British firm raises cash for Migori gold exploration

A British mining firm prospecting for gold in Migori has raised half a million Sterling pounds through a corporate bond sale to finance further exploration of the precious metal in the Western Kenya region.

Red Rock Resources announced that it had successfully sold a two-year £500,000 (Sh71 million) bond which has a 14 per cent coupon to a group of investors just before the Christmas break.

The bond’s proceeds will be used to carry out more tests at the Migori mines, which it said has shown signs of proving to be commercially viable.

“The notes have been placed to institutional, professional, sophisticated and high net worth investors.  The proceeds of the facility will be applied for working capital purposes and for feasibility study activities at the company’s Kenya gold project,” said the firm in a statement.

Red Rock is prospecting for gold through Mid Migori Mining Company Ltd, a local firm which owns the special prospecting licences for the area under study that is approximately 300 square kilometres.

The UK miner owns a direct 15 per cent stake in Mid Migori Company while the remaining 85 per cent belongs to Kansai Mining Corporation Ltd, a Canadian exploration firm.

Red Rock has a 37.96 stake in Kansai Mining giving it a 32.27 per cent holding in Mid Migori, but the bond issue is set to increase its interest in the area under study after an extensive technical and feasibility is done.

“Upon completion of a Bankable Feasibility Study, Red Rock will be entitled to a 60 per cent direct (in Mid Migori) interest, bringing its total to over 75 per cent,” says Red Rock’s 2013 annual report.

Analysts said the short duration of the bond coupled with the high coupon rate indicate that the firm has enough revenue streams to cover the debt which is being taken for a highly risky venture.

“Since it is only a two-year bond chances are that they have another source of income,” said Francis Mwangi, head of research at Standard Investment Bank.

Mr Mwangi said that given the risk involved in exploration most of the funding is normally through shareholder funds not debt.

Stockport Exploration, a listed Canadian mining firm also looking for gold in Western Kenya, raised around Sh142 million in 2013 for prospecting through share sale. Stockport sold the shares to Kenyan institutional and sophisticated investors.

Red Rock has exploration operations in Colombia, Greenland and has a small shareholding in Jupiter Mines, South Africa, where it has been gradually exiting.
The company has however said that it is confident of striking gold in Migori.

“Based on the technical and economic parameters, the results demonstrate good economic potential and support project advancement to scoping Study level,” said the firm’s annual report.

Economic Survey

Despite the mining industry being in its initial stages the country has made gains at exporting gold. The Economic Survey 2013 indicates that Kenya exported gold worth Sh13.92 billion in 2012, nearly twice Sh5.65 billion earned in 2011.

However not all firms have been successful in their bid to find fortunes buried in Western Kenya.

Goldplat, a UK listed firm, that was operating in the region closed shop late last year. The company ceased production at the Kilimapesa mine on account of falling gold prices in the international market amid lower-than-expected production of the commodity.

Despite the huge potential the industry has been plagued by the lack of clear mining laws that have also tended to change depending on the cabinet minister (for mining) in charge, which has been cited as a disincentive to investors.