Companies

Goldplat closes Western Kenya mine over losses

gold

Women at a mine in Siaya. Goldplat has closed its gold mine in Western Kenya, citing losses. FILE

London-listed Goldplat Plc has suspended its operations in Western Kenya, casting doubt on the viability of the gold-mining sector that was hoped to become a significant source of tax revenue and jobs.

The company on Tuesday said it had ceased production at its Migori mine because of constraints in extraction in the face of falling gold prices in the international market.

“It is paramount that all our operations are profitable and do not represent a drain on the resources of the rest of the company,” said Russell Lamming, Goldplat’s CEO.

The company has laid off 50 employees at the Kilimapesa gold mine, pegging resumption of operations to profitability. The firm intends to concentrate on its cash-rich and most profitable operations in South Africa.

Mr Lamming said putting the Kilimapesa mine on a care and maintenance programme would “eliminate losses caused by continued operational constraints and the current uncertain gold price environment.”

Kilimapesa became the first project to receive a gold mining licence in Kenya two years ago when then Environment minister, the late John Michuki, granted it a 21-year lease.

The company had estimated gold reserves at the site to be more than 8.2 million tonnes. Goldplat said on Tuesday it needed to produce 10,000 ounces (283.4 kgs) annually for the venture to be profitable.

(Read: UK firm puts a shine on Kenya’s gold export dream)

The plant, however, only managed an output of 5,000 ounces (141.7 kgs) when it opened in January last year. The value was also hit by falling gold prices.

International gold traders fixed the commodity’s price at $1,487 per ounce in April, marking the sixth consecutive fall from a high of $1,746.5 per ounce in October last year.

Gold prices rallied to peak at above $1,900 per ounce in September 2011 as anxious investors dumped cash, equities, and bonds to pick the precious commodity which was deemed a store of value in the wake of the financial crisis.

Emerging economic recovery in the US and other developed countries like Japan has, however, revived investor interest in alternative assets like equities, reducing the allure of gold and prompting the commodity’s price drop.

It remains to be seen what impact the production challenges and falling gold prices will have on Kenya’s gold mining sector which has attracted international firms. More than five companies are prospecting for gold in Western Kenya, including Canadian firm Africa Queens Mines and UK-based Africa Barrick Gold.

Goldplat’s decision to suspend its mining operations came after a review of Kilimapesa’s economics from September last year which found the operation to be falling behind targets.

(Read: Ownership rules force Goldplat to halt growth plan)

The company said it would write off £2.38 million (Sh310 million) that it had incurred in pre-production costs, adding that it can reinstate the amount when profitability is established.

“This charge means that there is an overall loss for the period. Kilimapesa planned output reduced to 5,000 ounces per annum resulting in an impairment charge of £2.38 million,” GoldPlat said in a statement.

The company now plans to use the infrastructure at Kilimapesa to build another regional recovery operation. Recovery is the process by which precious metals can be obtained from by-products of the mining process such as wood chips, fine carbon and waste grease.

The plant will continue to process stockpiles of ore using skeleton staff in a bid to raise money for maintaining the infrastructure. “We will continue to assess the viability of the operation and engage with all the stakeholders including the local community and the Kenyan government to map the way forward,” Mr Lamming said.

Goldplat’s suspension of operations is at odds with its earlier bullish assessments and official statistics that indicate a newfound boom in the gold prospecting sector.

The company had revised its estimates of gold resources at the Kilimapesa site to 8.2 million tonnes, more than double its May 2012 estimate of 3.1 million tonnes.

Government statistics show earnings from the mining sector rose 50 per cent last year to Sh27.5 billion, driven by increased export of gold.

Proceeds from gold exports more than doubled to Sh13.9 billion from Sh5.6 billion, recording a faster growth than non-metal minerals such as soda ash and fluorspar that have recently dominated the sector.

The disconnect between reported and actual performance in the gold mining sector has caught the attention of Parliament which is investigating Goldplat and another mining firm.

On Tuesday Speaker Justin Muturi directed the committees on Finance Trade and Planning and that of Environment and Natural Resources to probe Nyatike-based Karebe Gold Mining Limited and Goldplat’s second operations in Lolgorian over alleged fraud.

The committees will investigate how the two companies are allegedly exporting 1,200 kilogrammes of gold per month when their combined annual production is less than 50 kgs.

The allegations were brought to parliament by Fafi MP Bare Shill.

The setback comes at a time when the government has signalled its intentions to raise the profile of mining by giving it a dedicated ministry.

Mining cabinet secretary Najib Balala has said establishment of a metal exchange and enactment of effective laws for the sector were top on his agenda.

(Read: Balala sets out priorities for mining sector)

A gazette notice published last year requiring mining companies to cede a 35 per cent stake to Kenyan investors has stirred the industry, with some miners going to court as others lobby for exemption.

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