Sector Focus

Kenya
Mining in

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Briefing Paper Overview

Kenyas GDP is expected to grow at a rate of 5% in 2012 The mining sector is set to expand due to increased mineral production and foreign investments in the country Mining production has increased from Ksh 15.1 billion in 2010 to Ksh 18.3 billion in 2011 The domestic and international demand for gold, titanium, iron ore and gem stones has increased drastically Stakeholders will benefit from the:
Mining Policy Vision 2030 Increased credit in the private sector Improved infrastructure

Demand drivers
The domestic and international demand for Kenyas minerals has risen due to industrial and economic development which corresponds with the countrys commitment to its Vision 2030. Kenyas key minerals which have increased include:

Three key players in Kenyas mining industry include:

Base Resources, BG Group Plc and GoldPlat

The government is working on reducing potential risks for investors by creating a strong institutional framework related to the Mining Policy

Gold
With the discovery of the Archeon Greenstone Belt in Kenya, the demand for gold has increased and these gold deposits will therefore have a massive impact on the countrys economy. Not only can this belt support large scale mining for the next 15 years but it is estimated that the country could earn approximately Sh400 million annually compared to the current Sh15 million per annum. The global demand of gold has increased by 16% compared to the beginning of 2011 while the average gold price

Kenya at a glance
Kenya is a country that is known for having massive economic potential in both the energy and the mining sector. Despite being known predominantly for its agricultural sector, there have been recent developments in the mining sector that indicate its huge potential in helping develop Kenyas economy. Kenyas economy is stabilising after a turbulent year in 2011.

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The countrys GDP is expected to grow at approximately 5% this year compared to 4, 4% last year. In 2011, mining contributed to 0.8% of the $32billion economy however this is expected to change in 2012 due to increased mining operations in the country. The mining sector has increased by 9% in this years first quarter compared with the same period last year and mineral production had increased from 15.1 billion Kenyan Shillings (Ksh) in 2010 to Ksh 18.3 billion in 2011.

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is 22% higher comparing the first quarter in 2011 to that of 2012. Due to increased demand of gold and it soaring prices, global investment demands have increased by 13%. It is believed that Kenya has high quality gold and as a result will benefit from the increased global investments demands.

Titanium
The demand for titanium has escalated on a domestic scale due to increasing urbanisation which is currently growing at a rate of 4.4% in Kenya. Local consumption of titanium has increased as the mineral is used in materials such as paint, plastics, paper and laptops. Kenyas first large scale titanium mining project will be taking place in mid 2013 and the country could become a major contributor to the worlds titanium industry. Overall global titanium sales in 2012 have increased by 4% although there has been concern that the quality of titanium on the market at the moment is not of high quality. The biggest global importers of titanium are Germany and the USA, however Chinas demand of titanium is growing rapidly and is expected to grow at 7% per annum.1

as currently Kenya imports Ksh 60 billion per annum on iron ore. This mine is expected to export and mine approximately 100 million tonnes of iron ore and is estimated to be worth Sh20 billion. Not only will this contribute massively to the GDP but is also expected to create thousands of jobs, with locals working on the development of infrastructure and the functioning of the plant. Besides South Africa, there is no other African country involved in the iron ore processing industry. Therefore, Kenya has the opportunity to become a major exporter of iron ore not only regionally but also internationally. The global iron ore demand is predicted to double to approximately 3,5 billion tons a year by 20302 , with the main importers of the mineral being India and China.

Gemstones
Gem stone mining is dominated by small scale miners who are responsible for approximately 60% of the annual gemstone production. The local demand has increased as gemstones are being mined throughout the country and production has increased significantly over recent years, from 5 420kgs in 2005 to 39 408kgs in 2009. It is estimated that only 10% of gemstones have been extracted by small miners while the other 90% of gemstones need machinery and large scale mining to become more accessible.

Iron Ore
There is a huge domestic demand to set up the first steel manufacturing plant at the Kishushe mining site in Kenya,

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Advantages for investors

Acknowledging that the basic mineral resources are available in the country, the Kenyan government is currently creating forward looking policies that will benefit both the government and stakeholders, as well as develop the mining sector which they believe can be the driving force for the economy. The Permanent Secretary of the Ministry of Environment and Mineral Resources, Mr Ali Mohammed, has assured investors that the constitution and reforms will protect stakeholders and their investments in the country. The Kenyan government are also working with the Kenyan Chamber of Mines to establish a Mining Policy to further develop the mining sector. This policy has already been drafted and presented to parliament and is attractive to stake holders as it ensures stability and accountability in the sector by encouraging further investments. Through this policy, the creation of a more organised institutional infrastructure will occur. This

The government is also working towards achieving its goals for the Vision 2030. The Kenyan government is committed to this initiative which sets out to achieve economic development, in which the mining sector is set to play a vital role. The overall aim of this initiative is to create a 10% growth rate of the GDP through developing its social, political and economic sectors. By investing in Kenya, stakeholders will also benefit from increased credit in the private sector and the improving infrastructure in the country which makes it easier to continue with business and trade.

