Markets & Finance

Kenya eyes billions in gold revenue from Narok mines

gold

A goldsmith displays gold bars at his shop in Riyadh October 12, 2009. Kenya will issue its first ever gold mining lease in October, opening the way for commercial exploitation of the precious metal whose price has peaked in recent weeks. Reuters

Kenya will issue its first ever gold mining lease in October, opening the way for commercial exploitation of the precious metal whose price has peaked in recent weeks after turbulence rocked global financial markets.

Goldplat, one of the world’s biggest gold companies — which is also listed at the London Stock Exchange — will be awarded the lease to exploit the large gold deposits in the Lolgorien area of Narok County.

Public interrogation

The Commissioner of Mines, Mr Moses Masibo, told the Business Daily that the lease will be issued upon the expiry of the 90-days allowed for public interrogation. A notice of the planned issuance of the licence was published in June 2011.

“We will issue Goldplat a special mining lease in October as prescribed in the law to allow for commercial exploitation of gold at its Kilimapesa site to begin,” said Mr Masibo.


The three-month window is for the public to raise any objections to the firm’s activities in the specified location. “I do not anticipate any objection,” Mr Masibo said. “It is an exciting time for our economy to gain from the record prices.”

The value of gold from the Kilimapesa mines could top Sh60 billion a year in foreign currency at the prevailing prices or more if the surge in gold prices continues, placing the metal among the top revenue earners for Kenya.

The government will earn four per cent of the value of each export consignment in the form of royalties, in addition to corporate tax that is tied to the profits that Goldplat will make.

“The department will value each export consignment and grant an export licence, four per cent of which will be paid to the government as royalties,” said Mr Masibo. The law however leaves room for the Cabinet to change the applicable rate.

Last month, Goldplat chief executive Demetri Manolis told investors that the firm, which has been prospecting in Kenya for more than a decade, was headed for its first sale of the precious commodity.

“Completion of the elution plant at the Kilimapesa project in Kenya means we should be in a position to sell first product pretty soon – a milestone achievement,” said Mr Manolis. “With the Title Deed now issued, I am also pleased to report that we are now a short time away from being issued with the final Mining Lease that should trigger commencement of full production, with an initial target of 5,000oz (about 140 kg) of gold per annum.”


Issuance of the mining lease is expected to open Kenya to more applications, especially at this time when demand for gold is at an historic high.

Ali Mohammed, the Environment and Mineral Resources permanent secretary, said that quarterly reports submitted by prospecting firms point to even bigger gold deposits in Migori County compared to the Lolgorien area where the Kilimapesa project is situated.

He said the ministry was considering other applicants such as Red Rock Resources based at Macalder, Migori, for a commercial mining lease in the area that is largely dominated by artisanal miners.

“These deposits should enable us to export between two and 10 tonnes of gold every month after granting two commercial mining leases this year,” said Mr Mohammed, noting that acquisition of land titles was the most predominant issue for the applicants.

If Goldplat starts mining immediately, Kenya could benefit from the current windfall in the gold market where prices stand at Sh6 million a kilogramme.

The gold firm has brought in equipment to allow for the end-to-end processing of the precious metal in compliance with Kenya’s demands that the mineral be refined locally.

“My ministry is helping with the clearance of Goldplat’s refining equipment at the port of Mombasa,” Mr Mohammed said. The machinery should enable Kenya to export refined gold.

The ministry’s demands that only fully refined gold be exported was informed by the need to create employment locally and make valuation easy.

The deal could come in handy for the local currency, which has been under pressure in recent months depreciating to record lows of Sh95 against the dollar.

Last year, Kenya earned Sh6.2 billion from the sale of two tonnes of gold, three times higher than the year before, an indication of the how fast the commodity is gaining prominence as an export commodity.

Sharp increases in the price of gold since last year have heightened exploration activities in areas such Turkana, Samburu and Kitui, according to Mr Masibo.

The Environment Ministry is also preparing to issue commercial exploitation licences to firms prospecting for other minerals such as iron ore and manganese.

Gold traded in the global market on Thursday at a record Sh6 million per kilogramme ($1800 an ounce), more than 60 per cent and about 30 per cent higher than January 2010 and January 2011 respectively.

Concern over the Eurozone’s debt crisis coupled with Monday’s downgrade of the US credit ratings by Standard and Poors have spurred a rally in gold valuations as investors take off to safer instruments.

Commercial exploitation of gold offers Kenya a much needed fresh foreign exchange stream as depressed consumption of traditional exports threatens the country’s revenue base.

Mr Masibo said that the draft Mining Bill has outlined the revenue sharing arrangement between the national and county governments on an 80:20 basis to allow for the economy-wide reach of the proceeds.

Bigger concerns that cloud the prospects lie on how accurately Goldpalt, or any other lessee, would report their production to enable the government value the royalties.

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