Turning the Tide

Windhoek – The Kenyan government three weeks ago publicly announced that mining companies operating in the country have between three and five years to cede a minimum 35 percent free-carry equity to local investors.

And a week ago, the Democratic Republic of Congo (DRC) followed suit by announcing that it will take a minimum 35 percent free-carry equity in a revised mining code, which is expected to be finalised either this December or early next year.

Anglo Platinum, which wholly owns Unki Platinum Mine in Zimbabwe, last week also said that it had agreed to sell 51 percent stake to local investors in the country.

AngloPlat, a unit of global resources group, Anglo American Plc, also announced that Zimbabwe would not pay for the controlling 51 percent holding, it would instead, convert its share of dividends into paying for the equity.

The developments in the three countries, though loosely co-ordinated, reflect increasing calls from African governments for ownership and sharing of revenue from their country’s mineral wealth.

The Southern Times has widely covered the growing phenomenon of governments calling and boldly moving towards owning equity in mining projects, raising taxes and royalties and scrapping sweetheart deals granted to mining companies decades ago under the guise of luring investors and job creation.

Kenya’s Ministry of Environment and Natural Resources recently rattled the international mining community when it gazetted the Mining (Local Equity Participation) Regulations 2012, which stipulates that the equity transfer to locals is with effect from September 27 this year.

“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 percent of the mineral right,” the Government Gazette says.

Kenya has abundant deposits of gold, titanium, rutile, zircon and rare earth minerals and geologists say the East African country offers potential for huge copper, iron ore and coal deposits.

“It is now a win-win situation for both the government and citizens who will have to be part of the industry.

“The industry has been sort of lopsided in favour of investors,” Environment and Natural Resources Minister Chirau Ali Mwakwere said recently.

London-listed firms African Barrick Gold and Goldplat are exploring for gold in Kenya.

China’s Fenxi Mining was granted coal mining licences and Canadian miner, Pacific Wildcat is developing a $200 million rare earth and niobium projects.

Government, which is currently issuing licences for coal blocks in the country, says the country is 40 percent explored and its full mineral potential would be known once an aero-magnetic survey underway is completed.

Australian Stock Exchange (ASX) listed Base Resources’ US$300 million Kwale mining project, a large-scale titanium project will start commercial production in 2013.

Kwale has potential to produce 330 000 tonnes per year of ilmenite, 79 000 tonnes per year of rutile and 30 000 tonnes per year of zircon during its first seven years of operation.

Cortec Mining Kenya Ltd has said that it will start mining niobium in south-east Kenya in 2016.

Kenya has also said that mining companies should list their shares locally.

“Our economic is expanding rapidly, our capital markets are expanding well and we want to interest the mining sector to come to the capital markets,” Ali Mohamed, permanent Secretary in the Natural Resources Ministry told Kenyan media.

The emerging copper and cobalt producer, DRC, which is also rich in zinc, diamonds, gold, tungsten, iron, tin and coltan, also seeks to raise mineral royalties to between 4 percent and 6 percent from around 2 percent and 2.5 percent for non-ferrous and precious metals.

DRC media recently quoted Mines Minister Martin Kabwelulu saying that government wants to own 35 percent equity in mining projects, though discussions with all stakeholders are still ongoing.

Kabwelulu has previously stated government’s intentions to own 35 percent interest in mining projects.

A DRC government decree, which stipulates that government’s shareholding in mining projects be pegged at a minimum of 35 percent, was issued in 2010.

The DRC is revising its 2002 mining code in order to raise taxes and increase the sector’s contribution to state revenue.

“We have proposed (a government stake) of 35 percent when an exploration permit is transformed into an exploitation permit,” Kabwelulu said, adding that “these proposals will be submitted to all parties for a consensus”.

Government says that the new mining code, which is replacing the 2002 code, is aimed at “resolving the unequal advantages given by the mining code to investors compared to those of the state”.

The state shareholding would not be diluted and Kabwelulu said mineral royalties would also go up to 4 percent for non-ferrous from current rate of 2 percent and to 6 percent for precious minerals from 2.5 percent and to 6 percent from 4 percent for precious stones.

DRC is also proposing a windfall profit tax on any profits earned when mineral prices rise 25 percent above the prices projected during project feasibility studies, media reports say.

Once a mining project enters commercial phase, it will no longer enjoy customs and duty free status on imports of equipment. A capital gains tax will also be slapped on projects ownership changes.

“The rise in the mining tax rate will lead to substantial growth in revenue for the state coming from the mining sector,” Kabwelulu said.

Mining companies in Kenya were recently given three years to cede 35 percent equity to locals.

Guinea has a law in place for the state to buy a 20 percent stake, in addition to a 15 percent free carry interest, in mining projects. Zimbabwe has capped foreign ownership in mining projects at 49 percent.

November 2012
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