Category Archives: tiomin

Base Titanium – Kenya’s Flagship Mine

Base Titanium was recently made a Kenya Vision 2030 Flagship Project for the mining sector and continue to share updates as part of their commitment under the Extractive Industries Transparency Initiative (EITI).

For the financial year which ended in June 2017, they had sales of $215 million, and a net profit of $21 million, compared to a loss of net loss of $20 million the year before. They reduced net debt by $76 million during the year, then reduced it further by $12 million to stand at $87 million at the end of the September 2017 quarter. Base Titanium are still owed $21 million in VAT tax refunds and all payments are still done to the national government though Kenya’s new mining law (currently in limbo) calls for separate payments to be made to the county government and the community. They are also still paying royalties at the rate of 2.5% while accruing another 2.5% in anticipation of the government changing this to 5%.

Base Titanium now moves into a second phase of production of the Kwale mineral sands project, investing $30 million in a more intense process of increased mining capacity, as they aim to maintain production of 450,000 of ilmenite, 88,000 tons of rutile and 33,000 tons of zircon a year even as they also target to retain their safety performance record which saw no lost time injuries in the last quarter.

Base Titanium will also shift to a different field (South Dune) at Kwale in two years when the current field (Central Dune) is exhausted and which they have commenced rehabilitating the depleted areas with vegetation.

They are also waiting to commence more exploration in Tanzania, in December, and in Kenya, in 2018. In Tanzania, where they hold 5 prospecting licenses, they await availability of drilling rigs while in Kenya they await completion of a report by a new mineral rights board for the Cabinet Secretary for Mining to approve further exploration in Kwale.

Base Titanium has also spent $10 million ( – about Kshs 1 billion) on the community development projects. These include educational support that has seen 1,000 get scholarships in Kwale, while in agriculture, they are working with the national and the Kwale county government to assist over 900 local farmers and groups grow crops like potato, sorghum, and even cotton that is exported to Bangladesh for garment-making.

Mining Brings More than Royalties & Taxes

Kwale Mineral Sands (a.k.a Base Titanium) is now being celebrated as Kenya’s most significant mining operation. According to a report released in Nairobi, the mine in Kwale will run for another 12 years contributing about $20 million annually to the government through royalties and another $100 million to Kenya’s GDP, according to an Ernst & Young report that was commissioned to quantify the economic impact of the project.

The $310 million ongoing investments ($106M construction, $56M engineering & design, $41M equipment, $107M others) supports 3,432 jobs (642 at Base, 1,429 in supply chain, and 1,361 others). This is down from the 8,200 one-year jobs during the construction period in 2012 to 2013 but that impact has now stable at 4 indirect jobs for every 1 direct job at the mine. The workforce is 96% Kenyan, with 63% from Kwale, and the operation has just 38 expatriates (down from 65). This is in a county where many residents are subsistence farmers or squatters and Base is now leveraging on the Kwale county development plan to support schools, hospital, and agriculture including cotton farming with exports to Australia.

Ministry of Mining Cabinet Secretary, Dan Kazungu said that he wanted to see more world-class mines like Base, and that the government planned to have mining’s contribution to GDP go from the current level (less than 1%) to exceed 10% by the year 2030. He said the cabinet passed a mining policy in April 2016, and that and that the mediated Mining Bill now awaits the president’s signature, after navigating the senate and national assembly.

He said this year’s budget will approve an aerial geophysical aerial survey and that the government will also ask British geological societies to share the data they have had for decades on Kenya’s potential mines. He asked that, if you get a license from the ministry, “use it” – whether trading, exploring, mining – and try to create two or three more large mines like Base. He said that Kenyans could take part in the mining sector without digging any rocks – as they could offer training, consultancies, supplies, food, financial services, logistics, security etc. and that Kenya has applied to host the AU’s African mineral development center in Nairobi.

There was also a nice Q&A session he was asked about the role of counties and tribunals in approving mining licences and the status of the Fluorspar mine in Elgeyo Marakwet. Unsaid in all this, is the love that Base Titanium has for the Mining Cabinet Secretary; unlike his predecessor who never visited the Kwale site and barely acknowledged the largest mining operation in Kenya.

