Gold fever sweeps South Sudan ahead of new mining law - Reuters

In Nanakanak, a village of stick huts in an area that has attracted hundreds of diggers since Sudan's civil war ended in 2005, Likuam's find would have been lucrative but unexceptional.

"Everything is luck," he said through a translator. On an average day he might dig up six grams, worth around 1,200 South Sudanese pounds ($270), he said. "Some days you're lucky."

Word of Nanakanak's riches has spread. In the capital Juba, international mining firms are lining up at South Sudan's ministry of petroleum and mining, aiming to get their hands on part of the vast, unexplored territory.

Officials say firms from China, Australia, the United States, South Africa and other African countries plan to apply for licenses when new mining laws are passed later this month. After many delays, parliament is set to begin debate on the bill on Monday.

The South voted to secede from Sudan, then Africa's sixth-largest exporter of oil, in a referendum last year.

The new nation inherited three-quarters of the united country's oil production, but in January a row with Khartoum led it to shut down the industry whose receipts gave South Sudan 98 percent of its income.

The sudden loss of funds prompted Juba to introduce severe austerity measures, centralize and expand tax collection and explore fresh sources of revenue to replace petrodollars.

Oil production is expected to restart in the next couple of weeks, reaching around 230,000 bpd by the end of the month, but in the meantime the government hopes to pass mining legislation that will formalize the industry, let them tax precious metal and mineral exports and sell concessions to large-scale investors.

"It will diversify the economy. The mining sector has great potential," Petroleum and Mining Minister Stephen Dhieu Dau told Reuters.

VIRGIN TERRITORY

On the international market, Likuam's prize lump would fetch $11,000, an enormous sum in a country where the average teacher earns just 360 South Sudanese pounds, about $90, per month.

Likuam isn't the only man with the golden touch.

Around him dozens of other Toposa tribesmen and women, festooned with plastic necklaces, brass piercings and beaded amulets, hack away at the red soil with metal poles and shovels, digging small craters in a boozy revelry.

Despite the morning hour, girls distribute crates of lager, "sarko" moonshine and pitchers of bitter-smelling beer brewed from sorghum.

Many of the miners claim to have found nuggets of a rival size, or even larger.

Nobody knows the extent of South Sudan's mineral reserves because the 22-year war prevented exploration.

The latest geological surveys date back to the 1970s and 80s, but mining officials say diamond and gold deposits in South Sudan's mineral-rich neighbors are encouraging. They describe the 16-month-old country as virgin territory.

"We are neighbors to the DR Congo and Central African Republic so we can't rule anything out. Geology doesn't know borders," said James Kundu, acting director general for geological surveying at the ministry.

As well as gold and diamonds, he lists potential deposits of chromite, copper, uranium, manganese and a belt of iron ore, which is often associated with aluminum. A lot of records were lost in the war. One report by a Belgian company was half-eaten by termites, Kundu said.

"There's a lot of stuff here but people don't know about it. They're too focused on oil," said one international gold trader who preferred not to be named in connection with the as-yet unregulated trade.

"It's the best stuff I've seen in central Africa," he said, explaining that the samples he's tested show a purity of over 22 carats (91.6 percent gold) compared to around 18 carats in the Central African Republic.

COW BANKING

Locally, artisanal miners like Likuam are making their fortune, investing much of the money in the traditional method of storing wealth - cattle. In the last year alone, Likuam has bought 10 cows, each worth around 1,000 pounds.

In another nearby artisanal mining spot called Napotpot, Julia Lakalay panned the red earth with water she had carried two km (one mile).

"The gold mining has completely changed my life," she said, swathed in colored beads and spattered with mud. "In my village I could not even earn 1 pound. Now I'm earning 200 pounds per day."

Merchants in Kapoeta, a local town of tin-shack pubs, dirt roads and scampering goats, say the price of gold is inflated by the scarcity of dollars, a problem across the country since the oil shutdown.

In the absence of banks or an official exchange rate between the pound and the Kenyan shilling, Kapoeta's economy relies on gold as a form of cross-border currency.

"The main purpose to buy gold is to change currency. We buy gold, take it to Kenya, sell it to dealers, and buy more stock to bring back," said Kenyan businessman Junius Njeru, weighing a pile of gold nuggets.

"It's in your pocket, nobody searches you," he said, describing the process of taking the gold across the border.

Miners sell the gold for around 200 pounds ($46) per gram, leaving traders a narrow profit margin for resale on the international market at $55.

"BIG POTENTIAL"

Officials hope the new mining law will bring this trade out of the black market and, by selling land to prospecting companies, eventually let the national and state governments benefit from the underground treasure.

The mining companies with 42 so-called "grandfather" exploration permits approved by the semi-autonomous southern government before independence will have two weeks to claim their licenses after the bill passes through parliament, which could take as little as one day.

Norway, the United States and Botswana helped draft the law that caps large-scale exploration licenses at 2,500 square km. To prevent exploration companies from sitting on the land, the law forces them to surrender 50 percent of their concession every time they renew their contracts, which will be variable.

Firms that find enough minerals to start digging can convert their license into a mining permit.

"If you put them in a queue, there's at least 20 meters of investors waiting to get a license ... Others must know that if they want something, they must come quickly," said Rainer Hengstmann, a ministry adviser working for consultant firm Adam Smith International.

However, in a landlocked country with just 300 km of paved road, Hengstmann cautioned it will take many years to get commercial mining off the ground.

"You need a railway if you want to go large-scale. It will take time. They really need roads and power," he told Reuters, echoing investors' complaints about the lack of infrastructure.

Ministry officials say two firms, New Kush and Consolidated Mineral and Energy Resources Investment Company (CMERIC), are exploring actively on their grandfather licenses.

But Equator Gold, a British company working on the CMERIC license, says it will still take several years to actually produce anything.

"I think there's going to be a big rush to get land but exploration takes a long time," said Emma Parker, the firm's chief operations officer. "The progress has been slow but the geology is interesting. There's big potential."

(Editing by Alexander Dziadosz and Sonya Hepinstall)