Capital Markets

Australian firm to earn Sh60bn from Kwale mine

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Workers on a Base Titanium site at Maumba within Kwale County. Australian mining company Base Resources expects to generate at least Sh60 billion ($700 million) cash surplus from the Kwale mines, about half of which will be generated in the next five years. Phoyto/FILE

Australian mining company Base Resources expects to generate at least Sh60 billion ($700 million) cash surplus from the Kwale mines, about half of which will be generated in the next five years.

The firm has revealed in its annual report for 2013 released last week that it expects an initial lifespan of the Kwale titanium mines to be 13 years.

The titanium mines are expected to net Kenya at least $220 million (Sh19 billion) in royalties and tax revenue over the 13-year lifespan of the Kwale mine, as per Base Resources’ estimates.

“Kwale continues to be a robust project with an estimated Life of Mine cash surplus of around $700 million with some $350 million in the first five years of operations. This is after repayment of debt and is based on current price forecasts and operating cost estimates,” said the Company’s chairman Andrew King in a letter to shareholders.

Base Resources has already started mining titanium from the Kwale deposits, and plans to begin shipments in December. Royalties payable by mining companies have dominated debate on the sector recently, with Mining Secretary Najib Balala insisting that the country will push ahead with revisions on rates due to the government as per the Mining Bill 2013.

Rare earth, niobium and titanium which are classified as precious minerals will each fetch the government 10 per cent of their gross sales in royalties, more than tripling from the previous three per cent.

The government has also proposed regulations imposing a 10 per cent free-carried interest on large mining firms. The miner estimates that it will produce its highest tonnage of minerals between 2015 and 2019, delivering an annualised production rate of 360,000 tonnes of ilmenite, 77,000 tonnes of rutile and 33,000 tonnes of zircon from a yearly haul of eight million tonnes of ore sand.

Mr King said that while 2013 has been a challenging year for producers, the long-term outlook for all mineral sands products is considered to remain favourable. The Kwale titanium deposits are estimated at 140.6 million tonnes of ore, of which 86.2 million tonnes are proven reserves.
The company has put in place seven off-take agreements across its three product streams with some of the world’s largest consumers of titanium dioxide and zircon products including a cornerstone agreement with DuPont Titanium Technologies.

These agreements cover around 86 per cent of revenue for the next three years.

From this ore reserve, 2.59 per cent is estimated to be ilmenite, 0.65 per cent rutile and 0.20 per cent zircon.

For the first three years, these off-take agreements represent 100 per cent, 30 per cent and 52 per cent of Kwale’s forecast production volumes for rutile, ilmenite and zircon respectively.

Three of the deals signed in the past one year include agreements with leading Chinese firms, though not named, securing a large portion of the previously un-contracted sales volumes for ilmenite and zircon.

Once production ramps up, the Kwale project will be shipping finished products to North America, Europe, the Middle East, Japan and China.

“All off-take agreements contain firm minimum volumes (subject to annual production forecasts by Base), with pricing derived from prevailing market prices, based on agreed price index or six monthly or quarterly price negotiations,” said a Base Resources statement on the off-take agreements.

Base Resources said in a press statement issued on October 8 that mineral separation plants for ilmenite and rutile would be commissioned in November followed by another for zircon in December.

While some small container shipments are planned during December, the company said, bulk shipments of finished product are now scheduled to commence in January. The Likoni marine facility comprising of a 60,000 tonne capacity storage shed and 1,000 tonne per hour ship loader is scheduled for completion in November, ahead of the first bulk shipment.

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