Mombasa – Next year Kenya is to receive its first large-scale mining project since independence – the Kwale mineral sands project.
When this mine ships its first consignment of titanium dioxide from Mombasa at the end of 2015, this could immediately replace coffee as the country's fourth-largest export, according to Australian mine developer Base Resources.
The country last year issued its first gold mining licence since becoming independent in 1963 – to the British group Goldplat. This is one of a small handful of junior miners exploring for gold in the west near Lake Victoria in what appears to be the country's second big gold rush.
A view that Kenya will suddenly become one of the continent's mining countries would however be somewhat exaggerated.
Goldplat’s Kilimapesa Mine is currently planning to produce 5 000 fine ounces a year initially, and 10 000 fine ounces later. In terms of size, Kwale is in a different class and the project is in the national interest, says Base Resources general manager Tim Carstens.
It will make a significant contribution (up to 14%) of the global production of rutile – the pure form of titanium dioxide.
For Kenya, however, the value does not lie in jobs, taxes, and compensation for landowners, but rather in its global visibility. Should everything go well, this would offer a welcome to other mining investors. But should there be interference in the project, Carstens says that would put an end to any hope of a mining boom for the country.
The government is lending its full support and “is doing everything expected of it”, declared Carstens during a visit by journalists and analysts to the project.
The project is big enough to boost Kenya’s gross domestic product by 0.6 percentage points, but direct employment would involve a mere 350 jobs. And the project's projected life is only 13 years.
Those 13 years would see an estimated $1.9bn worth of sales and the government, after a large tax concession, would receive an estimated $275m in taxes and royalties.
In the first 10 years, almost the entire life of the project, Kwale would pay only half of the usual 30% tax rate, while for five years – the most profitable part of its life – royalties would remain at 2.5%.
The $275m represents only one-tenth of Kenya's almost $3bn budget deficit this year. The mining projects would therefore not transform the country's economy or state finances overnight.
Government support is however a dramatic about-turn. Kwale’s original owner, the Tiomin Canadian group, has for 15 years vainly attempted to get the project off the ground.
In 2010 Base Resources snapped the project up. The timing was admirable, says Carstens. Market prices for Kwale’s products have since quadrupled.
Base estimates that Kwale will require $256m worth of capital expenditure, but this will be fully recouped within 23 months and $400m after-tax cash generated within five years.
Kwale’s future production has already largely been sold to, among others, DuPont.
The project will eventually require displacement of some 500 households, by far the majority of whom have already been handled by Tiomin.
According to Carstens, for ordinary Kenyans moving house represents a major benefit. Every household receives 5.5 acres of land and compensation for its lost assets.