Key Players in key fields

International companies recognise Kenyas mining potential and its untapped resources throughout the country. As a result, several companies have become key players in this sector. Base Resources is an Australian based mineral sands company and its Kenyan unit is called Base Resources Titanium Ltd. Mineral sands mining produces ilmenite and rutile which is used in paint, plastics, paper, zircon and to

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Kenya has exported gemstones such as rubies, tourmaline and garnets to countries such as the USA and India. Indias coloured stones imports rose from US$3, 84 million in February 2011 to $39.31 million in February 20123 and is estimated to grow from 800 000 people working in the gemstone sector in 2010 to 1.4 million people in 2022.4

includes the creation of the Kenya Geological Survey (KGS), Kenya Minerals and Mining Authority (KMMA), Kenya Mining Corporation (KMC) and Mining Disputes Resolution Tribunal (MDRT).

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manufacture ceramics. There is an increased demand for mineral sands due to increased urbanisation and wealth in the country. Base Resources acquired the Kwale Mineral Sands Project in 2010 which is located in the southern part of the country. The company has a strong relationship with the Kenyan government and have reached an agreement with through bespoke tax concessions. According to this agreement, Base Resources tax rate will be halved from 30% to 15 % during the first 10 years of the Kwale project. The government will receive 2, 5% royalties in the first 5 years, there after itll be determined by the new Mining Policy. Kwale will contribute to 0.6% of Kenyas GDP and is expected to triple export earnings to approximately US$2.2 million in sales. The Kwale project will also be responsible for 14% of the worlds supply of rutile once in production and could produce approximately 146 million metric tonnes of mineral sands. The BG Group Plc is a British based company who first got involved in Kenyas off shore mining sector in 2011 in the Lamu Basin which is believed to have enormous quantities of oil and gas. The BC Group Plc has signed an agreement with the government of Kenya and owns 40% in block L10A and 45% in block L10B. These blocks cover approximately 10 400 square meters and are shared with other companies such

as Pancontinental Oil and Gas who owns 15% and 15%, Cove Energy Plc who owns 25% and 15%; and Premier Oil who owns 20% and 25% in blocks L10A and L10B respectively. The Lamu Basin isnt the only place where companies are benefiting from mining in Kenya. GoldPlat have been mining gold at Kilimapesa mine in south western part of Kenya. So far GoldPlat have exceeded their 2012 target of 500 000 ounces and have achieved 649 804 ounces of quantified gold. Goldplat believes that there is about 1 million ounces of gold and are aiming to increase production to about 10 000 ounces of gold per year.

Potential risks
Despite investments taking place in the country, there are potential political and economic risks that need to be acknowledged.

Political Risk
With the first elections under the newly transitional constitution taking place in 2013, many are concerned about political unrest and dividing issues within the government. These issues include electoral boundaries, police reforms and more importantly land reforms which could affect the mining industry. The latter occurred in neighbouring Tanzania.

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Terrorism
The Kenyan government and stakeholders are aware of the risk near the northern border with Somalia because of recent abductions by the Islamic militant group, the Al-Shabaab. As a result Kenyas army are working with the African Union and Somalia government to capture members of the AlShabaab and bring an end to the abductions.

Conclusion
It is no wonder 2012 has been labelled as a defining year for Kenya. Not only is the country the hub for development in Eastern Africa but the mining industry in particular is expected to perform well and further develop the countrys economy. Kenya is rich in mineral resources and has captivated the interest of foreign companies. Recognising this potential, the Kenya government are committed to working with stakeholders and other institutions such as the Chamber of Mines, in order to help the mining industry grow and becoming the future driving force of the economy.

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Economic Risk
Economic growth in Kenya could be at risk of high external shocks such as high inflation rates due to increased oil prices, high food prices and increased interest rates due to stricter monetary policies by the Central Bank as a consequence of the Euro crisis. Droughts and long rains can also cause delays in production especially in the agricultural and horticultural sector.

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Platinum Integrations Ltd (Pi) is a one stop international consulting firm that assists companies wishing to do business in Africa. We provide International (or aspiring International) companies with assistance in trading with Africa. To discuss your companys strategy for entering or expanding in Africa please call +44 208 204 4962 or see our website at www. platinumintegrations.com.

Global Insight, www.ihs.com/products/chemical/planning/ceh/titanium-dioxide.aspx Money Week, www.moneyweek.com/investment-advice/share-tips/share-tips-a-lucrative-punt-on-iron-ore-58610 3 Gem and Jewellery Export Association, www.gjepc.org/pdf/Current_updates/Import_Detail_Apr11_Feb12.pdf 4 Times of India, articles.timesofindia.indiatimes.com/2012-03-07/surat/31131723_1_gems-and-jewellery-jewellerysector-gjepc
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