After years of in-fighting Kenya finally exported the first batch of titanium in February. This signalled the changing fate of a country, which until recently, had no minerals to boost of but has been propelled into the exploration lime light by recent discoveries of oil deposits.

The East Africa’s largest economic has now entered the mineral exportation business with a first batch of titanium feedstocks – 25,000 tons of ilmenite, a weakly magnetic titanium-iron oxide – was exported to China in mid February.

“The mining sector is the fourth largest exporter in Kenya after Tea, Horticulture and Tourism. We hope to transition to the leading exporter in the coming few years,” said Joe Schwarz, the General Manager of Base Titanium Limited in a media tour of the facility in Mombasa that AFKInsider attended.

He added that price of Titanium ore is presently depressed owing to an economic slowdown in Europe as well as declining demand from China-the largest consumer of minerals in the world.

Located in Kwale in the coastal region of Kenya, the $305 million-worth Base Titanium’s mineral sands plant becomes the country’s first large-scale mining company to commercially export minerals. Any minerals.

Currently, Base Titanium – a wholly-owned subsidiary of Australian-listed resources company, Base Resources Limited, is producing two types of titanium feedstocks – rutile and ilmenite.

Base Titanium

Construction at Base Titanium began in the third quarter of 2011 following an enhanced definitive feasibility study with production beginning by fourth quarter of 2013. Annual production is projected to be 330,000 tons of ilmenite, 80,000 tons of rutile and 40,000 tons of zircon.

The Titanium plant in Kwale is expected to be one of the top producers of ilmenite and rutile in the world, with production amounting to nearly ten percent and 14 percent of the global supply of these minerals respectively.

Available statistics indicate that it is suitably positioned to leverage on a sustained opportunity in the mineral sands market, and is expected to generate $1billion in revenues over its lifetime of 13 years.

Titanium is presently attracting a price of $180 per ton in the international market.

“This is the biggest single investment by Australia in Kenya, sending a message to the world to take advantage of a mining boom in Africa,” said Geoff Tooth, Australian High Commissioner to Kenya at the media tour in Mombasa.

“Although Kenya’s mining sector is still too small for its potential, we have a wealth of onshore and offshore mining experience to offer it.”

Australia is the world’s largest mineral producer accounting for 16 percent of global output. The country has an annual mineral production of nearly $72 billion.

Compared to its closest neighbour Tanzania – which has substantially developed its mining industry over the past 15 years – Kenya is in its nascent stages in mining and is deemed one of the least explored countries in Africa.

Delineation of a substantial deposit of niobium and rare earth elements at Mrima Hill, near Mombasa and identification of the Mui Basin coal deposits, in the eastern region, together with the recent establishment of a stand-alone Ministry of Mining, have led to the increased profile of the sector.

During the Mombasa tour it emerged that Kenyans will be asking pertinent questions in the coming years that include: how the country and host communities benefit from its mineral resources; how this benefit is measured; and whether to trust the numbers from companies and the government.

Explorers Paradise

There are many indicators of benefits associated with mining including revenue through royalties from various license and permit fees as well as taxation. All eyes are on how the Kenya Government cuts a deal with mining companies over royalties.

In August 2013, Najib Balala, the cabinet secretary for mining in Kenya raised mining royalties from 2.5 percent to 10 percent, raising uproar in the mining sector.

“We entered an investment agreement with the Government’s Treasury Department which supersedes all other regulations and locks royalties at 2.5 percent for 5 years. A rate of 10 percent is therefore off the charts,” Simon Wall, External Affairs and Development Manager at Base Titanium Limited told AFKInsider in Kwale.

He explained that the mining firm had already done its project financing with various financial institutions, based on the 2.5 percent rate.

Base Titanium officials cite high cost of power, costing the firm between $6-9 million per year and heavy capital outlay as some of the reasons a hike in royalties could run it out of business.

“We have issues but are in the process of concluding negotiations to ensure that interests of investors and the Government of Kenya are safeguarded,” Najib Balala, Mining Cabinet Secretary told the media in Kwale while officiating the first shipment of mineral exports by Base Titanium, at their port facility in Mombasa.

The ten percent royalty rate is higher than the 1.5 percent in India and five percent in other more advanced mining jurisdictions such as South Africa or Australia.

In August 2013, the Ministry of Mining issued a gazette notice (Prescription of Royalties on Minerals Regulations, 2013 listed under Legal notice 187).

Mining firms reckon that without exception, the proposed Kenyan rates are conspicuously out of step with both Africa contemporary countries and the rest of the world. In most cases the proposed rates are double or more than double the world average.

Investors in Kenya’s mining sector have expressed concern over the enormous technical risks faced in developing a mining project, expenditure of substantial risk capital in proving up a project, the time it takes and having no control over global commodity prices.

What they are seeking is a predictable, balanced and stable legislative environment in which to operate; one with an acceptable political risk profile.