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Finance Options Attracting adequate finance for mining

Governance The paradox of Extractives in Africa

Knowledge and Skills Collaboration for quality

Mining Personality Why Women Can Make Strides in Mining

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Kenya | Uganda | Tanzania | Rwanda | Burundi | Ethopia | South Sudan | Eritrea | Djibouti

THE 5th EASTERN AFRICA

Harnessing potential mining investment in Eastern Africa

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Contents Publisher The East Africa Mining Review

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Managing Director Demsas Faloppa Chief Editor Demsas Faloppa Editor Joy Wanyonyi Editorial Consultant Allan Akombo Design and Layout

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The paradox of Extractives in Africa; Balancing the Growth Equation In many situations the extractive sector has seen a disproportionate recipient of budget pie, at the expense of other sectors such agriculture, tourism, education.

Michael Wagura Contributors Anne Kamau Nelly Maguru Monica Gichuhi Mwai

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Bissirat Faloppa Contributors with thanks: Mining associations and chambers from the eastern African region Publisher Details The East Africa Mining Review Nairobi, kenya www.eastafricamining.com Submit an article call +254 714 912 703 submit@eastafricamining.com

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How To Attract Adequate Financing for East Africa’s Nascent Mining Sector

Collaboration for quality – a regional need in specialist mining education It is encouraging to see academic institutions across Africa looking to introduce and grow their own provision of programmes of study relating to the extractive industries

East African mining ventures that will be successful in the long run will be those that adhere to international mining resource definition standards.

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The East Africa Mining Review is published three times a year.

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How to maximise returns from Kenya’s extractive sector

Local businesses need to find opportunities to bid for work, citizens need to hold politicians to account for the use of extractives revenues, and expectations about environmental management need to be understood and shared.

30 Why Women Can Make Strides in Mining While the workforce in the mining industry is predominantly male, some women are ascending to senior leadership positions, signaling a growing role for women in the industry.

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East Africa Mining Review | October- December 2014

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Editor’s Note Dear Reader, As I was describing Eastern African Mining Review, recently, to a friend, I was asked, "So, how is E.A. Mining Review different from other mining magazines?"

The conventional wisdom has always been that exclusive and informative articles on investment geared towards the untapped Eastern African extractive industry are not commercially available.

As a result, publishers have been reluctant to publish serious literary efforts in the areas of EXTRACTIVES INDUSTRY INFRASTRUCTURE, HUMAN RIGHTS IN BUSINESS, FINANCE & TAXATION, GENDER & ECONOMIC EMPOWERMENT (one of my favorites), KNOWLEDGE & SKILLS, POLICY & GOVERNANCE, and have failed to promote them when they did. Thus, the burden and potential reward of publishing short articles and repetitive or widely available articles has often fallen into the hands of subsidized university publishers (who on the whole have done an OK job) and a few determined individuals who dip heavily into their own personal resources, financial and otherwise, to bring neglected works to the attention of a slightly larger audience than they had enjoyed before.

As an editor of this review I found this situation daunting. A short news piece of mine, the EA Mining Review team has recognized the immense potential that the extractives sector holds and is undertaking this initiative to ensure sustainable development of the sector. Our goal as a publication is to ensure that communities in the region are aware of how they can strategically position their skills and businesses to benefit from the extractives boom in the region. This involves ensuring that all stakeholders in the industry are equipped with necessary information for to participate profitably in the industry.

The engagement of the local communities in the entire extractives industry value chain is one of the key inspirations for this publication.

This is because the communities in the region will only benefit from the wealth available to them by learning what roles they can play in the sector and using their expertise to develop themselves. For instance, the growth of the extractives sector promises to create a multitude of job opportunities for qualified candidates. However, owing to the safety and security requirements of an extraction site, special certifications have to be earned to secure these positions.

The EA Mining Review will also serve to provide potential investors the necessary information for profitable ventures into Eastern Africa.

In addition, we will support the region in emulating industry best practices from countries such as Netherlands that have successfully utilized natural resources for long-term economic prosperity.

In this energy is the seed of a new Eastern African mining industry voice. The EA mining review will articulate itself, and make itself heard in spite of all the proprietary claims upon its possession and stewardship, which is neither exclusive nor simplistic, whose sophistication rises from what is written, not from those committees who render opinions as to what is good, and what is not. A voice that will have a frank and fortuitous opinionated articles to progress and improve itself on the basis of hearing and being heard.

Sincerely, Demsas Faloppa Chief Editor

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East Africa Mining Review | October - December 2014

Mr. Demsas Faloppa

POLICY AND GOVERNANCE

How to maximise returns from Kenya’s Extractive sector International companies are always keen to use local content where possible, but are often challenged to find local businesses that can supply on time, at the right price, and to very exacting standards.

Kenya’s extractives potential Mining activities are not new in Kenya. Mining has a long history – soda ash has been produced since 1911.

Mining has been an important but modest contributor to the Kenyan economy. Kenya’s extractive industry currently contributes 1% to the country’s GDP and accounts for 3% of the overall exports.

However, the successful development of mineral sands in Kwale near Mombasa seems to have drawn the attention of many towards Kenya’s mining sector.

African Barrick Gold acquired an exploration licence in 2012 for gold search operations in western Kenya.

Large coal deposits have been found in Mui basin, Kitui County where one block alone is reported to have 400metric tonnes of recoverable coal.

With much of Kenya still unexplored, the prospects of finding new reserves of minerals are very high. The Government estimates that mining, oil and gas could contribute up to 10% of GDP by 2030.

But this degree of growth can only be achieved and sustained if the country is well prepared to manage the sector.

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One way to do this is develop sound policies to govern the sector.

The policies should clearly address risk and environmental management, infrastructure gaps, national content development and other crucial facets that can attract investor interest and ensure the benefits are received and shared.

The capacity of Parliament to understand the sector, and the laws that govern it, must be strengthened.

Institutional capacity should also be improved through training of government officials managing the sector.

The Importance of Information Kenya’s political leaders and policy makers, business people and citizens will be able to take advantage of the opportunities presented by the growing extractives industry only to the extent that they have timely and accurate information.

Information should be openly shared as this will answer questions that may arise. Local businesses need to find opportunities to bid for work, citizens need to hold politicians to account for the use of extractives revenues, and expectations about

East Africa Mining Review | October - December 2014

environmental management need to be understood and shared.

Relationships between stakeholders should be carefully managed to allow for dialogue on key issues especially when drawing up policies, laws and regulations.

Industry associations such as the Kenya Chamber of Mines, and Kenya Oil and Gas Association play their role in ensuring that their members, and those interested in the sector, are informed about developments within the sector.

Such associations are also useful in promoting the adoption by the industry of unified positions, so that where appropriate the government and civil society can engage with the industry as a coherent whole.

Spreading of misinformation should be avoided at all costs as this can lead to mistrust and in turn lead to instability and conflict.

The media plays a key role in ensuring this is avoided by understanding the sector and undertaking in-depth investigation before reporting.

UNDP and the Media Council of Kenya are conducting indepth media training on the

By Robert Rudy & Maggy Waithira

sector, giving journalists an opportunity to visit the mining and petroleum sites in order to better understand the sector.

Planning for the Future In recognition of these challenges, the government has negotiated support from several development partners.

The World Bank is providing $50m over six years (20142020), to support the Ministry of Energy & Petroleum to improve its capacity. The British Government is supporting the Ministry of Mining through the Kenya Extractives Industries Development Programme to, among other activities, set up an online mining cadastre system to manage licence applications, payments and monitoring.

The programme will also provide technical support to the mining department up to June 2014.

Some development partners are working closely with civil society organisations.

The Canadian Government has funded the Institute of Economic Affairs (IEA) to undertake research and analysis around the extractives sector and to use the findings to inform policy.

The on

research gender

will focus dimensions,

POLICY AND GOVERNANCE environmental implications, political economy, and legal & institution framework governing the extractives sector. UNDP is supporting the training of journalists, so that they can report accurately on developments in the sector.

Challenges and Recommendations As is to be expected with a rapidly growing industry, the sector is faced with a host of challenges: Legal and regulatory framework: The current government established two separate departments to manage the governance of the extractives sector: the Ministry of Mining and the Ministry of Energy & Petroleum. Each of these is to be governed by its own set of laws, regulations and policies.

For both ministries, the government planned a very substantial updating of policy and legislation. While developing these, it is important that the process is inclusive to allow stakeholders to give recommendations.

The Kenyan government has made this possible by providing stakeholders an avenue to comment on the draft laws before they are passed by parliament. It is also imperative that parliamentarians are well informed and fully understand the laws before passing them into law, and also understand how the laws inter-relate.

Environmental impact: Environmental degradation has been reported in various countries in Africa where extraction is being undertaken.

The effect of this is felt the most by the immediate community where such extraction is taking place.

In Kenya, the National Environment Management Agency (NEMA) will be involved in the planning process, in order to ensure that the companies put in place reliable systems to manage environmental impact during and after extraction.

This is a new area of work for NEMA, and is highly technical requiring supporting to the Agency for it to fulfil this mandate.

Human resources: The shortage of skilled and semi-skilled labour has remained an area of concern for companies in the sector.

Without the right technical and vocational training, Kenya cannot maximise the value out of its labour-force.

A lot of effort is now being made to ensure that this is addressed, and that the curriculum developed is in tandem with the industry’s needs.

National content development: Local service providers naturally want the opportunity to supply goods and services to the mining the petroleum industries.

International companies

are always keen to use local content where possible, but are often challenged to find local businesses that can supply on time, at the right price, and to very exacting standards.

Local businesses want support from international companies, who are able to help only to a limited extent.

Managing expectations will require a clear local content policy and law.

Poor infrastructure: Poor road networks and expensive and slow port services make access to extractive sites costly.

They also post a challenge for local companies offering services to the international firms. The Government rightly has prioritised improving infrastructure.

Insecurity: Insecurity is a continuing concern in Kenya, made worse by recent terrorist activities. Oil exploration firm, FAR Limited, operating in an offshore block recently stated that insecurity in the area was hampering their seismic survey which was due to commence in June 2014.

