Base Resources puts Kenya on mining map

Brendan Ryan | Tue, 14 Feb 2012 15:48

[miningmx.com] -- BASE Resources’ Kwale mineral sands mine was a “flagship” project for Kenya which could determine the future of the country’s fledgling mining sector.

That’s according to Base MD Tim Carstens, who told financial media, analysts and fund managers on a recent site visit that, “So far, the Kenyan government has played its role.”

Carstens commented, “If we are successful, you will get more mining companies coming into Kenya. But, if we get legged-over in any way, then you can forget about the mining industry coming in here anytime soon.”

Australian-listed Base owns 100% of the Kwale mine, which is situated about 30 km south of Mombasa and about 10 km inland. Construction work began in the last quarter of 2011 and the mine is planned to come into production during the second half of 2013.

The project has a relatively short life of about 13 years, but it is high grade and could provide Base with the financial resources required to tackle three other larger mineral sands projects north of Mombasa.

Kwale is “front-weighted” with production targeting the higher-grade sections of the ore body during the first five years of operation, which will generate some $400m.

Over the first seven years of operation, production volumes will average 330,000 t/year of ilmenite; 79,000 t/year of rutile and 30,000 t/year of zircon.

During the last six years of operation, production will average 200,000 t/year of ilmenite; 55,000 t of rutile and 19,000 t of zircon.

The mine will cost $256m to build and will triple Kenya’s mineral-sector export earnings to $1.9bn, replacing the country’s coffee industry as the fourth-largest export earner.

Carstens said Kwale would pay tax of 15% during the first 10 years of operation instead of the normal corporate tax rate of 30%, while royalties were stabilised at 2.5% for the first five years. Capital expenditure on Kwale would be written off against profits up-front.

The minerals to be exported would be trucked to Likoni – situated on the south bank of the main entrance channel to Mombaba harbour – where Base would build a dedicated loading terminal.

Carstens said any further developments north of Mombasa would require separate port facilities because traffic congestion around Mombasa makes it impossible for the material to be trucked to Likoni.

Nearly 500 families have had to be relocated from the mining site and land that is needed for access and related infrastructure.

Carstens said Base had carried this out in co-operation with the Kenyan government – buying land to which the families were relocated and paying compensation in accordance with International Finance Corporation and World Bank requirements.

Even though construction of the mine had just begun, Carstens said he was keen to start looking at what could be done with the mine site when operations closed down.

“We want to get the government thinking about that, because Kwale has the potential to be turned into a large-scale, commercial farming enterprise with water and power infrastructure already laid on.”

Community issues are likely to be a major challenge to another Australian-listed junior – Aviva Corporation – which has also moved into Kenya.

Aviva delineated the Mmamantswe coal project in Botswana, but the group lost patience with Eskom and the South African government two years ago because of their prolonged foot-dragging over the role of independent power producers in South Africa’s power-supply plans.

Aviva is now drilling and evaluating various gold prospects north of the town of Kisumu, situated at the north-eastern tip of Lake Victoria.

The region – known as the Ndori greenstone belt – is similar to the greenstone belts found to the south in Tanzania, where a number of operating mines have been developed by groups like AngloGold Ashanti and African Barrick.

Aviva’s Kenyan operations are a JV with platinum group Lonmin. Aviva has so far spent $3m on exploration to earn a 51% stake, which it can increase to 75% by completing a prefeasibility study showing a pre-tax net present value of $50m.

So far, the drilling work has yielded attractive results but the area is heavily cultivated and hosts a large rural population.

Aviva CFO Stef Weber acknowledged that the communities posed a challenge to any planned gold mine, but believed a responsible solution could be found.