By Macharia Kamau
Canadian firm, Vaaldiam Mining Inc, earned a tidy Sh310 million during the year to June 2017 from the Kwale mineral sands project operated by Australian miner —Base Resources. While Vaaldiam might be unknown to many Kenyans, its predecessor Tiomin Resources is familiar to many and particularly to coastal residents. For more than a decade, the firm struggled to move the titanium mines of Kwale to production.
Its efforts amounted to nil on the back of a push and pull with locals, lobby groups and Government agencies. Despite what can be termed huge failure during Vaaldiam’s stay in Kenya, it still earns a tidy sum from the mines that it had been sitting on for about 15 years without any tangible development. The Sh310 million ($3.1 million) payment is in royalties came from Base Resources, which in 2010 acquired the rights to the Kwale mineral sands project.
Tiomin, which was in 2012 renamed Vaaldiam Mining Inc after acquiring Vaaldiam, entered Kenya in the mid-1990s with plans to prospect and eventually mine titanium in Kwale County. It was, however, unable to make any meaningful progress through the years and sold its rights to Base Resources of Australia in 2010. While the Australian firm in its disclosure in 2010 while selling the Kwale Mineral Sands mines to Base Resources said it had invested over Sh6 billion and might dispute being labelled a speculator, Vaaldiam had nothing much to show for the investment and the time spent at the Kenyan Coast.
In fact, a firm that had earlier expressed interest to buy into the project pulled out of the deal, citing suspect disclosures on the activities undertaken at the mines. Base Resources, which took over the mineral sands mines in 2010, said it paid out Sh300 million to Vaaldiam as royalties during the financial year to June 30 this year. This is slightly lower than the Sh400 million Kenya Government was paid. The dismal disparity in pay between Tiomin and the Government is despite the company having put in little or no tangible investments in the Kwale mines while the Government owns the resource, on behalf of Kenyans.
The royalties are part of the sale agreement that Base Resources signed with Vaaldiam, which were to be paid at a rate of 1.5 per cent of revenues. This is slightly lower than what the Governments gets - at 2.5 per cent but is being relooked, with a view of pushing it to about five per cent. “Royalty paid to the Government of Kenya in the 2017 financial (at 2.5 per cent) amounted to $4 million (about Sh400 million).
The equivalent amount has also been expensed in the accounts as an accrual to bring the total (representing five per cent royalty) to $8 million (Sh800 million),” said Base Resources in a statement. “A further $3.1 million (Sh310 million) was paid to Tiomin/Vaaldiam as part of the ongoing acquisition cost of the project as agreed in 2010 - totaling to $11.1 million (Sh1.11 billion).” “Royalty costs are provided for and expensed on the basis of a five per cent royalty rate being payable to the Government of Kenya, whereas the royalty rate applicable under the terms of the special mining lease, and currently being paid, is 2.5 per cent.”
Base in three years was able to do what Tiomin could not do in more than a decade, having moved into the mines in 2011, by being able to export the first cargo of mineral sands from the Kwale project in 2014. Tiomin discovered the mineral sands in Kwale in 1995 but faced hurdles, with the monumental one being getting a buy-in from the community.
Until the time of selling to Base Resources, the firm had not been able to move out locals to allow commencement of mining owing to meagre compensation it was offering. The resistance by locals who also raised concerns that the project would affect the environment and their sources of livelihood.
It was reinforced by lobby groups that had argued Tiomin had bypassed the law in implementing the project. The firm also faced regulatory challenges through the years, with Government agencies turning down its applications. Tiomin was also broke, with the titanium discovery in Kwale being its only active project at the time and the lenders advanced credit to the firm on the basis of the viability of the mines. Other than credit from banks, the firm had been able to rope in a Chinese firm that had initially bought a 20 per cent stake but in 2009 said it was willing to up this to 70 per cent and move the mines to production.
The deal, however, fell through within two months. Jinchuan Group of China, which was to pay Tiomin Sh2.5 billion ($25 million) and invest a further Sh1.8 billion in developing the project, opted out of the deal before it was concluded, arguing that it was ‘not satisfied with the disclosure schedule’ presented by Tiomin.
Sitting on potential mines or oil fields with the hope of a big pay day through sale of rights is not unique to Tiomin. Many mineral and oil exploration and production firms have entered Kenya with a plan of sitting on extractive licences with expectations of being bought out by industry majors. Companies are currently holding licences to explore for minerals, oil and gas, but have undertaken minimum work obligations on the fields. They avoid being kicked out of the licence areas by the State but are always keen to renew their licences to keep their speculative tendencies alive.
The Ministry of Mining in 2013 and later in 2015 revoked dozens of licences that had been issued to exploratory and mining companies. The then Cabinet Secretary Najib Balala (now in Tourism) argued that the firms had no capacity or intentions of undertaking meaningful work and were just speculating, shopping for buyers of part or all of their rights.
A similar scenario has unfolded in the upstream oil sector, which just like mining has garnered interest in the recent past, where many companies licensed to explore for oil have not been meeting certain obligations stipulated under their licences. The Ministry of Energy has been forgiving and has so far not taken any drastic measures to end such speculations. It has only penalised one firm, despite issuing dozens of licences to inactive companies, with the only visible activity being in the Turkana blocks.
The Ministry has in the past said failure by firms to meet their contractual obligations - including minimum investments in actual exploration works as well as investments in the community - has been due to factors that are beyond their control.
Vaaldiam is one such firm that had nothing much to show for the investments and the time spent at the Coast.
Source: Standard Media