London Stock Exchange (LSE) listed gold company Goldplat has halted its expansion plans in Kenya citing new law that requires all foreign-owned mining companies to cede 35 per cent of ownership to locals.
The company in a trading statement for the six-month period to December 2012, said that it is negotiating with the government so that an amicable solution on the new ownership rules could be found.
Environment and Mineral Resources minister Chirau Ali Mwakwere gazetted the new regulations in October to give Kenyans an opportunity to benefit from proceeds generated by the mining sector.
“In Kenya, the directors have delayed the plant expansion programme at the Kilimapesa Gold Mine due to the continued uncertainty regarding mining legislation and operational difficulties at the mine,” said Goldplat in the trading statement.
The company commenced production at its Trans Mara base in the second half of 2008, extracting its first bar of gold in January last year.
The firm, which is listed on the LSE’s segment for small and medium-sized companies, said that the lack of processing capacity due to the delay in expansion of the plant and subsequent increase in operating costs would result in losses during the first half of this year.
Goldplat’s move to halt its expansion plans came as Australia’s titanium mining firm Base Resources moved to court to challenge the cancellation of its three licences at the Coast.
Attorney-General Githu Muigai stepped into the row sparked by the legislation when he said last week that the new laws requiring mining companies to cede 35 per cent of their ownership to locals would not be applied retrospectively.
In December, after gazettement of the new rules, the minister cancelled Base Resources’ exploration licences saying that the company had sat on them for 15 years without developing the allocated sites.
Other companies that will be affected by the new rules if implemented retroactively are Tullow Oil, China’s Fenxi Mining which has been planning to start extracting coal, Canada’s Pacific Wildcat which is involved in rare earth and niobium prospecting and London-listed African Barrick Gold, which is prospecting for gold in western Kenya.
“The company has engaged with and continues to have strong relations with the Government of Kenya and are confident of a favourable outcome for all stakeholders, enabling the planned plant expansion at Kilimapesa to commence and restore operations to profitability,” said Goldplat.
Kenya’s mining sector has of late seen increased activity in prospecting and extraction of minerals, especially oil and gas.
The move by Goldplat and uncertainty over the new rules could deal a blow to the budding industry and delay its growth.
The company, whose subsidiary Kilimapesa Gold was in November 2011 given a renewable mining lease for 21 years, in a regulatory filing with the National Environment Management Authority said that the extraction and refining of ore is projected to cost at least Sh170 million.
Goldplat said that the cumulative projected revenue over the 10 years of mining life is estimated at Sh10 billion and that around 150 permanent jobs would be created directly by the project.
The firm said that the multiplier effect of employment has been estimated to be 10 indirect jobs for each direct one, up to a minimum of about 1,500 jobs all together.
In December, Nairobi Securities Exchange CEO Peter Mwangi said that the new growth and enterprises market segment could be used by mining firms as an avenue for raising capital and also help them comply with the new ownership rules.