Mining companies would be banned from investing in Eritrea's potentially booming minerals sector under a draft U.N. resolution that Security Council members are due to start negotiating on Tuesday.

The council is weighing the investment ban, as well as an import ban on Eritrean minerals and other measures to add to existing sanctions against the Horn of Africa state in retaliation for Eritrea's alleged support of Islamist rebels in Somalia. Eritrea denies supporting the rebels.

But diplomats said some of the toughest provisions in the proposed resolution, which has been drafted by Gabon, faced opposition from some members of the 15-nation council, meaning the final text could be watered down.

Proposals by an East African bloc to toughen sanctions on Eritrea have been stalled for three months as the search went on for an African state sitting on the Security Council to sponsor them.

The Inter Governmental Authority on Development, or IGAD, which groups seven East African states, called in July for more sanctions to hit the Eritrean mining sector and remittances.

Eritrea has blamed its rival Ethiopia, from which it split away in 1993, for the drive. In a letter this month to the council it urged the body to reject Ethiopia's current hostile campaign and immediately lift all sanctions against it.

The new draft, a copy of which was obtained by Reuters, says that all states shall prohibit investment by their nationals, persons subject to their jurisdiction and firms incorporated in their territory or subject to their jurisdiction in the extractive industries and mining sectors in Eritrea.

It also says all states shall prohibit the import of gold and other raw materials from Eritrea.

DIASPORA TAX

The draft also seeks to block payment of a 2 percent diaspora tax on their incomes that Eritreans working abroad are expected to pay to their local Eritrean embassy.

Eritrea is seen as being on the brink of a minerals boom that could revive its struggling economy. Remittances that it receives from its large diaspora in the West and Middle East are its biggest source of foreign exchange.

The country's most advanced mining project, Bisha, believed to contain gold, copper and zinc, is run by Canada's Nevsun Resources Ltd. Earlier this year, Eritrea granted Australia's Chalice Gold Mines two new exploration licenses in a nearby location.

The fresh sanctions drive follows a report by a U.N. monitoring group in July that found Eritrea continues to provide political, financial, training and logistical support to al Shabaab and other armed groups in Somalia.

Eritrea has denied repeatedly that it funds and arms the Islamist al Shabaab but the accusation prompted the Security Council in 2009 to impose an arms embargo, asset freeze and travel ban on leaders and firms in Eritrea.

The new resolution would add more individuals and organizations to those already under sanctions.

But council diplomats suggested it could be toned down.

Council members are generally well-disposed towards a strengthening of the Eritrea sanctions regime but several cannot accept the most substantive elements of the draft, particularly those that amount to sweeping economic sanctions, one diplomat said.

However, the key point is to target the regime and its destabilizing activities in the region and it should be possible to find consensus on measures that achieve that.

The diplomat did not identify the countries that were objecting but China and Russia typically are cautious about sanctions.

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