The Next Big Thing: Is Kenya Ready for the Mining Find?

The Next Big Thing: Is Kenya Ready for the Mining Find?

Kenya’s mining cabinet secretary, Najib Balala, has come under fire for his decision to revoke licenses from 42 mining companies and proposals contained in the Mining Bill set to be tabled before parliament. The Kenya Chamber of Mines has opposed the proposed royalty fees terming them high and a repellent to potential investors. Miners whose licenses were revoked have promised to challenge Balala’s orders in court.

Cortec Limited, a company whose license was revoked, has attributed its woes to the refusal to deliver a Sh80 million ($940,000) bribe to the secretary and has launched a formal complaint with the Ethics and Anti-Corruption Commission. A probe has been set up to look into the allegations.

This underlines the challenges that Kenya is undergoing as it struggles to identify how to ensure its citizens benefit from the newly found wealth while attracting strong investors. The current law was written in 1940.

“We are not at war with investors. We want to ask every investor that is interested in doing business with the people of Kenya that it must be regulated. It will be in law and everybody must obey the law,” said Kenya’s Deputy President, William Ruto, while touring Kwale, a county endowed with titanium, niobium and rare earths.

The government also cancelled issuance of new licenses following reports that of the 500 issued licenses only about 20 were active with the others held by speculators waiting to sell off to serious explorers. The minister also suspended the Commissioner of Mines for lack of transparency in the issuance of the licenses.

With the cancellation of the already issued licenses, the government was accused of failing to honor legal documents, eroding the confidence of potential investors.

“Kenya is very young as far as mining is concerned and the message the cabinet secretary is sending is that Kenya is not ready for it,” said Jacob Juma, a director at Cortec, told AFKInsider.

Cortec has been very vocal in opposing the cabinet secretary’s move.

Aliko Dangote, Africa’s richest man, was expected to travel to Kenya and express complaints about the revocation of a license awarded to Dangote Kenya Limited.

The country has long relied on agriculture, tourism and exportation of human labor to drive its economy. However, in the last five years there have been explorations of titanium, niobium, rare earths, coal and oil. This change influenced the decision by the new government, elected in March 2013, to upgrade mining from a department to a ministry.

The licenses revoked were those issued during the government transition period of January and May of this year, when Parliament had been dissolved for the elections to be held in March — the new government was yet to be formed.

“I hereby appoint a task force to undertake a comprehensive review of all licenses issued from January 2003 to date. The purpose is to assess their validity, draft recommendations and provide a report to me to enable me to take necessary action within 60 days,” Balala said in a press statement.

Currently, only titanium is being actively mined in the country after other exploratory activities fell to legal or operational challenges. Australian firm undertaking the mining, Base Resource, was expected to ship out its first exports in early September of this year. The company, however, experienced delays. The project was stalled for over 15 years attributing conflict between the community and then prospecting mining firm, Tiomin, from Canada.

Cortec Limited, a subsidiary of Pacific Wildcats Resources of Canada listed at the Toronto Securities Exchange, received a mining license in March of this year after it confirmed the commercial viability of niobium and rare earth at Mrima Hills in Kwale County. The firm estimates the deposits to be worth $100 billion, however, the government has dismissed the estimates as over-statements meant to drive the company shares and ease its capital raising activities.

Following the license revocation, trading of Pacific Wildcat Resources was suspended for a day only to fall 60 percent on resumption.

Coal mining is yet to take off in the Mui basin, Kitui County, following contentions of the contractor’s ability to execute the project and disagreement with the local community on how to reward them. The tender was awarded to Chinese firm, Fenxi. The government has estimated coal deposits in the Mui basin to be valued at over 3.4 trillion shillings ($39.3 million), and projects that successful exploitation of the mineral could provide up to 3,500 megawatts of cheap electricity.

Balala said that the Mining Bill was meant to streamline and level the playing field in the sector. The bill seeks to establish a National Mining Corporation as an investment arm of the government in the mining sector; holding interests on behalf of the state in mining companies.

It is however his proposal to increase royalties to between two and 12 percent of gross revenues, depending on the mineral. The bill proposes 12 percent on diamonds, 10 per cent on niobium, titanium and rare earths, eight percent for coal and five percent for gold which the country also has in small quantities.

“The proposed royalties are out of sync with international best practices. As far as we know, no country in the world has royalty rates as proposed.  The net impact of the proposals would be like killing the cow that produces the milk,” said Chamber of Mines chairman, Adiel Gitari.

Other countries in Africa charge between 2.5 percent and 10 percent on precious metals and base metals respectively.