Retaining Gold’s Value Proposition: An Interview with Marks Lisnanskis, Chairman of SMW Gold Holdco

Retaining Gold’s Value Proposition: An Interview with Marks Lisnanskis, Chairman of SMW Gold Holdco

SMW Gold has been investing in Egypt since 2007, what made you set eyes on Egypt as an investor?

We first came to Egypt in 2006 to discuss with El Mex Salines the possibility of using their brine for production of magnesium in Egypt. However, nearest deposit of magnesite ore was approximately 1,000 km away, so we had ultimately decided to put that project on hold due to poor economic feasibility.

At that time, we held some meetings with the Egyptian Mineral Resources General Authority (EMRA) and became aware of the upcoming bid rounds. SMW geologists carefully analyzed the fields being offered. Starting from 1956 there has been strong friendship between the Soviet Union and Egypt, with much assistance coming to Egypt from the USSR. Thus, Russian geologists conducted various exploratory works in the Eastern Desert in the 1970s. We were able to find relevant and compelling records in Moscow – and ultimately became convinced of the very high potential that Umm Balad and El Fawakhir deposits possess.

Thus SMW proceeded to participate, to bid and to win. We had originally also won the rights to El Barameya; but some months later, EMRA asked us to give it up because they changed their mind (had some other plans for developing that field) – so we signed it back over to EMRA.

How is SMW Gold dedicated to the development of multi-million ounce of gold deposit in Egypt?

After the Parliament of Egypt ratified our Production Sharing Agreements (PSA) with EMRA, we had promptly brought in a team of the very top Russian geologists and geophysicists, and actively advanced to implement the Phase 1 exploration program, far exceeding the minimum requirement imposed by EMRA (in both, capital invested and works accomplished). Between 2008 and 2010, SMW has done much work — collected and analyzed many samples, performed geophysical and geochemical and satellite imagery analysis, etc. In the autumn of 2010, we raised capital on the Vancouver Stock Exchange, to supplement our own financial resources – in order to proceed with at least 100,000 meters of JORC-compliant drilling. HSBC Bank wrote a letter to EMRA, as did we, confirming that all is ready to proceed, but a timely response did not come; and several weeks later a revolution transpired in Egypt. We were forced by the circumstances to halt our activities in Egypt, while we awaited reestablishment of secure environment. Indeed we remain very dedicated to developing these assets to the fullest potential.

What are the latest updates on your operations in the Eastern Desert?

Several years after President Abd El Fattah El Sisi ensured stability, we have signed an agreement with an investment group to allocate sufficient funding toward the implementation of an extensive drilling program. The first letter of guarantee for $5 million was issued last year; and we are awaiting government approvals to begin work. The next step will be to separate the two concessions into two separate companies, so that both fields can each be developed in a large way, as they deserve to be, thus enabling us to invite several different strategic investors to participate in each of the two, respectively.

One of the largest drilling and geological services companies in Russia is ready to conduct the works on good terms, at both deposits; and possibly also to join forces with us to organize a prominent drilling services company in Egypt.

SMW Gold projects enjoy full support of the respective Russian government agencies. And Rosgeo, a government-owned corporation, has officially expressed interest in taking part.

How do you think the new amendments of the mining law impact investments in Egypt and its mining bid rounds?

Certainly, the new regulations (Mineral Resources Act) signify excellent news for the industry. This legislation greatly improves the potential for Egypt to attract foreign investment into the country and to develop its natural resources in a very substantial way. National income from the mineral resources sector (mining) can potentially contribute over 10% to the national gross domestic product (GDP) of Egypt (as the case is in Russia) rather than the current < 1%. A number of large international mining companies, which did not consider investing here in the past decades because of difficult legislation, have now declared their interest. This is a clear indication that the government is on the right track. If it were not for the current calamities in the world (the rapidly-spreading epidemic), we would not have any doubts about the anticipated success of the upcoming bid rounds (competition among bona fide participants).

Egypt is rich with mineral resources; how could it be better exploited economically?

Currently, there are no local service providers (such as certified laboratories) or equipment manufacturers in the field of exploration and mining; and there is a limited number of post-processing of raw materials (manufacturing). Both market segments can be developed and can bring high economic benefits for the country.

Considering the very impressive presence of mineral resources, Egypt can benefit from more professionally-oriented education programs with emphasis on mineral resource exploration and management.

In what way does your company utilize technology in its mining exploration?

We started out many years ago as an engineering company, so we are well equipped to keep a close eye, up to date, on all the latest advancements and new technologies. There are some new equipment-related developments that make exploration and mining processes more efficient and economical.

I can provide one simple example pertaining to the oil and gas sector, as it might be more interesting. SMW Engineering, a sister company of SMW Gold, has developed ultra-light magnesium drill pipes employed for extra deep drill holes – they are almost 20% lighter than the comparable aluminum tubes typically used for respective applications. Halliburton was our first customer.

Do you believe that investment in gold is more beneficial than other sorts of investments? Could you please elaborate on that?

Yes, gold retains its intrinsic value proposition. It has always been the ultimate hedge against calamities and instability; and nowadays the market is proving us right. Historically, gold has always been in demand as jewelry, currency, collateral and various innovative industrial use (electronics, etc.). As current international finance markets become unstable and volatile, gold is in more demand. With the emergence of various gold-based investment vehicles (dedicated funds, ETFs and such), this demand will continue to increase.

The emerging markets such as China and India are continuously increasing consumption of gold — to increase its share/allocation of national reserves. China’s gold reserves have been growing at a remarkable rate, doubling every two years or so. The US holds more than half of its national reserves in gold. China would need to be buying gold to the extent of at least $500 billion in order to bring its gold investment to a 15% allocation of its total foreign reserves. Such quantity inevitably attracts the attention of the markets and positively impacts the future value of gold.

According to the World Gold Council, annual demand for gold is above the $100 billion mark and is expected to continue increasing.

In your opinion, how should the mining sector cope with the coronavirus pandemic?

All the precautionary measures must be taken in order for employees/workers to stay safe. However, in terms of the gold value, we believe that in times of a pandemic, the price of the commodity is very likely to continue increasing — since gold is one of the most liquid assets known to the history of mankind. Over the centuries, gold has proven to outperform other markets in the times of crisis, and we do expect it to be the same this time around, in these difficult times.



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