Visit to Base Titanium, Kwale

Last weekend, I took a trip to Mombasa and the Mineral Sands site that Base Resources is mining in Kwale County. Through Base Titanium, the firm has been keen to engage with media, in the complexities of the mining industry that has many components – legal, taxation, land, financing, community, procurement environmental, jobs, fairness/equity, value addition etc. To compound this, it is very capital-intensive with very long payback periods that are a challenge for most investors.

Base Titanium Tailings site

Parent Base Resources is a company that’s listed in Australia and the United Kingdom exchanges, and that requires that they share voluminous financial information with investors and the public periodically. The company has also signed up for the Extractive Industries Transparency Initiative (EITI) in which companies commit to sharing information to show their impact – and, to date, Base, has paid $51 million to the Kenya government including $27 million in value-added taxes (VAT), $18 million in utilities, and $3 million in royalties.

Base have three sites within their 4,000-acre Kwale lease and turned over 9 million tons this year of earth, of which 8% was subjected to further extraction. This resulted in 751,000 tons, comprising three minerals products – 472,000 tons of ilmenite 472k tons, 71,000 tons of rutile, and 22,000 tons of zircon. The minerals are then trucked 30 kilometers to a $30 million dock they built in Likoni that faces the entrance to Kilindini harbour where they have a loader capable of getting 1,000 tons per hour onto a docked ship.

Base ship loader at Likoni

Base has been challenged by the current Kenya Mining Cabinet Secretary (CS) on their impact in the country, and to which they have publicly responded to claims he’s made, mainly about their tax payments, investment and licensing.

The CS has also tried to raise their royalty rate from the 2.5% in their mining agreement to 10% of revenue, a figure which the firm terms as unrealistic given that even advanced mining markets like Australia peg it at 5%. Here in Kenya, they have borne additional costs of investment like having to build their own infrastructure like roads, dam, electricity lines and, dock.

Mukurumudzi Dam

The increase in mining royalty is one that has made Kenya rather unfavourable for mining investors at a time when global prices for all commodities have dropped. There is also a Mining Bill that’s almost been completed after a prolonged session between both houses of Kenya’s parliament. The bill sets out a path for investing in the mining sector. Base is happy with the bill but concerned about some clauses such as a requirement to list in 3 years at the Nairobi Securities Exchange and a requirement that old depreciated mining equipment be transferred to counties. The uncertainty about Kenya as a mining investment destination has been reflected in the latest Fraser Report which saw the country drastically near the bottom of Africa and the world rankings.

Their main counter to the Minister’s charge is that the impact of mining to the economy in Kenya is much greater than that of the mining royalty, and if the government tries to extract too much revenue, they will lose investments – and indeed that exploration activities have severely reduced now.

They try to employ as many locals from the mining area, then Kwale (60% of residents are from the county), and the greater Mombasa, and then the rest of Kenya. They commissioned a study that found that the 600 site jobs had a multiplier effect through support industries for a total of 3,200 jobs. During construction when they spent Ksh 26 billion, of which 1/3 went to Kenyan companies and that Kshs 3.2 billion goes to Kenyan suppliers every year. Some of the large suppliers include Kenya Power ($9 million a year) and Multiple Hauliers who competitively won an international tender to truck the base products to the Likoni dock.

Base storage at Likoni

Base, who pay royalties of Kshs 240 million now account for between 1/2 and 2/3 of Kenya mining sector of royalty revenue and have enabled mining to overtake coffee as 4th largest export. The 444,000 tons of minerals sold earned Kshs 12.3 billion in sales. In addition, the $60 million worth of infrastructure the company has invested will remain here after a mining lease in exhausted.

Base community borehole at a school

The company has also undertaken dozens of projects in the community area of the mine. These include agricultural projects to get commercial farming going, vehicles, rehabilitation of schools, water projects and construction of health facilities to meet the needs of area residents.

It was an interesting visit and it was nice to see that the company has largely accomplished what it set out to do when it took over a project that had stalled for many years. The global market for oil, goal, and commodities has also declined sharply since they started, mainly driven by slowing demand from China and that has not altered their plans.

Base newspaper advertisement

For now, here are few Kenyan shareholders in the foreign-listed company as mining is still not considered a prime investment, compared to real estate where local insurance and pensions companies can easily double their money in a few years. Still, Base continues to engage with these large investors with a view to building up a local shareholding.

