in the process of delivering their reports, and the government has been working with the Parliament in Egypt, explaining what kind of changes are bound to happen in the Mining Code. And from our discussions with members of Parliament and with the Ministry and with the other people in the mining industry in Egypt, it seems that there is an initial sort of agreement to the changes that are taking place. And I foresee the changes are going to be very fast. I expect our parliamentary committee to be delivered, the initial recommendations within this month, and I hope, within the next quarter or two, we’re going to see the beginning of change happening with the amendments to the Mining Code and amendments to its executive legislation where we will see changes come in place.

Bill: In my interview with Mark Campbell, who you referenced, CEO of Aton Resources, he shared that it’s basically a forced joint-venture partnership between the government and the mining company, where after the mining company is able to recoup their exploration and development costs, then it’s a 50/50 profit-sharing. From your perspective, how would you recommend that that financial arrangement could be revamped?

Ossama: Okay. So, what Mark was speaking about here was mainly his agreement and Centamin’s agreement. These are agreements that the government, in an attempt to promote mining investment. They changed that a bit after 2008, but the agreement… Okay, if we can be frank and look at it from a fair investment perspective, Centamin has been working that agreement, and they’ve been producing quite well, and Centamin is the highest dividend payer in the market. They’re the highest in the market at 6.3%, if I remember correctly. So, obviously, it works. It works for the investor, and investors of Centamin are getting more money, in terms of their share price, more than any other mining company in the world, gold mining company in the world. Aton just had a huge jump in their market cap, over their latest discovery at Rodruin.

So, it works, but it works for a specific type of project. It works for a mega-project. It’s very hard to apply those specific fiscal terms to… Not all of us are going to find 10 million ounces resources or 50 million ounces of resources like in Centamin’s case. We need a fair, transparent mineral fiscal regime that works from the small mine all the way to a Sukari mine. So, yeah, that’s how I see it.

Bill: Two articles I’ve read recently talk about the Petroleum Minister of Egypt, and he was meeting with the Moroccan Minister of Energy, and also a representative from Australia, the ambassador there in Cairo. And in both press releases or what the news articles said, they talked specifically about wanting to work together to reform mining in Egypt. What’s the role of other nations in helping Egypt redo its relationship with mining companies?

Ossama: Australia has had a very strong participation. Resolute, actually, was co-sponsoring an event organized by the Australian Embassy in Cairo where we hosted the two members of the West Australia Natural Resources governing body. And they came in, we got their senior-level, engineer-level employees from the Egyptian Mineral Resources Authority, known as EMRA. We got them, and they provided training in terms of where the Western Australian mineral industry is, and how the government serves that industry, and what’s expected of the government’s role. And it was a two-day seminar, and I reckon the Australian government has been working quite well with the Egyptian government in terms of developing their Egyptian mining industry, namely, constructing their team onwards.

Bill: For the changes that will be implemented, I’m not familiar, and most Westerners listening to this podcast, I assume, won’t be familiar with Egypt’s form of government and how legislative change is implemented. But, after the Wood Mackenzie report, does this need to go, you mentioned Parliament, go to Parliament, and then it has to be voted on and approved, or can it just be an executive decision that can implement things faster?

Ossama: In Egypt, to amend the current law, because the Mining Code in Egypt is issued by a law, so any amendments to the law have to go through the legislative power. So, it has to go back to the Parliament and get voted on. Usually, what happens is, they have minor committees within the Parliament, so the committee looking at this is the Industry and Resources Committee, and they will prepare a report issued to the rest of the members of Parliament, and they will have a final vote on the amendments to the law. So, that’s how it goes in terms of amending the current law.

In Egypt, the past situation is, before you get an exploration license, you actually have to, get awarded to block the bid rounds and you negotiate with the government, and you agree, whether to a concession agreement, which gets adjusted into a law. So, again, the law, it means that your operations and your investment are protected by the power of law. They are very hard to change. So, it means that the terms you agree with with the Egyptian government are set in stone and can never be messed around with.

We see that with Centamin specifically because they are currently the only major producing mine in Egypt. They’ve been through two revolutions. They’ve been through four presidents, five presidents actually, and God knows how many governments, and nobody has ever stopped their operations or made it difficult for them to operate in Egypt, and you can see that. If we look at the results over the last seven years, since their revolution until now, they had a great operation and they still do, and I reckon the Egyptian government… The Egyptian government, if there’s one thing about them, they do respect their agreements and they live up to them, definitely.

Bill: So, what you’re referencing, just for all the Western listeners looking from the outside into Egypt, we knew that four or five years ago, I believe it was the Muslim Brotherhood-controlled government was overthrown by the General of the Egyptian military. But, what you’re saying is that that actually didn’t affect the production or the profitability of mining companies.

Ossama: Absolutely. Nobody missed a single day of production. Nobody missed a single day of exploration.