As of early August, this had not begun. The Government and people of Kenya must take deliberate efforts to urgently address this.

The Role of Information Centre for the Extractives Sector (ICES) ICES seeks to put information together and to foster

stakeholder relationships for them to work together to accelerate growth and ensure openness and accountability.

Such relationships can be achieved by frequently engaging in active discussion on select topics of mutual interest.

Effective stakeholder dialogue is vital in achieving accountability – the role of each stakeholder is critical, ie., the governments (both the host and home governments), the private sector and civil society.

ICES aims to support all Kenyans to understand the business of extracting minerals and petroleum, and also share good practices from other countries to help inform discussions. The information is provided free of charge, and covers the region.

The purpose of the information is to inform decision makers and policy makers by putting information into a common pool thus easier to access.

It also gives other stakeholders a comparative view of how the sector is managed in other countries as they seek to improve the extractives sector performance in Kenya.

For more information, go to www. ices.or.ke, follow us on twitter handle #ICESKenya and Facebook: Information Centre for the Extractives Sector

Local businesses need to find opportunities to bid for work, citizens need to hold politicians to account for the use of extractives revenues, and expectations about environmental management need to be understood and shared.

Photo by Kenya Fluorspar Company

East Africa Mining Review | October- December 2014

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POLICY AND GOVERNANCE

Elusive Riches

The DRC’s endless woes in the hands of vicious black market Cartels The recent boom in high technology gadgets has triggered a

By Tembo Madilu spike in the price of Coltan to about $500 per kilo The Democratic Republic of Congo (DRC) is endowed with surface and underground resources. Apart from it numerous species of seed plants, the country has a variety of mineral resources. About one-third of the world’s known deposits of cobalt and nearly two-thirds of its Colombo Tantalite (Coltan) lie within the DRC’s borders, says a special report of the United States Institute of Peace.

The country is also extravagantly endowed with copper, cassiterite (tin ore), gold, zinc, uranium, tourmaline, cadmium, industrial and gem diamonds, silver, manganese, germanium, radium, bauxite, iron ore, coal and other precious stones. Unfortunately, some of these minerals, especially Coltan, are traded through the black market.

Black Market and Coltan Trade Coltan, an extremely heavy and moderately rare metal, is fondly known as “white gold” and is used for the production of high tech electronic goods of mass consumption, such as mobile phones, laptops and videogame consoles, spatial rockets, PDA, MP3, MP4, cameras, remote controlled weapons, missiles and TVs. Global deposits of Coltan are found in Thailand (5%), Brazil (5 %), in Australia (10%) and in the DRC (80%). In the DRC, Coltan is found mostly in North-Kivu Province located in the Eastern part of the Country sharing borders with Rwanda and Uganda.

Beneficiaries of Coltan Trade Coltan trade offers benefits to three categories of people in the DRC. First, the local miners benefit immensely from the business. For example, in terms of pay a good and strong miner produces 1kg of Coltan per day but his salary ranks between 15 $ and 50$ per week, whereas the average of a common Congolese worker is 10$ per month—making tantalum mining a bit hit. The recent boom in high technology gadgets has triggered a spike in the price of Coltan to about $500 per kilo which has caught the attention of intermediary commercial dealers known as comptoirs based in Bukavu and

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Goma, the headquarters of South and North Kivu. Provinces in eastern DRC, respectively.

For example, reports show that between January and October 2000, Coltan exports through comptoirs controlled by the Rassemblement Congolais pour la Démocratie (RCD-Goma)-a rebel movement established in August 1998 against the government of the DRC President Laurent-Désiré Kabila- totaled $6.7 million. There was both in-kind and direct taxation in rebel-controlled territories. For example, the RCD collected a tax of about 8 percent of total mineral exports by the comptoirs in addition to a $15,000 annual license fee per comptoir.

Corrupt cartels with links in government also benefited from Cobalt trade, United Nation revealed with some neighbouring government such as Burundi,Rwanda and Uganda also dipping their hands in the cookie jar. Despite the fact that it had no known deposits of Coltan, a report by a UN panel said Rwanda earned a stunning $250M from DRC Coltan only over the 18 months from 19992000 when world market prices reached an all-time pinnacle. In total, the export of all products looted from the DRC grew to a level of 8.4 per cent of total Rwandan exports in 1999, and remained as high as 7.1 per cent in 2000.

The third level of beneficiaries comprises manufacturers of electronics whose gains are higher than the two first levels.

According to several reports, “the Coltan and Cassiterite are separated and packed in oil drums, ready for export and final sale on the international market with buyers in London, Brussels and Amsterdam most predominant. There, the demand and competition are high between producers of electronics In times, Canada has been cited as being the actual haven for the mineral extracting industry through its prominent companies, such as Lundin Group, Banro, Mindev, Barrick Gold, South Atlantic Resources and Anvil Mining. These transactions yielded considerable impacts on

East Africa Mining Review | October - December 2014

social sectors of the DRC.

Humanitarian and Environmental Consequences First and foremost, it has been observed that Coltan trade is the cause of high school dropout rates as young pastoralists and farmers abandon their home territories for the new adventure.

Most of these miners are children who, because of their small size, are able to slip into the depths of mines. It has also occasioned waterborne diseases due to lack of safe drinking water, malnutrition and other deadly contagious diseases around mining areas. In addition, the conflict of the period starting from 1996 and marked by Coltan trade aggravated mass executions. Humanitarian NGOs stated that at least 3.5 million died, 2.5 million were displaced, among which are 400,000 children. Moreover, about 16 million of Congolese were directly affected by war, with a special prevalence of HIV/AIDS and rape used as war weapon.

As humanitarian conditions in the DRC deteriorate, so does the environmental situation.

In the case of fauna and flora, extraction of minerals is carried out within national parks and reserves where there is hardly any protection. Coltan is mined in Kahuzi-Biega, Maiko national parks and in Okapi Faunal Reserve. The population of elephants in these natural reserves has decreased by 80% and that of gorillas by 90%. In addition, pressure to increase income has resulted in deforestation of more than 500,000 hectares (1.2 million acres) per year, reports show.

Economic Consequences Besides the humanitarian and environmental impacts, Coltan trade has affected the economy of DRC. The economy of the DRC is built on two major products.

The primary commodities include crops like maize, rice, potatoes, cassava, palm oil, and all varieties of fruits and vegetables for human and animal consumption.

As cash crops, the country grows coffee, tea, quinine, sugar canes, latex rubber and timber. However, in highly rich-Coltan areas, these crops have been abandoned.

The Institute POLE conducted a research in 2001 and observed that young men in parts of DRC abandoned farmlands to mine Coltan, resulting in major knocks on food production. In some areas, many have been pushed to the brink of starvation.

The second products are composed of minerals, with Coltan as the specialised commodity.

In normal circumstances, the DRC could compete with Coltan, considered here as its comparative advantage, since it produces 80% of the world deposit.

Unfortunately, Coltan is heavily traded in the black market and tracking its records has become almost impossible.

Moreover, according to the World Factbook, there are no estimates for the exports of minerals in the DRC. The country, albeit endowed with vast potential wealth, it has dramatically reduced national output and government revenue since its independence in 1960.

Recent statistics by the Food and Agriculture Organisation(FAO) show that the DRC is among the poorest and indebted countries while its rate of malnutrition climbed from 35% in 1990-92 to 64% in 1997-98. As well, unemployment rate is high as a result of mineral exploitation, conflict and endogenous corruption.

Coltan and Coflict Though the causes of conflict in the DRC may be more than its resource endowment, it is fact that a warped utilization of its wealth may be a contributor.

High trade in Coltan in the black market has left the DRC very poor because the beneficiaries of the Coltan trade are not all the nationals, but some corrupt Congolese individuals, Uganda, Rwanda and multinationals.

On the one hand, it is true that poverty explains resurgence of conflicts in DRC: poverty of individual Congolese and neighbouring poor countries as all wanted to increase their economy. It is alleged that extraction of all minerals put together involved at least seven foreign governments between 1998 and 2003.

Today, with Coltan market, Rwanda and Uganda, helped by international lobbies, continued to entertain proxy wars in the DRC supporting several parties which, at their turn, lived in mutual rivalry. At least 20 rebel movements, including the famous M23, were or are still active in the two provinces of North and South Kivu bordering Uganda and Rwanda.

POLICY and GOVERNANCE

POLICY AND GOVERNANCE

The paradox of Extractives in Africa;

Balancing the Growth Equation

In many situations the extractive sector has seen a disproportionate recipient of budget pie, at the expense of other sectors such agriculture, tourism, education.

By Jason Braganza, Analyst

A wave of optimism has swept through sub-Saharan Africa (SSA) over the past two or so decades amid hope for an economic takeoff.

Sustained economic and political stability that has made the continent an attractive global trading partner; its being relatively buffered from the global financial crises; and the increase demand for natural resources and minerals from advanced and emerging economies.

However the extractives sector is not the panacea to SSA’s development challenge, and to assert and assume as such would be a grave mistake. Indeed no single sector has been responsible for a countries development and growth least to say the extractive sector.

Littered across the continent are plenty of examples of failures in harnessing of the sector to forge sustainable growth and development (DRC, South Sudan, Nigeria, Angola etc).

In addition, it is worth to note that in SSA, majority of the population live in rural settings and are involved in manual subsistence agriculture. Further, agriculture continues to be the largest export for many SSA countries. Taking this into account and that the extractives is highly skilled and capital and financially intensive sector, one can deduce it is not quick fix for SSA’s development agenda.

It is therefore critical for SSA policy makers and development practitioners to consider the extractives sector as an integral part of SSA’s development agenda that ought to operate in tandem with other sectors in the economy. The extractives sector in inextricably linked to sectors such as agriculture, infrastructure, energy, technology, to name but a few.

From a policy perspective, SSA economies may want to consider how to establish linkages (backward and forward) with these sectors as well potential areas for value addition along the supply chain to move pricing ladder for extractives products. This can be then argued will lead to job and wealth creation together with positive multiplier effects.

