Some assets at Kilembe mines have mysteriously gone missing while the limestone site at Hima, which formed part of the concession, and the copper smelter were largely ignored during a four-year period where Tibet-Hima's capital investment is said to have been below expectation, the report of the Kilembe Winding-Up Commission reveals.
The commission also suspects Tibet Hima, the Chinese consortium that won a 20-year concession for the Kilembe copper mines in 2013, clandestinely tried to smuggle mineral concentrates out of the country after government blocked a planned exportation of 30,000 tonnes of minerals.
According to the October 2017 report, Tibet Hima tried to export 30,000 tonnes of mineral concentrates to a laboratory in China, claiming they were a sample for testing.
The company said the export concentrates were for Shandong Humon Smelting Company Limited, its engineering, procurement and construction partner, that needed to test them in China for better assessment of the Kilembe project. Government blocked this planned export.
"The commission also established that the amount of 30,000 tonnes was too large to be considered as a sample for export. The Winding-up Commission established that the copper concentrate contained several other valuable minerals like gold, nickel and cobalt and that the concessionaire had omitted to indicate the exact contents of other valuable minerals in the sample other than copper."
The report added: "The Winding-Up Commission was of the view that "the export of such a large quantity of copper concentrate merely as a sample would result in a considerable financial loss to the government of Uganda."
The accusation that Tibet Hima was trying to smuggle other minerals out of the country is strong. In neighbouring Tanzania, Acacia Mining, a subsidiary of Canadian firm, Barrick Gold, was accused of under-declaring the mineral concentrates it was exporting.
That accusation led to two separate commissions being instituted to investigate the matter on top of a mineral export ban. The investigations found Acacia culpable of under-declaring the exports, which attracted a fine of $190 billion and an amendment in the mining laws of Tanzania, most of which have thrown the entire extractives industry in confusion.
Government instituted the winding-up commission to evaluate the performance of Tibet Hima after it had issued the company with two termination notices. The commission was also tasked to propose to government a way forward on how to manage the Kilembe mines.
The commission was composed of six members: Noah Edwin Mwesigwa, the chairperson, Agnes Alaba, Joselynn Ategeka, Bi Lei, Li Wei Guo, Fred Kyakonye.
The commission says Tibet Hima's concession is now terminated after the company failed to come up with a recovery plan after receiving two notices of termination from government.
Tibet Hima was supposed to produce ore concentrate within two or three years, according to the report. This had not yet been achieved by the time the notices were issued.
Government also said Tibet Hima failed to pay annual concession and exploration guarantee fees, while the environment authority accused the company of polluting River Nyamwamba with copper tailings.
The commission has recommended that government takes over the mines and manage them or get another company to step in.
Tibet Hima disputes much of the findings in the report on top of arguing that they lost time due to the floods in the area. Li Wei Guo, the chairman of Tibet Hima, who was also a member of the commission, declined to upend his signature on the report.
Bi Lei, an official of Tibet Hima, and was also part of the commission simply wrote: "We do not agree with most issues of this report."
Still, Tibet says they had started executing their recovery plan for the Kilembe mines. The company told the commission that it had invested up to $46 million in Kilembe before government issued a termination notice.
However, the company was expected to invest $175 million in the first three years. The commission said Tibet Hima made some investments at the mill, in fabricating trolleys and repairing the rail tracks at the foundry. However, the commission added Tibet Hima was "unable to prove to the Winding-Up Commission or physically justify the extent and value of the investment claimed."
Tibet Hima also said it had set up two mineral processing lines - for copper and cobalt.
The Chinese consortium aslo noted that they submitted a definitive feasibility study for Kilembe - a document that shows how the project will be financed - to the ministry of Finance, which was disapproved. Tibet also added that its retained consultant, J.T Boyd, who the government of Uganda chose before awarding the concension to the Chinese firm, "had not yet delivered on the agreed scope of work."
The report noted that Tibet Hima was planning on putting up a new smelter.
"A prefeasibility study report for an annual 30,000 -tonne copper smelter had already been sent to government and was pending approval," the commission was told.
Tibet Hima said Sinomine Resource Exploration Company Limited, which it hired to verify and validate the data for Kilembe mines, especially on the probable ore reserves, was planning on undertaking detailed exploration on the adjacent licenses to the project area.
That process, Tibet Hima says, has now been disrupted, on top of three other Chinese companies that had shown interest to partner it in further developing the copper mines.
The next stage is not easier, though. The procurement process of getting another company to manage the copper mines will take quite a bit of time. There are a couple of mining companies that are already interested in taking over the mines though.
In the interim, the option of government quickly stepping in would have been a better solution. With no state mining company in place, this solution looks untenable.
The issues around the Kilembe copper mines, arguably one of the most prospective mining structures in Uganda today, should encourage debate about the possibility of the country creating a holding national mining company, such as Ngali Holdings in Rwanda or the one in Tanzania.