Anew mining act was introduced in Kenya, in May, which promises to usher a new era.
Among some of the new initiatives is the setting up of a National Mining Corporation, a Mineral Rights Board and a clear formula of how royalties are to be shared. Of the latter, the national government expects to keep 70% while the rest is distributed between the counties and the community in which the mining takes place.
The new law comes at a crucial time. Internationally, the country ranks poorly on mining matters. According to results of the Fraser Institute’s 2015 annual survey of mining and exploration companies, Kenya was ranked among the bottom 10. It is hoped that the new legislation will help catapult the country up the ranking. The government is eager to see the industry improve its contribution to the economy, from the current 0.9% to 10% by 2030. As at the end of June last year, overall value of mineral output stood at a mere $240 million.
In a bid to package its mining profile, the country is busy mapping out its mineral wealth through an aerial geological survey. This is an important step. For many years, investors have complained about the lack of extensive mineral data, which has resulted in less investment. The new survey is expected to unlock the massive potential in the industry, similar to its neighbors. In Uganda, an aerial survey in 2006 led to the discovery of 200 million tons of iron, five million ounces of gold and an updated estimate of the country’s vermiculite reserves to 55 million tons, up from just five million.
As Kenya embarks on this new direction, plenty of obstacles lie ahead. One key challenge is the obvious resistance to some of the clauses of the new law. Some industry figures have decried the requirement for license holders, whose planned capital expenditures exceeds the prescribed amount, to list at least 20% of their equity on the local exchange within three years after the start of production. Some have also taken issue with the government taking 10% of equity in large-scale mining operations and consider the forfeiture of unused exploration budgets to the state as a punitive provision.
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It will be critical for the government to banish the notion of instability, particularly around security of tenure. Unilateral cancellations of exploration licenses will not augur well for the image of the sector. Moves such as last year’s cancellation of 65 mineral exploration licenses risk scaring away even the most committed investors. Current low prices also present a major hurdle. Poor commodity prices and an 11% decline in total mineral output last year, to 1.5 million tons, has led to some processing plants shutting down.
Be that as it may, the mining landscape is on the cusp of change. Under the Mining Strategy 2030, Kenya expects to earn up to $1.3 billion in royalties within 10 years. Gold mining alone is expected to fetch $3 billion in revenue. The mining department is also seeking to build an additional 10 to 20 mines in 15 years. The ministry expects to meet this target by expanding the small gemstone industry, developing a mining services industry and registering the tens of thousands of artisanal miners. Artisanal miners are estimated to account for over 60% of annual gemstone and gold production, according to the United Nations Development Program (UNDP).
Faster progress may come through the proposed national mining corporation which is set to act as an investment promotion vehicle, attracting foreign capital and bringing attention to the country’s vast mineral wealth. Kenya has an estimated three billion tons of titanium, 400 million tons of coal in Mui Basin in Kitui County, gold in western Kenya, gemstones in the coastal region and large deposits of fluorspar and limestone.
With all these initiatives, Kenya’s mining future is bright. The country’s humble start is set for a successful future.
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