Kwale miner to pay Treasury Sh2bn royalties in fresh deal

An earth mover collects titanium for further production at Base Titanium company in Kwale. FILE PHOTO | NMG
 

By VICTOR JUMA
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SUMMARY

• Base Titanium, the company extracting titanium minerals in Kwale County, will pay the government $18.6 million (Sh2 billion) in the form of higher royalties in exchange for an expanded mining area.
• The parties reached an agreement yesterday, giving the company the right to extend its mining operations beyond the original boundary drawn on its special mining licence, which covered 1,661 hectares.
• Base Titanium, the company extracting titanium minerals in Kwale County, will pay the government $18.6 million (Sh2 billion) in the form of higher royalties in exchange for an expanded mining area.

  The parties reached an agreement Thursday, giving the company the right to extend its mining operations beyond the original boundary drawn on its special mining licence, which covered 1,661 hectares.

  As a result, the royalty rate to be paid to the government will double from the current 2.5 percent of export sales value to five percent.

  Base Titanium, whose parent company is Australian multinational Base Resources, will also forgo value-added tax (VAT) claims of $16 million (Sh1.7 billion) arising from the construction of its mining infrastructure.

  “We are pleased to have reached this agreement with the Government of Kenya. With the land acquisition processes proceeding to plan and nearing completion, mining is now scheduled to continue on the Kwale South Dune until December 2023,” Base Resources managing director Tim Carstens said in a statement.

  “With the recently released Bumumani Pre-Feasibility Study supporting further extension to Kwale mine life to mid-2024, the focus is on completing the definitive feasibility study and securing the required tenure arrangements. Looking further ahead, we are pursuing wider exploration opportunities in both Kenya and northern Tanzania.”

  The titanium minerals being extracted in Kwale County are rutile, ilmenite and zircon.

  Titanium is an important pigment for industrial, domestic, and artistic applications.

  It is also a choice material for joint replacement, tooth implants, and body piercing.

  The payout to the government is based on the agreement to raise the royalty rate from 2.5 percent to three percent from the date of the first export of the titanium minerals to June 30, 2018.

  The royalty rate was then increased further to five percent from July 1, 2018, to the end of the special mining licence. Base Titanium had been paying royalties at a rate of 2.5 percent and the new payment to the government reflects the backdated increase.

  The doubling of the royalty rate means the government will earn more from the Kwale mining operation going forward.

  Base Titanium had set aside Sh3.4 billion as it prepared to pay the backdated royalties but will now pay the lower amount of Sh2 billion in the deal that has seen the government avoid making VAT refunds to the company.

  The deal comes soon after Base Titanium paid its Australian parent firm a record Sh6.6 billion dividend in the year ended June when the Kenyan government also earned $32.9 million (Sh3.6 billion) in taxes and royalties.

  The payout ranks the Perth-based multinational second in the list of foreign companies whose dividend receipts from Kenya have been disclosed.

  South Africa’s Vodacom Group is the top dividend earner from the local market, receiving a gross payout of Sh19.2 billion from Safaricom for the year ended March.

  Base Titanium previously used its surplus cash to redeem preference shares, a form of hybrid security which earns a fixed rate of dividend and may be converted into ordinary shares.

  The preference shares have since been retired, freeing up more cash and revealing the profitability of the mining operation.

  “During the reporting period, the group’s Kenyan subsidiary, Base Titanium, distributed $60 million (Sh6.6 billion) of surplus cash, via a dividend, to the group’s ultimate parent entity, Base Resources Limited,” the Austrian multinational says in its latest annual report.

  “Previously, surplus cash distributions from Base Titanium occurred by way of redemption of preference shares, however, these were fully redeemed during the reporting period.”

  The Kenya Revenue Authority received a withholding tax of $9 million (Sh993 million) calculated at the rate of 15 percent of the dividend paid to the parent company.

  The Kenyan government earned $32.9 million (Sh3.6 billion) from Base Titanium in the review period comprising the withholding tax (Sh993 million), corporate income tax (Sh1.1 billion) and royalties (Sh1.5 billion).