Troubled cement maker ARM #ticker:ARM is facing suspension of its mining licences in a move that could further cripple the firm’s operations.
The Mining Act, which came into force on May 27, 2016, lists insolvency as a condition that could trigger suspension or revocation of a mining licence.
UBA Bank placed ARM under administration as the cement firm struggled to repay a Sh500 million overdraft.
Loss of existing licences and denial of approval for pending applications would hit hard ARM’s recovery efforts.
A turnaround plan that was crafted before the company was placed under administration was hinged on injection of working capital and the availability of raw materials for cement production.
“The Cabinet Secretary, on the recommendation of the Mineral Rights Board, may suspend or revoke a mineral right if the holder…is adjudged bankrupt…(or) is subject to financial difficulty,” says section 173 (f) and (g) of the Mining Act.
Law on licences
Mining principal secretary John Omenge did not respond to Business Daily queries on whether the government will invoke the law.
UBA Bank appointed PricewaterhouseCoopers (PWC)’s Muniu Thoithi and George Weru as joint administrators of the business.
Mr Thoithi in an interview said PwC was engaging the relevant government agencies on the issue.
“We are engaging government on licences,” said Mr Thoithi.
The new mining law replaced the colonial-era law that was passed in 1940.
It provides stringent obligations and agreements relating to natural resources.
ARM had just before collapse sought government approval to mine limestone in five areas within Kilifi, Kajiado and Makueni counties.
The licences are currently under consideration by the Mining ministry.
ARM's former chief executive, Pradeep Paunrana, had said last month that the three mining licences it was seeking were intended to help supply raw materials for its existing operations and that the application would help regularise the company’s permits in line with the new Mining Act.
It had been anticipated that approval would increase competition for the mineral with Bamburi Cement, Mombasa Cement and East African Portland Cement as local consumption remains on the rise, after falling by 8.2 per cent to 5.8 million tonnes in 2017.
In Makueni and Kajiado counties, the holding company for ARM had last month submitted an application to the Ministry of Petroleum and Mining to grant them a mining licence over 281 hectares.
Mr Thoithi said PWCwas engaging various stakeholders, including ARM management, workers, shareholders and the regulators to explore the “ideal” options for the firm’s turnaround.
The talks, he said, are aimed at assessing the depth of challenges faced by the firm to pave the way for a turnaround under the Insolvency Act.
“We are engaging various stakeholders to see the best way forward. We are hoping to conclude the process sooner than the 60-day period mandated by law,” he said.
“I am confident we will reach a process that guarantees the best future of the company.”