Finally, the extractives sector has often flattered to deceive leading countries pursuing expansive fiscal policy without ceilings and indebting the economy beyond sustainable levels. Beyond the fiscal distress that several SSA countries have fallen victim to, there have been instances of change in the financing priorities of economic sectors.

In many situations the extractive sector has seen a disproportionate recipient of budget pie, at the expense of other sectors such agriculture, tourism, education. This tradeoff is potentially very dangerous for the sustainable growth path of SSA countries. To avoid such a predicament, policy should consider how to use revenue and rents to secure broader financing from domestic and international markets to finance a country’s development agenda.

To sum up, the paradox of extractives need not continue being the dominant narrative to describe the state of SSA and its exploitation of the sector. Instead the acknowledgement that the extractives sector is like any other economic and productive sector on the continent. In addition, the extractives sector will not reduce or eradicate poverty in SSA, but the effective use and management of the revenues from the sector will. And finally, the extractives sector in SSA is not the new kid on the block, but rather an adolescent child who needs the right guidance and mentoring to avoid being led astray.

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East Africa Mining Review | October - December 2014

POLICY AND GOVERNANCE

Policy and Legislation shifts likely to affect Kenya’s Extractive Industry The sector’s potential in transforming economic growth has been noticed and both the State and policy makers are now giving more attention to it.

The extractive sector in Kenya has realised remarkable growth lately, buoyed by the discovery of vast reserves of oil, gas and precious stones and mineral sands.

The sector’s potential in transforming economic growth has been noticed and both the State and policy makers are now giving more attention to it.

There has been mention of a proposed sovereign wealth fund, modelled on similar funds in Scandinavian nations such as Norway and Sweden. In July this year, the World Bank advanced $50m to the Kenyan government to finance capacity development in the oil, gas and mining industry.

Specifically, the project is to train locals on management of petroleum resources, with the general areas being covered including: formulation and drafting of a comprehensive petroleum policy, geotechnical data acquisition, processing and interpretation, oil revenue administration, revenue saving mechanisms and local skills development.

But policy changes are critical to any business. In Uganda for instance, following the completion of the farm-down of 66% of its assets in Uganda to China National Offshore Oil Company (CNOOC) and Total in 2012, British explorer, Tullow was issued with a Capital Gains Tax (CGT) demand by the Uganda Revenue Authority (URA) of approximately $472m.

Chief Executive Aidan Heavey expressed his frustration that the tax tribunal ignored an agreement Tullow had signed with Uganda’s former energy minister and that this agreement was partly why over the last 10 years the company had spent $2.8 billion exploring for oil.

As far as tax goes, Kenya seems to be taking cue from its western neighbour by introducing tax on the sale of shares in oil and gas companies.

In 2012, the Kenya Government demanded more than KSh3 billion in taxes from Cove Energy (U.K.) after it sold oil blocks in the Lamu Basin following its acquisition by a Thai company PTT Exploration & Production. These are the sort of transactions that Treasury is targeting so as to improve its collection of taxes.

President Uhuru Kenyatta on September 14, 2014 formally approved the re-introduction of capital tax gains when he signed into law the Finance Bill 2014.

The Finance Bill approved by parliament in late August will take effect on January 1, 2015 changing how taxes are applied in East Africa’s biggest economy.

Capital gains tax was dropped by the country in the mid-1980s to attract foreign and local investment. Under the new law, a firm acquiring a stake in mineral blocks or oil exploration block will pay a premium tax, or net gain tax, on the value of the transaction.

Currently, Tullow Oil and Africa Oil have found oil reserves in Kenya, with BG Group and Randgold Resources exploring and evaluating the viability of petroleum and gold processing respectively.

Investors in the extractive space are tax sensitive especially considering that colossal sums of money may be spent on a venture that eventually yields little or no tangible financial benefit.

Thus, it is important for them that tax incentives promised by governments in Production Service Agreements (PSAs) are honoured.

This certainty allows for proper financial planning during the exploration stage.

The benefits derived by local communities and local content value chains are increasingly becoming policy concerns for many African governments keen to make the most out of minerals extracted in their countries.

In the recent past, we have seen Zambia, the Democratic Republic of Congo (DRC) and Zimbabwe ban the export of raw copper and cobalt ore without exhausting all locally existing value chains.

This is seen as a more aggressive push to derive the greatest benefit from minerals that most sub-Saharan nations have been exporting raw.

In this regard, processing and manufacturing still face capacity challenges such as power and equipment, causing long delays in the mine-to-consumer-chain.

For Kenya, adoption of such a policy would present a huge opportunity for both government and the local private sector to build capacity in mineral processing and infrastructure.

Local companies can set up ore processing industries in anticipation of the imminent growth of the industry.

Capital gains tax was dropped by the country in the mid-1980s to attract foreign and local investment. Under the new law, a firm acquiring a stake in mineral blocks or oil exploration block will pay a premium tax, or net gain tax, on the value of the transaction.

By Paul Mutegi, Ernst & Young

Such local processing not only allows for a large portion of the community to be lifted out of poverty on account of job creation, but also increases tax revenues owing to the number of businesses created under the processing value chain.

Also, we have seen Sierra Leone and Guinea legislate the disclosure to members of the public of extractive industry information such as how much is paid in government licenses, to local communities and taxes by companies in the extractive industry. This has been done through internet- based portals accessible to the public for free ¬-- allowing for transparency and accountability in a lucrative sector often shrouded in secrecy and kick-backs.

Kenya therefore has a valuable opportunity to develop a corporate culture of disclosure as it readies itself for the production phase. This disclosure can also help track remittances to the proposed sovereign wealth fund, which will build public confidence in the government’s leveraging of this nascent economic sector. Kenya would also be well advised to sign up to the Extractive Industries Transparency Initiative(EITI) which is a voluntary disclosure system that shows what taxes and other payments paid by oil, gas and mining companies to governments. This would also be in line with its national values of transparency, accountability and public participation.

Forums such as the 4th Mining Business and Investment Conference therefore offers an invaluable opportunity for government technocrats and policy makers to interact with investors and share experiences from the region and globally on international best practices.

Paul Mutegi Tax consultant at Ernst & Young (EY) Paul.Mutegi@ke.ey.com The views expressed in this article are not necessarily those of EY

East Africa Mining Review | October- December 2014

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POLICY and GOVERNANCE

Striking the Right Chord:

Journey towards sustainable management of East Africa’s Extractives Industry.

By Sebastian Gatimu, Institute for Security Studies

East Africa has recently struck huge reserves of mineral resources, oil, and gas. But do these discoveries give East African Countries hope?

As the world jostles for increased access to Africa’s natural resources even amidst conflicts, there have been renewed calls for the continent to guard itself against wanton exploitation.

Africa is richly endowed with mineral resources though characterised by widespread poverty. Unfortunately, most of Africa’s minerals are exported as ores, concentrates or metals, without significant valueaddition thereby undermining the potential for mineral beneficiation.

The East African Community (EAC) has several mineral belts that produce, amongst other commodities, tanzanite and gold, with Tanzania being the biggest regional gold producer.

Burundi has some gold reserves along with copper, cobalt, nickel and uranium deposits.

Exploration activity in western Kenya has increased significantly over the past few years.

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East Africa has recently struck huge reserves of mineral resources, oil, and gas. But do these discoveries give East African Countries hope?

The outlook for Africa’s mining sector remains bright as huge tracts of East Africa remain largely untapped. But the citizens’ optimism in the sector is waning rapidly.

The recent oil, gas, and minerals discoveries in the East African region especially Kenya and Uganda have transformed the region drawing international interest and becoming a target for resource extraction.

However, there are a number of shortcomings that can make or break these countries that have for years struggled to maintain stability.

These include the continued exclusion of citizens and mining communities from decisions and policies over minerals, oil and gas. Uninformed and retrogressive sets of legislations may hamper any gain from

East Africa Mining Review | October - December 2014

natural resources in the region and instead bring forth conflict.

As exploration of more natural resources continue, the region seems to be moving very slow in laying down legal structures and legislations that will guide the extraction process.

For example, the principal legislation governing mining in Kenya is the Mining Act, which dates back to 1940.

The current Mining Bill 2013 in Kenya is a good example of how state can make laws that end up fueling conflict. Citizen role and contribution in the sector seems to have been ignored.

The Bill has ended up creating a ‘power house’ under the office of the Mining Cabinet Secretary

with overwhelming powers at the expense of communities.

Having been exempted from the process, citizens are today asking who will negotiate for the future generations past the mining period after environment becomes degraded and livelihood opportunities ceases?

Will communities benefit more from farming or mining?

These questions remain unanswered as political elites continue to put pressure on mining communities to vacate and give up land. Their interest is purely revenue.

With continued awareness creation by CSOs, the context is changing as communities have come to realize that

Uninformed and retrogressive sets of legislations may hamper any gain from natural resources in the region and instead bring forth conflict.

Category Title

The elites seems to be more interested in collecting taxes and gaining access to resources, sometimes for their own selfish interest.

governments can no longer be entrusted fully.

The elites seems to be more interested in collecting taxes and gaining access to resources, sometimes for their own selfish interest. The current crisis in South Sudan, looked from a different perspective is resource driven.

With realisation that the resources will one day cease, citizens began questioning accountability of the oil income as fears of environmental degradation and threats to livelihoods became real.

Looking back since the Comprehensive Peace Agreement (CPA) in 2005 and beyond, the government could not account for Billions of dollars from oil export. largely contributed to the unrest in the country as communities in the oil and mineral rich states feared being abandoned after resource exhaustion with no cautionary measures.

This feeling is strongly catching up with East African states. The recent attacks in Lamu Kenya were just but reaction to perceived injustices in natural resource governance.

Turkana is also a bomb in waiting while the resource rich counties have started to question the whole process vis a vis community benefits.