Bill: Yeah, and there was no… The government didn’t seize any more of the profits of the mining companies. That remained stable through, if I could use the word, the chaos of a changing government.

Ossama: Yes. Look, it’s just mainly, talking about 2013, 2013 was a populace uprising that was supported by the Egyptian military and one part of it was this whole drive of the Egyptian people and mining companies in Egypt to stay productive, stay creating profit, adding value. So, everyone just decided to keep on going, and the Egyptian government supported businesses, whether local or foreign, to stay in good shape.

Bill: You’ve talked about or touched on it already, but what more can you say about the opportunities that are in Egypt currently for mining companies, and consequently, the investors in mining companies?

Ossama: Okay. There are multiple opportunities here, and let me… I’ll go through most of them very quickly, but if I start at the high level, the level that most of investors would be looking at, it’s the level, for example, Resolute is approaching at the moment, to two blocks. Egypt is a very good mining destination for a few of the things I’m going to mention right now.

Our blocks, for example, Vicara [spelling?] and Mosambra [spelling?] in the Eastern Desert of Egypt, they lie between three city roads and are surrounded by four international airports, logistically all within the range of 100 kilometers. Each city has at least 1.5 million inhabitants. Plus, we are not too far from the Nile River Valley where we have major cities that have industries, all the supporting industries any mining industry will need. We are almost 110 kilometers from the seaside, where we have two major ports, industrial ports, which are used to offload any items we need to import.

One of the very good things about mining in Egypt is, you benefit from the state of Egypt being an uprising economy, and with the amount of expansion in industry happening, we look at, for example, at somebody like Centamin, and Centamin are spending around from their disclosed figures, they’re spending around 67% of their expenditures in Egypt in local currency, which is a huge added value to any mining business. It means that your dollar’s being stretched more. You get high-quality, international-quality items for much lower, significantly lower costs, and that’s why you see that Centamin is one of the lowest-cost producers, one of the lowest-cost producers globally in terms of gold mining.

So, logistically, it’s a heaven to work. Geologically, we see Egypt has certainly been a mining destination all over the ages, from prehistoric…from Pharaohs’ times, Romans, English. The Russians came over for a while. So, the Islamic period is one of the hubs of gold mining, so whenever we go all over the Eastern Desert in Egypt, you can find signs, and if I may quote Mark from your interview with him, when you were talking about a major mining center from 1,600 years ago and it’s their Rodruin discovery, and that’s what led to the discovery that doubled their market cap last week.

Bill: Yes.

Ossama: And the blocks we have and other blocks that have been created by my other company, we see that all over the place. We benefit from it. It’s easy to locate small resources over there. And there is a bit of artisanal mining in Egypt at the moment, and again, because it’s a very cheap form of exploration because the guide will just show you the way, where the gold is.

So, that’s at the major mining level in Egypt. One of the other things that’s happening that’s flying under everybody’s radar is the development of small and medium scale mines in Egypt over the last three years, to be specific. So, what happened a few years ago, the Egyptian government decided to create a new company that they have awarded 16,000 square kilometers, over five concessions to. And the people apply for mining licenses after they do some initial exploration, and they apply for mining licenses, and they get to produce. And this has been developing over the last few years.

So, it simply started from people using very simple production techniques, to people now moving more towards medium-scale mining, gold mining, because specifically, gold mining is popular in Egypt. I call it the modern Egyptian gold rush. And you see lots of people starting to manufacture gold processing plants, whether they’re CIL, or whether they’re CIP. Some people are using vat leaching. Heap leaching operations are popping up all over the Eastern Desert of Egypt. So, definitely, gold is on the rise in Egypt at the moment.

Bill: Do you know how many publicly traded companies are operating in Egypt right now?

Ossama: Publicly trading companies in terms of just gold mining?

Bill: Just gold mining, base metal mining, any mining companies publicly traded in Egypt. It could be an approximate if you don’t know the exact amount.

Ossama: At least 15 to 20. If we add in the phosphate sector, at least 15 to 20.

Bill: And most of those are traded on what markets? London, Australia, and…

Ossama: London, Australia. They’re trading in Canada in Vancouver, in Toronto, and then Perth, as well…The ASX, Australian Stock Exchange.

Bill: If listeners want to follow you and/or follow what’s going on in the Egyptian mining industry, how would they best do that?

Ossama: They can visit our website, www.goldpyramidgroup.com. It’s my company. We do publish some of our projects there and some of the works we’re doing there. And if they follow any of the local English newspapers, like Al-Ahram Weekly, which is at ahram.org, which is an Egyptian newspaper that has an English version that’s on a weekly basis, that provides up-to-date economic and industry news, and they do have a bit of… Mining has been a focus for Egyptians for the last few months, so you’ll find quite a bit of mining news in there.

Bill: Ossama, I want to thank you for your time today and this conversation and giving us an overview of what’s going on on the Egyptian mining front. Thank you very much for joining me today.

Ossama: Pleasure’s all mine. Thank you very much, Bill.