Sector challenges push miners to the edge amid exit threats

Kilimapesa says another firm had made an application to start exploration activities in its territory. [File, Standard]

The planned sale of stakes by two gold miners in their Kenyan operations is a pointer that it might not be all rosy for the industry that has been touted as key to turning the country’s fortunes.

Goldplat, which operates the Kilimapesa Goldmine in Narok County, last year said it would sell a stake in the mine. The firm’s move is informed by the need to avoid going to shareholders to pump more money in the loss-making operation.

It has already held talks with a number of investors that have expressed interest.

It also noted that it has been grappling with a number of operational challenges in Kenya that have held the mine back from being profitable.

Last week, Acacia Mining, which has been exploring gold in Kakamega County also said it was looking for an investor to buy all or part of its licences in the area. It has in the past said the region holds huge potential for gold production. Pending the sale, the company said it would invest minimal resources this year.

It has substantially reduced its workforce at the mines and would only allocate enough money to sustain bare minimum operations in the course of this year. The firm came to limelight locally in 2017 when it announced a major gold discovery in Kakamega.

Then, it described the find as that of high-grade gold and estimated that the mines at the Liranda Corridor in Kakamega had a resource of 1.31 million ounces of gold, whose grade, it said, is one of the highest in Africa.

The resource could be valued at Sh171 billion ($1.65 billion).

The firm is, however, unable to move the mines to production and now says it is planning to sell all or part of the licences it had been granted to explore for gold in the area. It said it is weighing different options including bringing in a partner with conventional mining expertise to take the project forward. The Chamber of Mines Chief Executive Moses Njeru said that due to the capital intensive nature of the extractives industry, many firms will rarely pursue a project from end to finish on their own.

Instead, mining firms tend to form joint ventures, especially when a project approaches the commercial phase.

“When a company does exploration, more often than not it does not go into production by itself. They look for strategic partners,” he said.

“For Acacia, they invested in exploration, made a discovery and now they might be looking for an investor to move the project forward.

Search for investors

 This way they will be able to pool resources. In the case of Goldplat, the money they had to put in the project may have been depleted and are looking for a partner.” While it is possible that the two firms’ search for investors could be by coincidence and necessitated by the need to inject new cash and expertise, a deeper look points to underlying issues in the mining sector that are holding back the industry.

And indeed, Njeru says miners in Kenya are operating in a fairly harsh environment. According to the Kenya Chamber of Mines, venturing into mining in Kenya is akin to walking on a minefield where the next step you take could mean being blown off.

Companies have to grapple with numerous challenges while projects take years before they can start giving investors any earnings.

At the core of the challenges is lack of a mineral resource map and in many instances means that mining firms have to blindly invest in exploring for minerals, clutching only on a hunch and outdated mineral surveys. “Mining in Kenya is truly risky. And the heart of that risk is the lack of a geological survey. Without such a survey means that we have not unearthed the geological information of the mineralisation that we have in Kenya. As a company, you have to spend to get that information. As a country we should have done the airborne geological survey,” said Njeru.

The State Government has been planning to undertake such a survey and even awarded a Chinese firm a Sh7 billion contract to do the job but was later cancelled following concerns about the cost as well as foreigners doing the job with arguments that there was adequate local capacity.

Njeru added that the torturous land acquisition process and politicians make it difficult for miners. “Whenever a project starts taking shape, you will hear comments by the political class … If you tell people not give away their land or ask for Sh1 billion per acre, what you would be saying is that the project should not go ahead. While such a project should translate to benefits for the community, the demands should be within reason.”

“The project has to be viable economically and sometimes when you add up the cost of setting the land free for mining activities to the exploration and the exploitation expenses, exorbitant land rates might make it not viable. A company also has to consider the taxation and licensing regimes, politics of the day as well as possible changes in leadership in future and the factor stability of prices of mineral commodities in the international markets.”

“There are so many factors that are at play and that is why you realise that mining is not growing at the rate that people would want.” The Kajiado County has been seeking Sh17 billion in land rates from Tata Chemicals, which processes soda ash at Lake Magadi.

The firm is being accused of defaulting on payments since 2013, calculated at Sh14 000 per acre annually (the firm has 224 991 acres in Magadi), as per the current Finance Act.

In Nandi County, there has been a push and pull between the County officials and Karebe Gold Mining, with the firm claiming harassment and even plans to take over the by ‘powerful individuals’. The county accuses the firm of giving a raw deal to landowners whom it acquired parcels of land from while it currently digs tunnels into farms without consent from owners.

It is also accused of not meeting its quota of investments in the community as required in contracts signed by the Ministry of Mining.

The Chamber of Mines says incidences of harassment of its members are among the reasons the country is ranked poor in key mining indices.

Among these is Canada’s Fraser Institute that ranked Kenya the second worst mining destination globally, only beating Guatemala, in its Annual Survey of Mining Companies 2017 index.

“Kenya has repeatedly been ranked at the bottom of the list of attractive destinations to invest in mining ventures by The Frasier Institute… this trend is not improving but worsening,” said the Chamber in a statement January 2018. “Alleged political interference and intimidation in the counties is a new and potentially lethal addition to the mix.  We highlight the cases of Karebe Gold Mining in Nandi County and Tata Magadi in Kajiado  where county governments are causing problems for large investors in the sector.”

Goldplat has recently claimed of plans to dispose of some of its gold exploration licences in Narok County, this time by the national government.

The company in an update to shareholders last September said another firm had made an application to start exploration activities in a region where it had already been issued with a licence to explore for gold.

The miner has both mining and exploration licences in the area around Kilimapesa gold mine. The firm has so far not succeeded in getting the Ministry of Mining to nullify the application.

“On October 2017, the management was advised of an application for an exploration licence over an area in the Kilimapesa exploration licence. An objection was lodged and numerous meetings have been held with officials from the Ministry of Mining and the Licensing Authority, including the Cabinet Secretary,” said Goldplat in disclosures made to shareholders.

“Despite meeting with the Cabinet Secretary, it is unclear as to the exact status of this application and the company is taking legal advice on the best way to proceed.”