East Africa Sets Tough New Regulations

Article excerpt

LATE LAST YEAR, KENYA'S ENVIRONment and Mineral Resources Minister Chirau Ali Mwakwere raised a storm in the extractive industry sector when he gazetted new mining rules calling on all investors to cede 35% shares to local investors and firms.

The legal notice reads in part "It shall be a condition of every mining licence that the mineral right in respect of which the licence is issued shall have a component of local equity participation amounting to at least 35%".

Mining companies have been given three to five years to restructure their ownership to accommodate local investors.

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According to the Minister, this was done to ensure locals benefit from the proceeds of extractive industries by curbing the repatriation of mineral wealth. As soon as the notice became public, the shares of Australian mining firm Base Resources, which is currently involved in mining of titanium in Kenya's south coast, slumped by 40% at the Australian Securities Exchange (ASE).

Base Resources has already invested $275m in its mining operations, making it Kenya's first large-scale mining venture. According to Base Resources' projections, the mine at Kwale is expected to begin production after June this year. The mining firm expects to produces 330,000 tonnes, or 10% of the world's supply of ilmenite, 40,000 tonnes of zircon and 80,000 tonnes, or 14% of the world's supply of rutile.

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Other extractive industry players affected include Canada's Pacific Wildcat, which is prospecting for Niobium, UK-listed companies GoldPlat, which was granted Kenya's first gold mining licence in 2011, African Barrick Gold, and Fenxi Mining, a Chinese firm seeking to mine coal in Kenya's Kitui County in the eastern region.

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

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Mwakwere has defended his move: "Our resources can not be sold for a song while the multinationals enrich themselves leaving the real owners with nothing. …