The project, initially on shaky ground amid delays, investor pull-out and opposition from environmental and human rights activists, has now surpassed what were the initial financial estimates of success.
In the six months ended December, Base Titanium paid an additional $26.5 million (Sh3 billion) in taxes and royalties.
The mining of titanium in Kwale County has turned out to be the most profitable extractive venture in Kenya’s history.
The project, initially on shaky ground amid delays, investor pull-out and opposition from environmental and human rights activists, has now surpassed what were the initial financial estimates of success.
Unable to progress to production after 14 years, Canada’s Tiomin Resources sold the venture to Australia’s Base Resources in 2010 for $3 million — Sh340 million at current exchange rates.
Tiomin had failed in a last-ditch effort to raise capital from China’s Jinchuan Group, which called off its proposed investment of Sh1.8 billion for a 70 percent stake in the Kwale operation over alleged lack of transparency by the Canadian firm.
Soon after taking over, Base Resources said it would move to production, promising to create jobs and contribute to government revenues through payment of taxes and royalties.
“The company’s Kwale project represents a significant investment in Kenya and the local community in particular.
“Once in production, the project will almost triple the country’s current national mineral export income from $80 million to $210 million,” the multinational wrote in its 2011 annual report.
“In addition to generating substantial export revenues, an estimated $150 million will be injected into the Kenyan economy through taxes and royalties over the life of the mine.”
The company, through its local subsidiary Base Titanium, has already exceeded the amount and is set to pay even more to the government in the short term.
Payments of royalties and taxes commenced in 2014 — when shipment of the titanium minerals ilmenite, rutile and zircon started — at $1.9 million (Sh215.8 million using current exchange rates).
The amounts rose in most of the subsequent years to peak at $32.1 million (Sh3.6 billion) in the 12 months to June 2021.
In the six months ended December, Base Titanium paid an additional $26.5 million (Sh3 billion) in taxes and royalties.
This brings the cumulative payout to the government so far to $169 million (Sh19.2 billion).
The growing earnings are a reflection of Base Titanium’s profitability, increased exports and rising prices of titanium in the international markets.
The company pays income tax at the rate of 30 percent, dividend withholding tax at 15 percent and royalties as a fraction of the value of the titanium exports.
The royalties are set to rise after the firm signed a deal with the government last year to double the payout rate to five percent from the previous 2.5 percent in exchange for an expanded mining area.
Licence applications
Base Titanium got the right to extend its mining operations beyond the original boundary drawn on its special mining licence, which covered 1,661 hectares.
As part of the agreement, the company forfeited its value-added tax (VAT) claim of $16 million (Sh1.8 billion) arising from the construction of its mining infrastructure.
The deal saw the company revise the life of its Kenyan operation to 2023 but with plans to further extend its presence in the country through new licence applications and exploration work.
“The company is progressing a definitive feasibility study (DFS) on higher grade subsets of the Bumamani and Kwale North Dune deposits to extend Kwale operations mine life to July 2024,” Base Resources said of its local subsidiary’s activities.
“Following a pit optimisation study completed in the quarter, a further Kwale North Dune pit area referred to as the P200 pit area (in addition to the original P199 pit area), has been included in the DFS, which could further extend Kwale operations mine life to the early fourth quarter of 2024.”
The multinational added that to secure the required mining tenure, an application for a variation to extend the original Kwale Special Mining Lease 23 to cover these areas has been lodged. The feasibility is expected to be completed in the second quarter of this year.
Base Titanium has also lined up exploration work in more areas in Kwale and Lamu counties, with an eye on Tanzania.
The prospecting activities have been slowed down by a freeze on new licences, the Australian multinational said.
“A Government of Kenya moratorium on the issuance of prospecting licences in November 2019 has affected the progress of all licence applications,” Base Resources said in a trading update for the quarter ended December.
“The company continues to work with the government, and other mining sector stakeholders, to see the moratorium lifted to enable the recommencement of the issuance of mineral rights.”
Besides the higher royalty rate, the government has benefited from Base Titanium’s increased profitability which generates taxable income.
The company settled most of its debt in the year ended June 2021, freeing up substantial cash flows that saw it pay its parent firm a Sh6.5 billion dividend in the period.
Base Titanium, which reported a net income of $28.8 million (Sh3.2 billion) in the review period, ended up paying income taxes of $9.2 million (Sh1 billion), royalties of $13.8 million (Sh1.5 billion) and withholding tax of $9 million (Sh1 billion) on the dividend.
The company’s financial performance has been helped by steady production and rising titanium prices charged to customers in overseas markets including China.
The miner sold the titanium minerals at an average price of $256 per tonne in the year ended June 2015.
It attained an average selling price of $459 per tonne in the quarter ended December 2021, meaning that the commodity’s price has risen 79.2 percent over the period.
Titanium is an important pigment for industrial, domestic, and artistic applications.
The mineral is also a choice material for joint replacement, tooth implants and body piercing.
Ilmenite is the most important titanium mineral for the miner, leading in both production and sales revenue.
“Demand for imported ilmenite as a feedstock for Chinese titanium pigment producers, particularly from the company’s customers, remained strong in the quarter, enabling further ilmenite price gains,” Base Resources said in the December trading update.
“Increased ilmenite supply from some African sources, Vietnamese exports and Chinese domestic production through 2021 continued to lag behind demand resulting in an expectation that ilmenite prices will maintain December levels through the March quarter.”
Besides enhancing returns to its shareholders and contributing to the coffers of the Kenyan government, the company says it is investing in the local community and creating jobs.
The company employs some 1,200 employees and contractors, with 99 percent of them Kenyans and 71 percent drawn from Kwale.
As it seeks out new areas to mine titanium, the company says it is also expected to restore the places from which it has already extracted the commodity.
The company’s mining activities include clearance of land and removal of topsoil, making the site unsuitable for human or animal habitation unless restorative work is done to mitigate the damage.
Rehabilitation activities
The environmental concerns, besides allegations of inadequate compensation for people who were relocated from the land, were the major issues facing the project during the Tiomin years and soon after Base Resources took over.
“Rehabilitation activities on the mined-out sections of the South Dune continued in the quarter with community groups supplying indigenous legumes, grass seed and manure. On the Central Dune, 14 hectares began being prepared for additional agricultural trials,” the multinational said in the latest quarterly review.
“A successful visit by representatives of key government departments and agencies, together with representatives of Kwale County, saw the endorsement of the company’s post-mining land use concepts that will now move into the pre-feasibility study phase.”
The miner has also invested significant resources in the community to maintain support for its operations.
It says it is funding agricultural programmes, including poultry and beekeeping, to provide farmers with incomes.
It is also funding the education of needy students, with 220 tertiary scholarships awarded in the three months to December last year.
The Kwale project saw Kenya join the list of top titanium producers in the world that is led by China, South Africa and Australia.
More countries are expected to start exporting the commodity in the coming years, raising competition for existing producers.
Base Resources is also working to start production in its Toliara project in Madagascar, which it describes as “one of the best-undeveloped mineral sands assets in the world.”
Kenya also has several potential gold mining prospects but the ventures are either stuck at the exploration stage or are held back by a lack of capital.