Kenya has ambitious plans for the oil, mining and extractives sector as seen in the mining bill that should soon become law (but which does not include oil). Base is internationally viable with its pricing structure and it may attract similar investors and projects to Kenya.

Mining Moment: Base Titanium June 2015

Base Resources released their quarterly report for the period ending June 30 2015 about Kwale Mineral Sands Operations (commonly known as Base Titanium)

Managing Director Tim Carstens gave updates on various aspects during the quarter including:

It’s been an excellent performance over 20 months with operations on target and with a very good safety record.
They shipped 100,000 tons from their Likoni port to customers during the quarter. However, for their rutile, ilmenite, and zircon, prices are now 1/3 of what they were two years ago. They export all over, but with Ilmenite, of which China is the largest market, 60% of companies shipping there are losing money.
Carstens said the proposed Kenyan mining bill is a good thing, and soon there will be a new mining act but they want things to be addressed that meet global best practices. They pay royalties of 2.5% of sale value as per their agreement. The Cabinet Secretary wants this to be much higher, and they have offered 5% which is the highest in the world. Note: the senate passed the mining bill on July 29. Also there have been no more invoices from Kwale county who sent one in June 2014, a move that they fought, along with the attorney general.
Of the $25 million of VAT owed to the company by the Kenya Revenue Authority, they received a payment of $2 million in July and are grateful that KRA has commenced payments
Kenyans still don’t invest in mining. The shareholding of Kenyans is still 1%, and that’s not going to change for a few more years when Kenyans get more comfortable taking on mining risk. They hope to turn base titanium into a more Kenyan company with more local shareholders and board members.
In June, they made a first principal repayment of US$11 million on their $258 million. In July, they got a loan from one shareholder, Taurus Funds and are seeking to refinance other loans to smooth their cash flows as debt repayments are eating most of the current operating profit. While they had an operating surplus of $20 million in the quarter, $11 million went to the principal debt, and $8 million went to interest payments. They expect to complete the debt rescheduling in the next quarter.
Staff: 92% of the 600 employees are Kenyan, and they plan to go to 97% through training. 25% of the manager are Kenyans and 62% of staff are from Kwale, with 16% of the staff being female which is high for the mining sector.
They are involved in CSR work with over 100 projects in the community 20 of these are educational, and 200 students are getting scholarships from the company. The company planted 9,000 indigenous tree seedlings in the quarter and is working with local farmers on cotton, chicken, and potato projects to help them graduate to industrial-scale farming.

Tullow Oil & Mining Payback in Kenya

Tullow Oil have just released their Kenya Report on their oil exploration efforts and local impact in the last year with special emphasis on the Turkana area.

And earlier, Base Resources who are a signatory to the Extractive Industries Transparency Initiative had also released their EITI impact report.In the last year, by their measure, Tullow Oil and Base Resources have paid the Kenya government $22 million and $16 million respectively in direct payments, and with more indirect benefits.

Oil and mining are industries that are complex and expensive to set up, but which don’t generate a lot of direct jobs – some of their numbers include:

Last year, Tullow paid Kshs 4.1 billion (~$48 million) to Kenyan suppliers, $100 million to foreign suppliers registered in Kenya and another $100 million to international companies. Of the Kenya supplier amounts, Kshs 259 million went to Turkana business interests.
They still need Kenya petrol legislation.
Estimated findings are 600 million barrels in South Lokichar alone.
Infrastructure Needs: Looking at an export pipeline and regional road and rail. Regional countries need to support an export pipeline, agree on what route will such a pipeline take, where the terminal will be (likely to be Lamu) – and who will invest/pay for this. The proposed underground pipeline will need to be a heated one, and at 850 kilometres will be the longest heated pipeline in the world.
Social Impact: Tullow have community resource offices in Lodwar, Lokori, and Lokichar – and this year, plan to double the Kshs 233 million ($2.75M) they spent on social projects in 2013, during which they faced community concerns and protests of local impact which even temporarily shut operations. They have provided 3,000 bursaries and scholarships and teaching materials for 50 schools.
Jobs Jobs Jobs: Tullow has 100 employees on-site, 70% of who are Kenyan. Another 2,000 are employed by their subcontractors/suppliers and 87% of these are staffed by are locals, and 59% by Turkana people.

Bankelele

Nairobi writer on Banking, Finance, Technology, and Investments