Land has become a key factor in the fight as ethnic animosity begins to crawl back to haunt the nation. The inter face between devolution and natural resources management governance still remain unclear.

As has been the practice, communities only wake up to find private minors on site without prior consultation. As usual, heavy police presence says it all.

Government again. But how long will this last? Meaningful citizen participation is key to sustainable mining, oil, and gas industry in the region.

Strong economic growth in most resource-rich African countries has failed to make a significant dent on their poverty levels due to a failure by governments and multinational companies to reinvest resource revenues into health, education and employment creation services. In South Sudan for example, oil provides about 97% of national revenue.

Natural resource dependency has insulated national leaders from public pressure since they do not rely on taxation of their populations for revenue, creating a room for corruption. S uch states appear trapped, where economic rents gained from the export permit governments to ignore taxing personal or corporate incomes, so as to divert public revenues to patron-cliental networks and to deplete natural resources without reinvesting in assets to diversify the national economy.

Citizens’ engagement of the private sector and the government for inclusivity

in policies and decisions in the extractive industries in East Africa is a must if these countries want to maintain peace and stability.

Equally so, is the contribution of the mining companies to the implementation of locally desired industrial strategies such as mineral beneficiation.

The rising resource nationalism may contribute significantly to the mining sector governance. There is need to re think governance of natural resources in East Africa to ensure transparency and accountability.

Ultimately, a major component of this will be to develop a set of guiding principles for the private sector in consultation with governments, civil society groups, citizens, and global initiatives like the African Mining Vision (AMV) to ensure that its practices encourage the sustainable management of natural resources and contribute to economic capacity-building in host countries.

East Africa Mining Review | October- December 2014

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Category Title

ENERGY: How to ensure cost-effective ways of powering your mining business

By Altaaqa Global CAT Rental Power team

The magnitude of the energy-related challenges call for a heightened urgency, and for a resolve that power should be provided as needed and where needed.

We do not need to be faced with the grim consequence of the extinction of the human race to understand the devastating effects of power outages. There have been various documented cases in Africa that show how brownouts and load shedding lead to effects as domestic as absence of light to as national as curtailment of economic growth.

For instance, a month-long power outage in Zanzibar, Tanzania left people with no choice but to spend an additional $10 a day just to power domestic generators or lose a month’s worth of business. In Luanda, Angola power interruptions normally disturb the water supply, so residents remain with no power nor water for as long as a few weeks.

In the Democratic Republic of Congo (DRC), mining companies were advised to suspend plans of expansion as the country’s existing power supply could no longer support additional mining infrastructure. In South Africa, the main utility firm, ESKOM was considering reducing its power exports to South Africa’s neighboring countries in order to support its power demand at home.

Think about this. How many dollars were lost by the residents of Zanzibar just to sustain their businesses and live normal lives?

How can the people of Luanda survive days or weeks with no electricity nor water? How many jobs would have been created if mining companies were allowed to venture into new businesses?

How many countries would suffer if ESKOM pushed through with the plan to decrease its power exports?

An emergency situation pushes a city, a region or a country’s power reserves to the limit. Not only would there be an increased demand for power in times of rehabilitation, some power sources themselves could potentially be damaged.

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When only a handful of sources continue functioning, how will they be able to sustain thousands upon hundreds of thousands of people in frantic need of refuge and comfort? How will they power recuperation and rebuilding efforts to offer the distressed temporary lodging and social facilities? There is a considerable chance that the surviving electric power plants will eventually be overloaded and fail – then, total blackout will ensue.

Visualise this: How many patients in hospitals will suffer because the machines that sustain their lives no longer work? How many people in the evacuation centers will spend nights upon nights in the dark?

How many temporary houses will cease to be built because construction equipment are all power-dependent?

In these dire situations, the scenario of only having a few days to survive may not at all be just cinematic.

The search for and tapping alternative sources of energy, to preclude the disastrous consequences of insufficient power supply, is an adventure.

Scientists, engineers and designers spend years, if not decades, studying the feasibility of a certain project.

Stakeholders, like financial institutions, contractors, and government and quasigovernment agencies, all have to agree for the project to push through. Finding the sweet spot among the requirements of these participants, however, may take years, and their agreement only marks the beginning and is by no means a guarantee.

In a number of cases, the construction of a permanent power station may face delays and suspensions owing to several reasons, and unless and until the power plant is operational, it cannot supply energy.

East Africa Mining Review | October - December 2014

Governments in the SubSaharan Africa have initiated several projects aimed at boosting their countries’ energy supply, including expanding of existing permanent power stations and constructing new coal-fired plants. These projects have the potential to bring about myriad economic, political and social benefits, but may take time to complete.

Time may not be a luxury that some Sub-Saharan countries have. The magnitude of the energy-related challenges call for a heightened urgency, and for a resolve that power should be provided as needed and where needed.

Providing a twist Unpredicted catastrophes could hit and could paralyze an entire city or country; power sources could fail, which could put lives, businesses and economies on the brink of collapse; building or refurbishing permanent power facilities could take decades and could entail a sizeable investment that could not always be readily available.

But one crucial element sets our reality apart: In our world, temporary power plants exist.

Interim power generation facilities are infused with stateof-the-art technologies that allow them to provide electricity when needed, where needed and as needed.

They find applications in a wide range of industries be it in rural electrification, oil & gas, mining, aviation, industrial manufacturing, and consumer goods production.

Provisional power generator sets are highly scalable, modular and flexible that skilled and trained engineers are able to install, commission and start them up in as little as a few days.

They are easily delivered from depots and yards from all over the world, thanks to their minimal footprint and design that provided for transportation provisions. Electric power plants for hire are capable of providing electricity tailored to the actual need, and are easily uninstalled when the permanent facilities are already operational. With all these benefits, rental energy facilities represent a cost-effective and sustainable solution to a vast gamma of power-related problems anywhere in the world.

With power, the saga goes on.

In our world, human existence need not end when power runs out. While a power scarcity could spell calamitous consequences for households, businesses and economies, we have the means to prepare for it and to actually forestall it.

With the continuous improvement of temporary power technologies, their applications continue to expand and their efficiency and benefits improve.

Rental energy systems may not be the technology that could vow to save the world, but they have the power to provide humans a sustained decent living, businesses continued profits and economies viable growth.

About Altaaqa Global

About Zahid Group

Altaaqa Global, a subsidiary of Zahid Group, has been selected by Caterpillar Inc. to deliver multi-megawatt turnkey temporary power solutions worldwide. The company owns, mobilizes, installs, and operates efficient temporary independent power plants (IPP’s) at customer sites, focusing on the emerging markets of Sub-Sahara Africa, Central Asia, the Indian Subcontinent, Latin America, South East Asia, the Middle East, and North Africa.

Zahid Group represents a diverse range of companies, offering comprehensive, customer-centric solutions in a number of thriving industries.

Some of those include construction; mining; oil & gas; agriculture; power, electricity & water generation; material handling; building materials; transportation & logistics; real estate development; travel & tourism; waste management & recycling; and hospitality.

FINANCE and TAXATION

Picking the best finance and insurance deals for your mining venture To sustain liquidity in the firm, entrepreneurs should create working systems to ensure business resources are efficiently managed.

By James Michuki Wang’ondu Finance is arguably the most critical factor for any business venture. It is the liquid asset in a business that is used to acquire other assets including finance itself.

Undertakings such as mining are immensely capital intensive and very high risk ventures.

Acquiring start up finances, licenses, assets, labour and other initial costs requires an appropriate plan.

When a mining business is up and running it exposes the investor to several incidental risks; fire ,accidents, floods, sickness, bodily injury and death ,product liability ,owners liability ,electronic risks, theft, burglary, malicious damage political risk, terrorism, riot, strike, business interruption and performance risks among others.

It is therefore imperative for an investor to have an appropriate risk transfer mechanism (insurance) as a pre and post-loss measure against any unforeseen eventuality while running the business.

It is extremely unbearable for an investor to close down

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business one day because of fire gutting down plant and machinery. Some insurance covers are statutory requirement like motor vehicle insurance, contractor’s all risks, bond insurance and Workmen Injury Benefit Act (WIBA).

Others are voluntarily taken to motivate staff members and also cushion the firm against any litigation that may arise, leading to loss of finances through court awards to the plaintiffs e.g. medical insurance, group life insurance, product and employer’s liability.

In the finance plan the entrepreneur should consider the total capital required, projected average monthly expenses (working capital), projected average monthly revenue, product pricing, funding sources and cash flow projection.

To sustain liquidity in the firm, entrepreneurs should create working systems to ensure business resources are efficiently managed. It is critical for firms to have clear finance policies and professional officers to guide them of

To sustain liquidity in the firm, entrepreneurs should create working systems to ensure business resources are efficiently managed. It is critical for firms to have clear finance policies and professional officers to guide them of prudent management of assets.

East Africa Mining Review | October - December 2014

prudent management of assets.

An effective finance policy defines how the firm spends and earns revenue, dictating who should authorise the expenditure.

A firm’s financial system is anchored by financial records that are mandatory for the organisation to maintain viable daily operations. A summary report of the same in form of financial statements is produced regularly for the interest of the firm’s stakeholders.

In the insurance plan, investors should disclose the following: inventory record (physical assets) plus their current values, total value of the stock, monthly sales turnover, schedule of staff members and their earnings, list of contracts to be performed on behalf of clients and list of all electronic items and their values.

The recent fire that destroyed sections of the Jomo Kenyatta International Airport (JKIA) demonstrated the critical role of insurance. Due to a prudent insurance arrangement, its manager, Kenya Airports Authority (KAA) was in April 2014 handed Ksh 1.4billion in compensation to help restore the damaged terminal facilities.

Finance and risk control audit should be regularly and routinely done to ensure compliance to the finance and insurance policy of the firm.

