Scramble for resources put Kenya on global mining radar

By Paul Wafula

KENYA: The recent discoveries of commercial coal desposits in Mui Basin in Kitui County, huge crude oil wells in Turkana, and titanium deposits in Kwale is turning Kenya into an emerging mineral resource powerhouse.

This change in fortune is a big plus for a country that  has hardly relied on mineral resources. Traditionally, Kenya’s economy is largely dependant on agriculture, tourism and some level of manufacturing.

However, the bullish outlook for natural resources is driven by demand in China and other rapidly industrialising nations.

Already, Kenya is on the global radar, as scramble for natural resources take shape. After years of waiting, Base Titanium is on the verge of becoming one of the first major mining companies to establish itself in this lucrative sub-sector. The Australian mining firm, Base Resources, will earn in excess of Sh76.5 billion from the Titanium mining project at the Kenyan Coast that is at an advanced stage.

The Government will take a third of the total proceeds through royalties and taxation, which translates to about Sh25.5 billion over the 13 year mine life of the Kwale project.  

“Our calculations show that we will raise $900 million (Sh76.5 billion) in the mine life of the project,” Base Resources managing director Tim Carstens, told Weekend Business in an interview. He said on the sidelines of a media tour of the project on Thursday. The firm expects to export Sh21 billion ($250 million) worth of the mineral per year from November, next year, when its first shipment is expected.

When completed, the project is expected to produce three minerals from the sand – ilmenite, rutile and zircon. Available forecasts shows that it will extract  about 333,000 tonnes of ilmenite a year, another 80,000 tonnes of rutile per year, which represents 14 per cent of global output, and a further 30,000 tonnes of zircon. 

The firm hopes to ship atleast 43 trucks of the mineral from the site to the new jetty it is constructing per day once the actual mining and processing starts. It hopes to have a stable demand and prices for the fast six years before a drop in prices in the last half of the mine. Its key market will be the United States, Japan and China.

Though the mining is being done by a locally incoroprated firm, Base Titanium Ltd. Kenyans wishing to share the dividends from the project will have to buy into the firm in Australia, where its parent firm Base Resources is listed.

“We are looking at listing in Kenya within four years if the Nairobi Securities Exchange allows us. But we are encouraging Kenyans who want to own part of the company to do so by buying shares in the firm directly from Australia with the help of a local stock broker,” Carstens said.

The firm has also disputed claims that the Government had given it guarantees to back up the loans it has been shopping for to finance the project. Construction of the project began in October  last year.

“We are on schedule and for practical completion in quater three of next year and the first shipment to be done in the last quater,” he said. 

So far, it has raised Sh31 billion  through a mix of equity and debt financing. It has already drawn Sh4.4 billion to be used in the development of the project.

This comes at a time when the mining industry is coming to terms with a new government  policy requiring all mining firms to cede atleast 35 per cent of their stake to local shareholders.

The policy recently introduced by Environment and Mineral Resources minister has rattled the sector that has witnessed increasing activities in recent months.

“Ceding 35 per cent stake would mean getting investors with over Sh8.5 billion ($100million) and it is inpracticable, espeacially at this time when Kenya’s mining industry is at its infancy,”  Carstens said.

The firm told Weekend Business that the regulation that seeks to mandate a 35 per cent minimum Kenyan equity participation in mining licences cannot be legally applied to the Special Mining Lease No. 23, which covers the Kwale project.

“Such a big policy shift should be introduced in the context of the Mining Bill, but introducing it in isolation does not help in making Kenya a stable place fo foreign investors. But it will not affect us becasuse we have a mining lease,” he said.

The interpretation of firm on the new law is set to put its legal team on a collision course with Environement minister, Chirau Ali Mwakwere, who holds a different understanding of the same law.

 The firm has also criticised the timing of the new law on grounds that it is likely to be used as an entry point to politicise the project that has already attracted its fair share of controversy.