Mining firms hit deep vein in new bourse rules

By John Oyuke

Mineral exploration firms can now raise funds cheaply and locally to finance capital-intensive ventures in the country.

This comes as the Nairobi Securities Exchange (NSE) fast tracks the move to link them up with both local and international investors.

The move by NSE to fast track operations of Growth Enterprise Market Segment (GEMS) comes at a time mining firms have been finding it hard to raise funds locally to facilitate operations in the country.

A surge in global commodity prices and investor appetite for new frontier markets has revived interest in Kenya’s mining potential. Investors are interested in gold; mineral sands such as titanium, coal, and mineral earths such as titanium, rutile and zircon.

High rates

Attempts by these firms to raise cheap funds from the local market to finance their operations have however been frustrated by high interest rates charged by financial institutions and tough rules that have kept them from listing on the bourse.

However, this barrier to entry and expansion is set to ease following introduction of a new GEMS at the NSE and subsequent approval of a number of advisors and representatives to the new segment.

Under the Nominated Advisors (Nomad) Rules, NSE has approved registration of four Nominated Advisors and eight authorised representatives to assist companies to list on GEMS and comply with good corporate governance practices. Those approved by NSE board as Nomads and authorised representatives to GEMS include, Burbidge Capital Ltd with authorised representation by Edward Burbidge and Michael Chomba.

Others are, Emerging Africa Capital Ltd with Mr Michael Musau and Mr Teddy Bukhala as the authorised representatives, NIC Capital Ltd represented by Mr Jude Anyiko and Mr Eldad Wairegi. Standard and Mutual Ltd has Mr Chris Maranga and Mr Joshua Goto as the authorised representatives.

NSE Chairman, Eddy Njoroge described establishment of the new market segment as a milestone for Kenya’s public markets.

“Small and Medium Sized Enterprises that meet the listing criteria for GEMS can now engage a Nomad to assist them to raise capital and list their shares on GEMS,” he said on the new approvals.

NSE Chief Executive Officer, Peter Mwangi said the segment is expected to provide opportunity for firms participating in the country’s natural resources and mining sector to raise capital from the local capital market.

“GEMS provide an opportunity for firms in the natural resources and mining sector to raise capital and also comply with the 35 per cent local equity component under the Legal Notice No 118,” he stated last month.

The new laws, which are meant to curb the repatriation of mineral wealth, require foreign mining companies to cede at least 35 per cent of their shares to Kenyans. They took effect from September 27 last year.

Investor influence

Environment and Natural Resources minister Chirau Ali Mwakwere, who gazetted the laws, said this would reduce the influence of foreign investors in Kenya’s mining sector as well as promote the interest of local investors.

“It shall be a condition of every mining licence that the mineral right in respect of which the licence is issued shall have a component of local equity participation amounting to at least 35 per cent,” he noted in the gazette notice.

A UK mineral exploration firm, Red Rock Resources Plc came out late last year to petition the Government to fast track the establishment of segments such as GEMS within the NSE to help them raise funds.

The firm exploring gold at the productive Migori Archaea Greenstone Belt in western Kenya, is currently preparing for a major capital raising drive a head of a Mining Lease for its Macalder Tailings Reprocessing Project.

Red Rock Chairman and Chief Executive Andrew Bell said once mining licence is received from the Government, the firm expects to raise substantial amounts of cash to begin extracting gold for sale in the international market.

He said the London-listed firm, which until now has engaged in exploration activities, is likely to raise funds from either banks in Nigeria or South Africa, as borrowing from Kenyan banks was too expensive.

Risk capital

Bell said companies engaged in prospecting and mining activities usually require substantial amount of risk capital.

“The logic for segment is that the early stage companies cannot afford the current strict listing guidelines and applying the same to them will restrict their ability to raise capital and stunt their growth,” he said in a recent interview.

Rules of the local exchange requires that before listing, a company must have been consistent in its operations for at least three years, during which time it must have made profit and shown good growth potential.