Market Knowledge and Industry Specialization Heavy / Light Mining Cement and Aggregates

Civil

Utility and Commercial

Power and Energy Agriculture & Forestry

AUTHORISED DISTRIBUTORS FOR

www.panafricangroup.com

FINANCE and TAXATION

Kenya’s natural resources:

Designing an acceptable fiscal regime for the extractive sector It will be interesting to see how the government navigates the delicate balance of revenue collection from the nascent extractive sector while at the same time retaining investor confidence

By Ruth Ndichu and Robert Waruiru,

The Kenyan economy has been predominantly agro-based with few initiatives of value addition and processing. Sectors such as extractives, hitherto overlooked by many, however promise to supplement the role played by agriculture in supporting the Kenyan economy.

the standard corporate income tax has had appeal for many developing countries. Such a regime ensures that governments get upfront revenue from the start of production, and that the government’s revenue rises as the rents increase with higher commodity prices or lower costs.

As an incentive, expenditure on rehabilitation activities and environment impact studies will be tax allowable. This should incentivise investors to establish environmental reclamation funds to ensure that negative environmental impact is minimized.

Although mineral wealth presently contributed a paltry 1% of the national wealth, recent natural resource discoveries suggest the sector had the potential to contribute up to 15% of Kenya’s GDP in the coming years.

Combining royalties, tax on super-normal profits and corporate tax enhances the stability and credibility of the fiscal regime although it would be essential to have a process that allows renegotiation between the government and the mining companies or investors if circumstances dramatically change from those envisaged during the initial negotiations.

The Kwale mineral sands project near Mombasa and the Kilimapesa gold mine in Trans Mara have been of great national significance, more so because they are trail blazers in the natural resources sector’s new found buzz.

These projects coupled with a move by government to update legislation on economic exploitation of natural resources signal the start of the new era for mining in Kenya.

As the government works towards ensuring that the sector transforms the economy, it is vital for it to align revenue collection from the extractive industry with international best practice to help manage the public expectations.

The signing of the Finance Bill 2014 into law by President Uhuru Kenyatta on September 14, 2014 confirms the government’s intention to streamline tax legislation for the extractives sector, which is becoming a massive port of call in national resource mobilisation to finance the budget expenditure that currently stands at KShs 1.8 trillion.

A study by the International Monetary Fund indicates that a tax regime for the extractive industry combining royalties and tax targeted mainly on rents (super-normal profits) along with

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Further, transparent rules and contracts between the government and the mining companies also impact on stability and credibility. Ghana has done well on this front for example in publicising its oil and gas production sharing agreements. Poorly designed and negotiated international tax arrangements, can seriously undermine revenue potential for the country.

It will be interesting to see how the government navigates the delicate balance of revenue collection from the nascent extractive sector while at the same time retaining investor confidence.

The Mining Bill 2013, proposes to impose royalties on minerals which will be shared among the national government at 60% County governments at 20% and local communities get the remaining 20%. Whilst this is a noble initiative and speaks to devolution of resources and revenues, the stakeholders must be seen to pull in one direction and not send conflicting signals to investors through unilateral imposition of “quasi-tax” levies.

While it is not yet clear whether the royalties will be on

East Africa Mining Review | October - December 2014

gross revenues or production tonnage, the government ought to be careful while imposing such royalties. Royalty rates that vary with price have easy appeal to the government but can be disastrous for the mining companies. This is because such price based royalties do not vary with the cost of production for the minerals and since they are a simple addition to cost, they can make the extraction of some resource deposits economically unviable.

Besides royalties, the government’s decision to impose capital-gains and windfall taxes on oil, gas and mining companies starting January 2015 may cause jitters.

‘Windfall’ or ‘second tier’ profits in their simplest form, are the profits from minerals when the international price exceeds a set amount. Hence, the windfall tax will be the government’s proportion of the oil, gas or mineral price above the specified price trigger. Just like royalties on gross revenues, price-related windfall profits may be unattractive for investors especially if costs of production outpace the product price swings.

In 2008, Zambia briefly attempted to introduce windfall tax which it withdraw due to its negative impact.

The government also continues to pursue multinational companies operating in Kenya declare their “fair share” of profits in Kenya through transfer pricing.

The Kenya Revenue Authority (KRA) has targeted mandatory disclosure of related party transactions as well as changes in the business operations to achieve transparency and limit profit shifting.

Like any other multinational company in Kenya, oil, gas and mining companies will be required to maintain transfer pricing policies in line with the transfer pricing Rules.

While the Finance Act 2014 will impact the extractives sector, other issues investors may consider include the most common and preferred investment vehicle for undertaking general mining operations by more than one owner, which often takes the form of an unincorporated joint venture between the parties.

The Finance Act 2014 introduces tax on natural resources as well as gains from the sale of property and shares for oil and mining companies where the value attributable to the Kenya interest is above 20% of the entity being disposed.

With the Companies Bill up for debate, it might be a worthwhile exercise to incorporate changes to the Companies Act that facilitates and enables such ventures to support the nascent and often risky natural resource exploration activities.

Previously sale of property and shares for oil and mining companies was subject to tax on the entire consideration which made the industry in Kenya uncompetitive. The move to tax the gain and not the gross proceeds is a step in the right direction and should encourage investors to divest and bring on board partners with the financial muscle to exploit Kenya’s natural resources.

In formulating these policies, the government should not lose sight of the fact that other than the direct revenue collection, the oil gas and mining sector will continue to indirectly contribute enormously to the economy through various ways, with the most important impact being the ripple effect from job creation and provision of services by other sectors to the extractive industry.

POLICY AND GOVERNANCE Photo by United Spectrometer Technologies

How to attract adequate financing for East Africa’s Nascent Mining Sector

By Cliff Otega

Kenya will soon ahave a new mining law. Her East African neighbours led by mining big brother Tanzania have also gone through various legal iterations in the past few years.

It’s a good time to be thinking about investing in mining, but as always, the million dollar question is how will you fund your investment?

Let’s use Kalumbila Resources of Zambia as an example of how to develop a mining project.

Kalumbila’s Sentinel copper project is being developed as a $2 billion project by Canada’s First Quantum Minerals but started life as Prospecting Licence 267. Mining investment mirrors the stages of mining during the evolution of a project.

The Holy Grail is to achieve some level of resource estimate as this is generally the fundamental value of a mining project.

During Kalumbila’s initial exploration phase, startup capital came from the pockets of the founders. While we are starting to see the formation of more sophisticated investment vehicles in Africa, a more certain source of capital is from personal savings, profits from other ventures and loans from friends and family.

This is the highest risk phase and many large investors such as pension funds necessarily shun such investments based on risk. Most of the funds at this stage will be invested in license acquisition and early stage exploration programmes.

There is also the potential to enter into farm-in agreements with investors where the investor earns equity in the venture for a given amount of exploration spending. This type

East African mining ventures that will be successful in the long run will be those that adhere to international mining resource definition standards. of arrangement is common in the oil and gas industry.

Once the lucky investor has defined some level of resource, the picture gets brighter. For Kalumbila, this took the form of initial copper and nickel targets that were sufficient to excite venture capitalists.

It is important to note here that the East African mining ventures that will be successful in the long run will be those that adhere to international mining resource definition standards.

This is because these standards provide a standard comparison for investors across the globe to assess the value of a project as well as make comparisons between different projects. Standards such as Canada’s NI 43-101, Australasia’s JORC Code and South Africa’s SAMREC are the most prominent. A resource estimate unlocks potential funding from a wide range of sources. High net worth individuals and private equity funds now have something to base a valuation of your company on.

Kalumbila was able to obtain $1.5 million from the New Africa Mining Fund which was backed by the World Bank’s International Finance Corporation, the Development Bank of Southern Africa, the African Development Bank and BHP Billiton South Africa.

Private funds such as these are taking root in our region.

Private equity is generally based on increasing project value and then “exiting” either by a private sale to a larger industry player or a public sale through a recognized securities

exchange such as the Nairobi, Dar es Salaam, Uganda or Rwanda securities exchanges.

One of the key clauses of Kenya’s proposed Mining Bill is that large scale mining companies list a minimum of 20% of their shares on the Nairobi exchange.

We should also bear in mind that highly developed capital markets exist beyond our borders and in fact outside Africa.

If your project is compelling enough, you can achieve a listing in Canada on the Toronto Stock Exchange’s Venture Exchange or London’s Alternative Investment Market. In Kalumbila’s case, the company listed both in London and Johannesburg, raising capital to further its exploration programmes.

As the project develops and better resource and ultimately reserve estimates are developed, other options begin to unfold.

Your company could well be a takeover target, or you could opt to progress to production as a standalone company.

Kalumbila was eventually bought out for $260 million!

Key to this decision will be the results of the pre-feasibility / feasibility study. This phase basically answers the question as to whether the project is economically viable.

The project must also be technically viable and profitable.

A feasibility study that ticks the right financial boxes is a fantastic step in the right direction as it allows a project to move to the construction or development stage.

This opens up a new source of funding – the banks! Banks, particularly in our region have not had much experience with

exploration projects and are reluctant to get involved at this stage.

However, once you are past the feasibility stage, bank debt will be the most likely source of development funding.

Once again, a comprehensive feasibility study allows you to spread your wings beyond Africa and seek funding from international banks in the world’s financial hubs, from Hong Kong to Sydney to London to New York.

A number of sophisticated instruments are involved at this stage so it is wise to engage good legal and financial advisors.

While this write up has focused on large scale mining, small scale miners will be familiar with the initial stages of funding.

If East Africa is to maximize its potential we should be looking to develop a number of large scale mining enterprises. Tanzania is well ahead of the pack, with at least eight gold mines developed since 1997.

To support our artisanal and small scale miners, governments and multilateral institutions will have to get involved. The Africa Development Bank, International Finance Corporation and South Africa’s Industrial Development Corporation are leaders in supporting the development of African mining industries in various countries.

The author is the Managing Director & Head of Energy & Natural Resources at Standard & Mutual Limited, a Nairobi based corporate finance and advisory firm. He can be reached at cotega@standardandmutual.com

East Africa Mining Review | October- December 2014

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EXTRACTIVES INDUSTRY INFRASTRUCTURE

Reliable infrastructure key to success of Extractive Industry in Kenya

By Rading Biko Gerro

Transport connectivity has a direct bearing on the country’s competitiveness as it influences the cost of living and doing business.

