Focus on royalties misses true value of mining industry
SEE ALSO :Global tourist arrivals hit 1.4 billionOf course, the most obvious avenue is jobs. Modern mining is more capital than labour intensive so while the lucky few will get good quality, long term jobs, it is unlikely that mining will absorb a huge number of our workforce directly, particularly our youth. However, to secure the jobs that will be created, we need to focus on education. The industry requires well trained engineers, geologists, health and safety specialists, heavy equipment drivers, mine accountants and so on. This is the time for our youth to consider these careers so that they are well positioned when mining companies come calling. Our institutions need to be at the forefront of this training. For example, the Taita Taveta University College has taken steps to meet this demand with courses such as its Mining and Mineral Processing Engineering Programme but we need greater access to this education across the country. Biggest impact The greatest impact of the industry will be in the economic development stimulated by capital and operational spending by mining companies. These companies will require billions of shillings worth of supplies in the years to come. Food, chemicals, medical services, protective equipment, transport, accommodation, construction and maintenance services will all be required to keep plants operational. Kenyans are renowned for their entrepreneurial spirit.
SEE ALSO :Envoys pledge to stand with KenyaAll risks, including the dreaded exploration risk can be mitigated so that is not an excuse not to participate. Our fiscal policies can also assist this indigenous participation. For example, individual Canadian investors can obtain a tax credit based on their investment in shares of mineral exploration companies. Non-productive No wonder Canada has a world class mining industry! Perhaps some of the billions spent on real estate by pension funds and individuals, particularly non-productive land holdings, could be diverted to mining through co-operatives or stock exchange listings? Considering that mining’s contribution to GDP is set to double with just one additional mine this year, the sector is obviously ripe for investment. Finally, a word on royalties – the current buzzword. This is basically an industry knowledge challenge and I will use gold mining as an example. Gold production and sales are measured in ounces. During the 1st half of 2013, Africa Barrick Gold (ABG), which mainly operates in Tanzania, publicly reported an average gold selling price of $1,366 per ounce. A cursory glance at the business pages would indicate that this price is worrying many gold producers. Why would this be so? This is because there is a substantial cost to producing that ounce. The headline cost (or the “cash cost”) for ABG in the same period was $879, consisting of direct costs such as equipment, fuel, salaries and logistics. However, there is a more comprehensive measure referred to as the “all in sustaining cost” which was $1,416 during that period indicating that the company is actually losing $50 on every ounce!