The Star (Nairobi)

Kenya: Laws, Politics Led to Mining Sector Anticlimax in 2012

The quest for robust mining sector in Kenya hit an anti climax towards the end of the last year following a number of unexpected regulatory and host community awakening.

An announcement by the Environment and mineral resources minister Ali Chirau Mwakwere that foreign mining companies will have to cede 35 per cent shareholding to locals sent shock waves through the investing companies.

The new law took effect from 27 September 2012.

Mwakwere's rule requiring all foreign mining companies to accommodate local investors and institutions sent a number of companies already on the ground into panic. Some made no secret about their displeasure.

"As soon as the news of the rule went out, our share slumped 40% at the Australian Securities Exchange and has not recovered since," said Tim Carsten, the managing director of the Base Titanium Company. "The minister could be well meaning to want a little more to go to locals but this not the way to go about".

Base titanium is investing about Sh300 billion in the project in Kwale, largest undertaken in Kenya's mining sector in the recent past.

The project is financed through $170 million in debt and equity at $140 million. This therefore means that its shares are tied up in investment capital, and can not be ceded to Kenyans as the minister demands.

The minister's announcement came just as the scramble for mining licenses had reached fever pitch, with gold, coal, and titanium attracting the highest interest.

"The complex nature of financing these large projects are highly sensitive to changes in regulatory environment of the host country and many prospective investors in Kenya's mining sector are have shelved their plans due to this pronouncement," Carsten said.

Buoyed by sudden increase in the number of applications for mining rights, the minister sought to balance the public expectations from exploitation of their resources by coming up with the formula, ahead of completion of the mining bill pending in parliament.

"Our resources can not be sold for a song while the multinationals enrich themselves leaving the real owners with nothing," Mwakwere told a gathering of mourners in Wudanyi, Taita Taveta County last November. "We must get our fair share and those unwilling to do so can leave our minerals in the ground until we get those who are ready to play ball".

According to Carsten of Base Titanium, those rules should not be applied retrogressively since investors already on the ground had worked out their investments based on previous laws.

He said that this is the mining practice worldwide, but hastens to add that the new rules can be applied progressively without disrupting activities in the sector.

In gold mining, Mid Migori, now owned 60 per cent by Red Rock Resources of the UK run into head winds after attempts to incriminate its partner Mid Migori in a smuggling racket became a subject of debate in parliament.

The threat was contained in report adopted by parliament recommending investigations with a view to revoking one out of the 2 licenses held by the mining company.

Redrock holds special prospecting licenses and has applied for a mining lease to process tailings in a part of its license at Macalder in Migori for extraction of gold.

Allegations that the company has been exporting gold through Tanzania were explained away as ridiculous, on the basis that it only sends samples for testing in minute quantities.

"We would like to hereby state that Mid Migori Mining has not been carrying out any mining activities as alleged in the parliamentary report," said Red Rock Reosurces managing director Andrew Bell "Our dissent is based on the fact that the Departmental Committee on Lands and Natural Resources has failed to guide the house correctly, has not offered Mid Migori or Red Rock a chance to comment on the Report or correct errors, that the Report dealt with matters on which Red Rock was told not to present evidence as they would not be covered, and that the main facts stated as a basis for the conclusions were uncorroborated assertions by individuals that the Committee allowed to stand without any evidentiary test or in many cases even elementary fact-checking,"

The report made no mention of Red Rock, the operator of the licences which are situated in the South Nyanza.

The region is part of a gold belt referred to as the Archean Greenstone Belt, with geological features comparable to Gold Reef in Johannesburg, South Africa where gold mining is thriving.

The rule immediately took effect on the active mining companies like African Barrick Gold, UK's GoldPlat, which was granted the first gold mining license in the country in 2011, and China's Fenxi Mining interested in coal in Kitui district

The mining woes are probably at their worst in the coal rich Mui basin in Kitui, where Permanent secretary in the ministry of energy Patrick Nyoike claims politics of the day have stymied the momentum of getting investors to extract the resource.

A Chinese company that had penned a deal to set up operations in the area Fenxi Corporation is facing a barrage of accusations.

The worst among them is that it does not exist in its alleged motherland China. The host community has also placed demands on any prospective investor to include them as shareholders, outside the states revenue sharing structures.

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