The discovery of large reserves of rare minerals, gas and petroleum has had made East Africa a hot spot.

The deeper channel will allow the port to handle ships of up to 4,500 TEUs. Apart from Kenya’s the port of Mombasa handles cargo to and from Uganda, Burundi, Rwanda, South Sudan, eastern Democratic Republic of Congo and Somalia.

In an expansion drive at the port of Mombasa, the government in August 2013 commissioned a new berth at the port to take advantage of expanding regional trade. Berth 19 has an annual capacity of 200,000 20-foot equivalent container units (TEUs).

Several multinational firms have set their feet into the region, fast transforming it into a global destination for extractives.

The new berth has seen ship quay area at the port container terminal extended to 840 metres and the container staking yard increased by about 15 acres.

Like the rest of the world, this transformation has increased industry demand for timely and rapid delivery of goods both in the region and Kenya.

By 2016 the new terminal is projected to have a capacity of 450,000 twenty-foot equivalent units (TEU) and this is expected to rise to 1.2 million by 2019.

The country’s transport infrastructure is now under pressure from the rising levels of traffic both on rail and road. At the same time, limited maritime infrastructure and poor inland infrastructure are under immense pressure from the massive increase in imports and exports.

Besides expanding the port of Mombasa, regional countries are working on a $25 billion integrated infrastructure project known as Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) which is is also critical in improving trade between Kenya, Ethiopia and South Sudan. It entails construction of a new port in Lamu as well as a railway, pipeline, highway, airport and refinery.

Transport connectivity has a direct bearing on the country’s competitiveness as it influences the cost of living and doing business.

The existing logistics operations are strained by frequent port congestion, falling reliability levels, a challenged road transport capacity, the inability of railways to meet demand and the everincreasing user’s demands for reliable and predictable services.

The Roads and Transport ministry also targets to build about 10,000 kilometers of new roads by 2017 to boost transport and logistics.

Out of the 10,000km planned roads, 2,000km will be highways.

Kenya’s road network presently covers 161,000km, of which only 14,100km or 8.7 per cent is paved.

“There is therefore need for urgent investments in the transport infrastructure to cope with the increasing volumes and needs of the cargo owners to facilitate multi-modal transport” the Shippers Council of East Africa (SCEA) says.

Kenya and its regional partners are building a standard gauge railway from the Port of Mombasa.The new standard gauge line will supplement the present underperforming narrow gauge network that links Kenya and Uganda only.

Given the bulky nature of products from the extractive industry efficiency at the port of Mombasa and railway system is critical because of the expected surge in activity.

The concessionaire of the Kenya-Uganda railway, Rift Valley Railways (RVR) has sort to boost the performance of the line.

“The challenge is now for the government to move fast and prepare the port to handle bigger vessels. A shallow entry has been a hitch, but now that has been addressed and work must be turned to ensuring that cargo handling facilities are sufficient,” Peter Mwangi, a freight agent said.

The Kenya Ports Authority (KPA) remains under pressure to expedite the expansion and modernisation of Mombasa port to handle bigger capacity vessels due to increased demand from the region.

Like other sea port operators in Africa, KPA is experiencing growing strains on their infrastructure following a sharp increase in the size of ships calling on their ports.

A recent survey by the United Nations Conference on Trade and Development (UNCTAD) showed that between July 2004 and July 2010 alone the average vessel size grew by 65 per cent. The size grew further in 2012, a trend that is reflective of the surge in global trade volumes in the last few years.

Mombasa port also recently underwent dredging, creating room for bigger vessels to call on it. Previously, the port accommodated ships with an average length of 200 metres and 2,000 TEUs.

The regional rail operator on September 18, 2014 flagged off three new US-made locomotives, as part of the company’s investments aimed at improving efficiency and speed of railway transport in Kenya and Uganda.

RVR has a 25-year contract to operate railways services along the Mombasa to Kampala line as well as commuter services in Nairobi.

The company has previously come under heavy criticism from the government for the perceived slow pace of investment in rehabilitating the railways lines and buying new locomotives.

“Taking cognisance of the investment made and the work in progress

by RVR there are indications that this public private partnership is turning the corner,” Kenya’s Transport secretary Michael Kamau said when he flagged off the locomotives.

The three General Electric locomotives are part of a consignment of 20 acquired by RVR. RVR has earmarked a total capital expenditure of $287 million to hire skilled manpower, adopt modern technology, and upgrade its fleet and railway track.

Kenya and its regional partners are building a standard gauge railway from the Port of Mombasa. The new standard gauge line will supplement the present underperforming narrow gauge network that links Kenya and Uganda only.

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East Africa Mining Review | October - December 2014

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East Africa Mining Review | October- December 2014

KNOWLEDGE and SKILLS

Collaboration for quality

A regional need in specialist mining education

It is encouraging to see academic institutions across Africa looking to introduce and grow their own provision of programmes of study relating to the extractive industries industries (mining, oil and gas It is encouraging to see academic institutions across Africa looking to introduce and grow their own provision of programmes of study relating to the extractive industries (mining, oil and gas). The revenue and jobs created by these industries can assist in the development of nations. However, the policies relating to taxation and community development through revenue distribution must be very carefully nurtured, so as to encourage companies to explore and develop projects – rather than take their investment to other jurisdictions. This is true in Australia – where sovereign risk concerns and cost pressures have made the headlines in recent years – as it is in countries where large-scale mining might be relatively new. Mining is a particularly complex global industry, requiring exploration, mine development, operation, and eventually closure. It can have dramatic environmental and social impacts, often long after mining ceases. Hence, education about mining is important for not only the employees or potential future employees, but for investors, government and their communities, especially if expectations are to be kept reasonable and hopefully eventually delivered.

While Curtin University, based in Perth, Western Australia, is a relatively new institution (in the top 25 of the world’s universities under 50 years of age), its oldest constituent part – The Western Australian School of Mines – is 112 years old with a campus in the iconic gold mining centre of Kalgoorlie. Perhaps this is not surprising in a State that now exports over $100 billion of mineral, oil and gas commodities each year. A mining school is a part of a University, where

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students can benefit from the integrated teaching of geology, mining and metallurgy.

The Western Australian School of Mines has delivered a short course in mining regulation and management, funded by the Australian Federal Government, to four groups of African scholars during 2011 to 2013.

Over 50 senior and mid-level Government officials from 27 African countries involved in the mining regulatory sector have each spent around ten weeks in Australia on a programme of formal, informal and experiential learning (including discussions with their peers in Australia).

Several Government delegations have also been hosted for shorter visits. In February 2014, the Western Australian State Government signed a Memorandum of Understanding (MoU) with the Common Market for Eastern and Southern Africa (COMESA) which included the desire to continue to share our knowledge of mining and experience of mining regulation.

Curtin University has evolving collaboration with a growing number of African universities in many fields of study, not just mining, and a growing number of African students are studying in Australia. For example, senior staff from Jomo Kenyatta University of Agriculture and Technology (JKUAT) and Taita Taveta University College (TTUC) have visited Western Australia while staff from Curtin in December 2013 conducted workshops in Nairobi and Voi. A new staff member at TTUC has recently completed a Master in Mining Engineering with Curtin University in Kalgoorlie.

Australia can assist with mining-related curriculum, capacity building and research.

East Africa Mining Review | October - December 2014

A further area where we can provide assistance is with an understanding of the need for collaboration. Mining is a cyclical industry with supply and demand changes, driven by industry response to global economic circumstances, causing “boom and bust” periods that impacts on the recruitment of graduates by the industry and hence on the recruitment of students into mining-related programs. In times of the “boom” cycle, not enough graduates are produced and it is very difficult to recruit and retain good teaching staff.

The Australian mining industry observed the impact of the “bust” cycle during the 1990s, when many mining schools closed due to low student numbers and hence high costs (in fact in New Zealand, that at one time had around 30 mining schools, all mining schools had closed by 2010). The Australian mining industry, through the Minerals Council of Australia, now financially supports select groups of Universities in the delivery of mining geology, mining engineering and metallurgical engineering programs. This also requires and encourages the development and sharing of world-class industry-relevant curricula. Africa has a number of well-established excellent mining schools in jurisdictions where significant mining operations have been running over many decades such as Zambia, Ghana, Tanzania and South Africa.

These schools have key roles to play in educating the next generation of the continent’s mining professionals and in supplying part of the global ex-patriate workforce that the mining industry increasingly relies upon. The newer and emerging mining schools across Africa such as Kenya, Uganda,

By Professor Steve Hall

Rwanda, Malawi and Ethiopia have many of the same challenges – staff recruitment and retention, maintaining industry-relevant equipment and software, and producing “industry-ready” graduates for a set of increasingly high-technology occupations.

Here, there are key roles for industries and governments to invest in a sustainable regional mining education tertiary sector.

The provision of technical training should also be carefully managed by the government; however many of the skills needed in mine construction and operation including surveying, welding, heavy machinery mechanics are transferable to other industries.

Serious consideration needs to be given to developing “centres of excellence” in specialist areas of mining such as geophysics, mine surveying, coal mining, ventilation, mineral processing, environmental rehabilitation, mineral economics and sharing teaching staff between schools.

Investment should include high-speed videoconference facilities to link classes together in real-time. All schools should place an emphasis on teaching generic skills (including safety), rather than simply have contentrich curricula, as mining 10 or 20 years from now will most probably be very different to today.

These are major challenges for the University system in any country, hence the collective support of Ministries of Education, Mines, Finance, etc., is needed.

In exchange, the mining schools will have to embrace outreach activities – providing assistance to government and communities to understand the industry that they serve – for this it is hoped the industry will look after them through “boom and bust”!

KNOWLEDGE and SKILLS

Information asymmetry in oil and minerals impoverishing Africa It is not surprising that with easily accessible wealth concentrated in the hands of the government, malignant dictatorship and predatory regimes often thrive.

