Mining ‘catalyst’ to boost Kenya

Heavy-duty machines pounding mounds of red earth into cavernous mines might be nothing new across much of Africa, but they are an unprecedented sight in Kenya.

When the Kwale Mineral Sands Project goes into production on the coast next year, it will bring Kenya’s first large-scale mine into existence. The output from that mine alone is set to overtake coffee as the country’s fourth biggest export earner and contribute close to 1 per cent to GDP.

“This is a flagship mine; it’s a real opportunity to demonstrate a mine of global significance can be developed in Kenya and we think it’ll be a catalyst for a mining industry and a beacon for foreign investing in this country,” says Tim Carstens, managing director of owner small-cap Base Resources, listed on the Australian securities exchange.

He says that at full production the $300m project will supply 14 per cent of the world’s rutile, a titanium ore essential for use in paint pigment, plastics and paper, as well as ilmenite, a lower-grade titanium ore, and zircon, used in porcelain and ceramics.

Although the country has a history of mining, mostly for gold, it has largely been carried out by artisanal miners in small-scale operations. Geological surveys in the 1970s suggested Kenya had none of the mineral potential of neighbours such as gold-rich Tanzania, while mining legislation dates back to the 1940s, before the country’s independence.

Reliant on tea, tourism and horticulture for its $3bn or so a year in exports, mining was deemed so insignificant to the government – it generates about $200m a year, mostly from gold, gemstones, soda ash and fluorspar – it does not even have its own dedicated ministry.

But, helped by new-found exploration potential and rising commodity prices, Kenya could now faces a surge in its resource economy. Moses Masibo, commissioner for mines, says so far probably only 20 per cent of the country’s mineral wealth potential is known.

“We believe that once we complete the [nationwide airborne geophysical] survey, Kenya may very well become one of the leading mining countries in the world,” he says, noting his department needs to double the number of geologists and engineers and is seeking funding for its comprehensive survey.

“Kwale is one of our largest projects in Kenya but we anticipate more companies will come … already there is an upsurge of activities, with interest in gold and coal,” says Mr Masibo of the 13-year project, which Base Resources says will generate $2.3bn over its lifetime.

Already London-listed companies are keen to enter the country, as gold, copper and oil discoveries spark investor interest. African Barrick Gold wants to secure exploration rights to gold licenses in the west. Base Resources too may develop three other sites.

In June, Kenya invited new bids for further coal exploration in the east after awarding two blocks last year. Tullow Oil made Kenya’s first commercial oil discovery this year, saying its licence area in Kenya could hold four times as much as neighbouring Uganda, while Total is already exploring offshore.

Kenya risks falling under the “resource curse”, however, should an influx of hard currency weaken the appeal of its exports and exacerbate corruption. The country has previously been tarnished by several corruption scandals and the country is ranked 154 out of 182 countries on the 2011 corruption perceptions index.

Donors say Kenya is keen to institute a robust framework to ensure resource spoils are equitably distributed.

“Kenya is starting early … it’s way ahead and they are taking a very comprehensive view so they’re not caught off-guard when the time comes for big production,” says Gabriel Negatu, regional head at the African Development Bank.

“They are trying to benefit from best practice to avoid mistakes that were made by others to ensure these minerals become a source of growth and not a curse.” New draft legislation is already before cabinet, and experts will start a comprehensive contracts review in the next two months, said Mr Negatu.

Kwale’s history offers a cautionary tale for investors. The previous owner of the mine, Canada’s Tiomin, faced a protracted, costly lawsuit about resettling locals who had to be relocated from the area. Badly hit by the global collapse in commodity prices, Tiomin sold out to Base in 2010 for $3m and royalties of 1.5 per cent.

Mr Carstens is optimistic that demand will remain high, with prices for mineral sands supported by a long-term supply shortfall. “There’s been a bit of cynicism about whether this project would ever take off because of all the challenges it’s faced over the years, but we’ve reached a point now where all of the stars have finally lined up,” says Mr Carstens.

“The markets are absolutely where you’d want them to be to bring a new project on. The whole country has mineral potential.”




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