Capital Markets

Cortec parent firm shares hit the floor after licence recall

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Cortec workers at the Mrima Hill niobium mining site in Kwale. The firm says Monday’s revocation of its licence in Kenya was unexpected. Photo/FILE

Shares in Pacific Wildcat Resources, the majority owner of Cortec Mining Kenya, dropped by close to 60 per cent on Wednesday, a day after trading resumed following a suspension on request by the firm.

The miner expected to make a material announcement on the revocation of its mining licence by Mining secretary Najib Balala on Monday.

The mining firm’s shares listed on the Toronto Stock Exchange fell to $0.085 (Sh7.43) from $0.85 (Sh3.06), representing a 59 per cent drop on the first day of trading.

Canada’s capital markets regulator, the Investment Industry Regulatory Organisation of Canada (IIROC), on Tuesday suspended trading in the shares.

The company said the Monday revocation of licence caught them off-guard and it was yet to get official communication from Mr Balala. The minister did not gazette the cancellation in Thursday’s Kenya Gazette.

“The company has not received any formal notification from the Kenyan Ministry of Mining on this matter and Cortec Mining Kenya’s managing director and Pacific Wildcat Resources director David Anderson is currently making enquiries at the Ministry of Mining to confirm the status of the licence held by Cortec Mining Kenya,” said Pacific Wildcat Resource in a statement on its website.

Pacific, the 70 per cent owner of Cortec Kenya, said it will seek legal redress to affirm its mineral rights in the Mrima Hills sites located in Kwale County.

It has estimated the minerals to be worth $100 billion (Sh8.5 trillion) or five times the size of the national budget.

“Cortec Mining Kenya, which began its special mining licence application process in early 2012, is confident it has complied with all applicable rules and regulations and went through a thorough process in support of its application and is currently seeking legal advice to protect its interests,” said the statement.

The company, however, warned investors that success in court was not assured.

“There can be no assurance that the company will be able to obtain all the permits that are required in order to commence mining operations at the Mrima Hill Project,” said the statement.

Analysts said it was not surprising that the share price fell given that the minerals in Kwale are the miner’s biggest assets. They added that the Mining ministry’s decision was expected.

“What the government is asking is actually very reasonable,” said Eric Musau, a research analyst at the Standard Investment Bank. The government cancelled licenses belonging to 43 prospecting, mining and exploration firms saying they were hurriedly issued, opening the door for dubious investors.

Mr Musau said that in addition to pushing for more transparency in issuing of licenses, the government is reducing generous tax incentives and demanding a better share of royalties. This, he said, was the global trend due to increased demand by citizens for better deals between mining firms and the government.

“At the end of mining the government has to be able to show that it got value for money,” said Mr Musau.

The ministry is also in talks with the Capital Markets Authority and the Nairobi Securities Exchange on how it can use the stock exchange as an avenue to give Kenyan investors a chance at owning firms in the industry.

Other proposals include raising royalties, licence and drilling fees and establishing the National Mining Corporation, a National Mineral Certification Laboratory and a Minerals Sovereign Fund.

Pacific Wildcat Resources share price drop leaves the firm with a market capitalisation of $1.4 million (Sh121 million) from $3.4 million (Sh294 million) but investors in the company have been warned that wild swings in the stock’s price are expected.

“Investors are cautioned that trading in the securities of Pacific Wildcat Resources Corp should be considered highly speculative,” the firm said.

In the last 52-weeks, the share price has touched a $0.14 (Sh12.22) high and a $0.015 (Sh1.31) low.

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