By Bitange Ndemo

Why is it that African countries rich in minerals have failed to reduce poverty despite their economies having recorded strong growth in the past five years? The answer largely lies with ignorance, conflict, poor governance and lack of information. The Africa Progress Report, published in 2013 and chaired by Kofi Annan, cited that the “Democratic Republic of Congo (DRC) lost at least $1.36 billion between 2010 and 2012, due to underpricing of mineral assets”.

A World Bank report, Africa’s Pulse published in 2012, noted that the decline in poverty rates in resource-rich countries has generally lagged behind that of countries without riches in the ground. Some countries, such as Angola, Congo-Brazzaville and Gabon, have witnessed an increase in the percentage of the population living in extreme poverty. The DRC is perhaps the world’s richest mineral bread basket but at the same time one of poorest globally.

Is Africa cursed? In my own view, it is not. Shantayanan Devarajan, the World Bank’s Chief Economist for Africa, and lead author of Africa’s Pulse seems to think the same and says “Resource-rich African countries have to make the conscious choice to invest in better health, education, and jobs, and less poverty for their people,” This is a mantra we have heard over many years since most African countries attained independence but not taken it seriously. Most African states don’t seem to associate better social services with the prosperity of the nation.

Factors causing the information asymmetry It is possible that some African leaders perpetuate ignorance or lack of knowledge as a strategy to control and manage the citizens. To keep people in a state of being uninformed is a political strategy that is even used at ward level politics.

The only tool against ignorance is education but we have seen learning initiatives being politicised at local level. For example since independence, Kenya has relied on foreign content to teach students.

It is common to find an adult Kenyan arguing that Kenya does not have any minerals meaning that even those with education are ignorant of their own country’s resources.

Conflict in Africa is synonymous with mineral rich countries. From the Congos to Liberia, minerals are the cause of conflict. Wikimedia notes that the most commonly mined conflict minerals are cassiterite (for tin), wolframite (for tungsten), coltan (for tantalite), and gold ore, which are extracted from Eastern Congo, and passed through a variety of intermediaries before being purchased by multinational electronics companies. These minerals are essential in the manufacture of a variety of devices, including consumer electronics such as mobile phones, laptops, and MP3 players.

The violence in the DRC is precipitated by profits from the mineral trade although the media has always linked the chaos to ethnic differences. Brian Ferguson’s work at Rutgers University, shows that humanity’s peaceable deep past contradicts the common notion that war is the result of human nature or an evolved impulse to bond with our own kind and kill members of other groups. Ethnography further undermines this position. Of course in war there must be a division between “us” and “them,” otherwise one would not know whom to shoot. But it is not group loyalty that makes the conflict. Rather it is conflict that makes group loyalties.

In poor governance we create unnecessary inefficiencies to the economy. In 2004, Collier and Hoeffler said that in almost all developing countries, the government owns the mineral resources and is therefore the main recipient of the revenues from their extraction. This concentration of revenue with the government as a

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East Africa Mining Review | October - December 2014

conduit of benefits to the rest of the economy often leads to problems including rent-seeking, corruption and the efficiency losses that result from them. It is not surprising that with easily accessible wealth concentrated in the hands of the government, malignant dictatorship and predatory regimes often thrive. There also seems to be greater tendency for armed civil conflict in mineral based economies.

African governments hardly publish any information with regards to oil and minerals leading to a serious lack of information which triggers conflict. It is imperative that Africa begins to develop capacity in all areas such that mining ventures are well understood. There are very few geologists that even a well-intentioned country will almost always rely on foreign experts to guide them through mineral exploitation and marketing.

The African Union should make it a priority to develop capacity in areas that impact the economy most such as mines. Efforts must be made to encourage African experts in the diaspora to return home and help set up structures that would lead Africa to make independent decisions on its resources.

Looking Forward The World Bank says that “There is an overall consensus that lack of knowledge about mineral potential in Africa is hindering the development of the region’s resource rich countries and preventing them from getting the best value out of their resource endowment”.

Africa therefore needs to collaborate and start mapping its mineral resources because without data, it will continue to be difficult to get value for their minerals. Mapping technologies have greatly improved to the extent that some of the data may already be available.

African governments must embrace data to make key decisions especially on the estimated resources they have and the markets. To enhance transparency there is need for governments to develop open data portals. In open data every citizen can audit a nation’s resource base and incomes.

Liberia for example, has maintained an open data portal in which one can track the production of minerals and follow through to the markets. The data also has estimated production from other countries. The visualisation used in the portal are simplified such that even an average reader can understand. Best practice in open data is achieved when all stakeholders (civil society, academia, private sector etc.) become part of the process.

A fair policy and regulatory environment will always lessen conflict.

In Australia for example, the policy is such that exploration and mining companies need to achieve a social license to operate from the community as part of a strategy aimed at establishing effective long term working relationships with all stakeholders. In this case, community confidence in the industry’s overall performance and a demonstrated commitment by companies to best practice environmental management is paramount.

The Department of State Development recognises that community confidence will only be gained where industry and the community work together cooperatively and openly in good faith to develop and achieve mutually acceptable outcomes.

In conclusion, if indeed Africa wants her people to benefit from the enormous resources we have on the ground, we must join hands to start the mapping of mineral resources in Africa and develop a geodata continent-wide. Africa must build her own human resource capacity and develop environmentally friendly policies that recognize local communities. To enhance transparency, we must embrace open data. Africa has what it takes to look after its resources.

KNOWLEDGE and SKILLS

Mining education in Kenya :

The key to sustainable and equitable extraction and use omineral wealth Arthur Ndegwa and Prof. Chrisitne A. Onyango

The changes in technology have made it easier and more economical to explore minerals across the world and deep into the earth’s crust and even off shore.

Mining entails extraction of valuable minerals from the earth that are formed in mineralised packages such as ore bodies, veins, lodes, seams or reefs for economic gain (Hartman and Howard L., 1992).

It has undergone significant change over the centuries in terms of the technology applied on various aspects of mining engineering such as mine planning, mine geotechnical engineering, mine environment, drilling and blasting, as well as mine ventilation.

TOTAL

East Africa Mining Review | October - December 2014

The pioneer cohort (6 students), the second cohort

NUMBER

The Mining and Mineral Processing Engineering (MMPE) programme launched

by Jomo Kenyatta University

ADMISSION

Evolution of the Mining and Mineral Process Engineering Programme

Conceived in the mid- 1990s when mining and petroleum development hadn’t become an economic buzz, the programme’s profile has since risen sharply, buoyed by the discovery of petroleum, gas and mineral deposits.

OF

This makes it critical to have special institutions that offer training in mining so as to provide a sufficient workforce for the sector.

of Agriculture and Technology (JKUAT) at its then campus in Taita Taveta County (now Taita Taveta University College) in 2005/2006 remains the only academic programme of its kind in Kenya.

YEAR 

310

Knowledge and expertise on mining issues remains low in Kenya with many viewing it as ‘foreign’.

STUDENTS

6

25

2005/2006

2007/2008

43

15

2008/2009

20

2006/2007

2009/2010

22

24

2010/2011

26

Countries such as Democratic Republic of Congo (DRC), Sierra Leone, Angola, Liberia and

Health Sciences

2010/2011

(accelerated

intake

29

60

2011/2012

2012/2013

Most developing countries particularly in Africa that are rich in mineral resources have had their share of problems such as civil war, political instability, genocide, displacement and several atrocities that have been exacerbated by and can be attributed to the mineral trade.

Business, Economics and Social Science

Engineering, Mines and Technology

Kenya has not been spared from some of these conflicts which have seriously hampered the mining industry in its nascent stages of development.

These developments have spurred the growth of structured education and apprenticeships to meet the growing demands of qualified human resources for the mining sector.

The education and research institutions thus continue to grow as they churn out graduates and technological innovations for the increasing complexity of this important economic sector.

Agriculture, Earth and Environmental Science

This aspect is not directly related to mainstream mining, but does reflect a possible source of conflict when trying to setup a mine in certain developing countries.

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The innovations are developed by the miners themselves as they seek to better understand the geophysical structures and scientific and engineering requirements for both economic and sustainable activities in the mining sector.

former Sudan have experienced the pain of conflict that led to displacement of millions of people, in effect wiping out traditions and culture.

2013/2014

The changes in technology have made it easier and more economical to explore minerals across the world and deep into the earth’s crust and even off shore.

Science and Informatics

(15 students), 3rd cohort (24 students) and 4th cohort (43 students) of the MMPE programme completed the 5-year degree course in December 2010, December 2011, June 2012 and April 2013 respectively. As shown below, class numbers in the programme have been growing steadily, with record numbers in the 2012/2013 and 2013/2014 Academic Years reflecting the impact of the recent oil and gas discovery: The mining processing

and mineral engineering

KNOWLEDGE and SKILLS programme is now conducted at the Taita Taveta University College (TTUC) which aims to support a national plan under the Vision 2030 of expanding industrialisation through the mining sector.

Key Disciplines at TTUCSchool of Mines and Engineering (SME) There are five proposed schools which will support different disciplines as shown in the figure below.

The disciplines offered at TTUC such as Business, I.T. and Mathematics would be incorporated with the engineering, mines and technology to develop all disciplines coherently.

For instance, creating programmes with double major such as BCom-Mining, BBITMining and BSc. Mathematics and Computer ScienceMining which would aim at incorporating both mining and other disciplines.

Some of the currently offered and proposed programmes in the School of Mines and Engineering include:

Undergraduate Degree Programmes - BSc (Mining Engineering) - BSc (Mineral Processing Engineering) New programmes - BSc Applied Geology focusing on Mining and Petroleum Geology Short Courses • Open Pit Mine Planning and Design • Underground Mine Planning and Design

•

Trade Skills required

by Mining, Oil and Gas Industry

Research Areas Mining and mineral processing curriculum develops graduates who can do research in such areas as: Mineral Reserve Estimation & Mine Design and Planning - Metallurgy/Mineral Processing - Mine Environmental and Safety Engineering - Mineral Resources engineering - Mine Geotechnical engineering - Drill and Blast - Mine Ventilation - Resource and Structural Geology Employment Graduates from the mining and mineral processing engineering department have been employed across related engineering fields.

These fields include mining, oil and gas industry, as well as civil, construction and environmental engineering.

Graduates from TTUC are employed by Base Titanium Limited, Kenya Fluorspar Company, Magadi Soda Company, and Bamburi Cement Company among others. They are satisfied with the quality of graduates being release from the school.

Some graduates have obtained opportunities to further their studies abroad, acquiring Master’s degrees in mining engineering related

courses forming a critical mass of personnel for training Accreditation of MMPE by the Engineers Board of Kenya (EBK)

Challenges Application and engagement of EBK for accreditation of MMPE programme is at an advanced stage. The main challenge remains inadequacy of qualified, registered staff.

The newly enacted law, ENGINEERS’ ACT 2011, on engineering practice in the country creates the Engineers Board of Kenya (EBK), to be in charge for registration of engineers and firms, regulation of engineering professional service, setting of standards, development and general practice of engineering.

It specifically empowers EBK to regulate engineering education and training in the country.

Skills required by the mining industry need to be developed by educational institutions. These include design, automation and testing of new innovations before application.

Developed countries have and continue to do this resulting in well-developed mining industries in their regions.

Mining technology has not been developed fully in the area of artisanal mining and thus the positive impacts of the technology are not felt.

Artisanal and Small-scale mining form the bedrock of miners in the region and their needs to be enhanced in order to cascade the benefits in technological advancement.

It is estimated that more than 100 million people rely on this sector for income in developing nations.

Way forward Concerted efforts are ongoing to ensure the programme gets the accreditation, through: •

•

• •

Acquisition of services of adjunct and visiting Lecturers/professors from mining countries such as Ghana, Germany, India and Australia.

Developing joint postgraduate programmes with experienced mining universities in Germany and Australia Building human resource capacity from our own graduates Training of artisanal miners in the region on issues related to gemstone mining and value addition.

Collaborations with willing partners in: - Staff and Student exchange to develop research on specific areas.

- Short visits by Mining and Mineral Processing Engineering lecturers from Mining Universities in Germany, Australia, Ghana, India - Joint Research development - Establishment of Engineering Laboratories and Workshops for teaching and research.

- Enhance access to the e-Library and other information resources

East Africa Mining Review | October- December 2014

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GENDER Inclusivity

Bridging gender disparity

to boost the performance of the extractives sector in East Africa The extractives industry can however have both positive and negative impact on socio-economic and environmental matters.

By Winfred Ngabiirwe

Exploration of natural resources has fast become an economic mainstay in many developing countries.With the continued discovery of commercially viable deposits of oil, gas and mineral deposits there is hope for economic transformation even among marginalised groups such as women, through bigger investment in key areas such as infrastructure.

Gender The extractives industry can however have both positive and negative impact on socioeconomic and environmental matters. Mining projects may create jobs, but may also consume farming land for their use, changing livelihoods and limit access to water, food, and firewood.

Water sources may become polluted, but new roads may be built and more communities connected to national power grids. Markets may boom, but prices may rise steeply. This mixed profile also extends to gender with women traditionally being locked out of benefits of economic ventures such as extractives. Where stakeholders work on the simple assumption that men and women are equally and similarly impacted by mining, the implications of the extractives industry can isolate and overburden women, with repercussions for families and communities.

Employment It has been argued in some quarters that gender disparities may be addressed through rules and regulations but when you look at local content rules and regulations, this is never the case across all value chains whether oil, gas or mining.

Worldwide it is extremely rare to find any extractives industry companies with higher than 10% female employment, with many being less than 5%.

Land Rights Extractives industries also feature heavily in the land question.

Mining ventures

26

In the picture, is a lady whose house was demolished and crops burnt because an investor wanted to set up an Oil Waste treatment Plant. Despite the clear laws and Policies on land aquisition, Compensation and Resettlement, economically powerful people violate these laws and evict the poor, usually the women with out compensation for the bonafide land occupants. It is worse where land is communally owned as in case with Hoima and Buliisa. Access to Justice for such people is only but a dream. often mean the conversion of land to new uses either for extraction itself, or for support infrastructure such as processing units.

This means the loss of subsistence farmlands and cutting off access to resources like water and food. In many East African communities men are the land titleholders, so men are more likely to be the ones compensated for loss of land, even if it is women who work the land. Even where laws are clear on spousal consent on disposing off family land, this is ignored by both government ministries and agencies.

Consultation Community opinion and priorities are expressed through consultative processes, which can provide communities with the opportunity to express concerns and opinions about mining industry developments and to express their priorities for how royalties and corporate social investments should be spent. All too often however, women are excluded from these consultations. This has meant that key concerns and priorities are not captured

East Africa Mining Review | October - December 2014

during legislation and policy formulation. Ensuring their input into policy and legislative consultative processes, is a necessary prerequisite for effective and sustainable development.

Provisions in laws and policies The recognition of the rights of women in the East African Community countries’ Constitutions is critical. We need to ensure that we guarantee of equality, outlaw discrimination and oblige states to take affirmative action in favor of groups marginalised on the basis of gender, age, disability or any other reason created by history, tradition or custom in order to redress the imbalances which exist against them.

Some countries have various specific laws which promote and protect the rights of women, among them the Land Act, the Domestic Violence Act, the Employment Act. These are in line a number of treaties such as the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW) and International Covenant on Economic, Social and Cultural Rights

(ICESCR) that all east African Communities are party to.

Despite the ratification of international treaties and the constitutional provisions, there are continued violations of women’s human rights in east Africa as a whole .These violations come from, and or made worse by the developments in the extractives industry, and they limit women’s chances of benefiting this industry.Women in leadership positions lack knowledge and skills to effectively influence the decisions of these governance structures and this could be worse in the relatively new extractives industry.

We need to provide adequate and accurate information to women in a language and format that is user friendly to them to enable their meaningful participation in the extractives sector and boost access to justice where some of the laws and policies are violated/ ignored. Government also needs to put in place and/or reinforce mechanisms to prevent and protect women from violence that may occur as women seek to claim their rights to land.

HUMAN RIGHTS IN BUSINESS

Photo by Kenya Fluorspar Company

Advancing a corporate human rights responsibility agenda In East Africa’s extractive industry The recent discoveries of large deposits of untapped non-renewable natural wealth resources in East Africa are expected to play a catalytic role for development in the region.

This has renewed optimism among local populations given that the region is one of the world’s poorest with many of its inhabitants living on less than a dollar a day. In addition, the region continues to grapple with high illiteracy levels and diseases such as HIV/Aids, malaria and tuberculosis.

Moreover, social unrest is never far off and the potential for escalation of tensions into conflicts in East Africa is well documented.

These factors highlight growing public expectation for extractive companies to strengthen their positive human rights contribution and respect human rights. Indeed, globally, an increasing number of companies are demonstrating their respect for human rights by adopting international human rights standards within their core business practices.

A 2014 survey found that nearly two thirds of all Fortune 100 companies have publicly available policies on human rights issues and more than half make substantive contributions by supporting projects that foster human rights.

East Africa’s budding extractive industry should take advantage of this existing window of opportunity – before intensive development and production activities begin in

earnest - to develop a culture of corporate human rights responsibility from the outset.

Today, it is widely accepted that corporations have a responsibility to respect human rights as emphasised by the 2011 United Nations Guiding Principles on Business and Human Rights. Cultivating a culture of corporate human rights responsibility not only alleviates the socio-economic conditions of local communities but may also bring commercial rewards to the company.

Research shows that demonstrated respect for human rights enhances a company’s reputation, leading to higher productivity and strengthens the licence to operate. This in turn improves access to new markets, consumers and investors; creates more stable operating environments; and promotes better community relations.

Conversely, companies involved or implicated in human rights scandals often see their reputations and corporate images suffer, resulting in the loss of share value, increased security and insurance costs, as well as expensive lawsuits.

For example, in 2011 a study conducted by researchers from Harvard Kennedy School and the University of Queensland found that a world-class mining project in a developing country (whose capital expenditure was, at that time, between $3 billion and $5 billion) stood to lose about $20 million per week due to production delays from conflict

By Melba K. Wasunna

“Companies are learning that, as markets have gone global, so, too, must the concept and practice of corporate social responsibility. And they are discovering that doing the right thing, at the end of the day, is actually good for business.”

– Kofi Annan, Address to the World Economic Forum, 2010, Davos with the local community due to perceptions of human rights abuses. In 2013, the US Supreme Court heard and determined the landmark case of Kiobel v. Royal Dutch Petroleum Co, whereby Nigerian sued a consortium of Dutch, British and Nigerian oilexploration corporations for allegedly committing human rights violations during their extractive operations in the 1990s.

Although their claim was found to be unsuccessful (largely on technical grounds), this case highlights an astronomical increase in recent years of litigation claims by citizens in developing countries against companies, whether domestic or foreign, stemming from perceptions of human rights abuses.

Put simply, the price of companies getting it wrong – having an absent or poorly conceptualised culture of human rights responsibility cannot be underestimated.

Therefore, at this nascent stage of East Africa’s oil, gas and mineral industry, companies should adopt explicit human rights policies along with mechanisms for their implementation and reporting in order to be better prepared to prevent human rights abuses and to deal effectively with any allegations of human rights wrongdoing that may arise.

Companies may also consider providing specific human rights training to support their high level staff to become more familiar with the language and contextual realities of human rights and the potential for human rights to impact on their day-to-day business operations and decision-making.

Such efforts would result in increased socio-economic wellbeing and reduced vulnerability of local communities. By the same token, the efforts may actually help a business to identify business opportunities to support human rights.

East Africa Mining Review | October- December 2014

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COMPANY and INDUSTRY

Tembo Gold seeks to add a shine in the EAC mining industry

By Adhiambo Gloria

The region’s gold prospecting industry declined to insignificance, and only started to rise after 1974-75 when the world gold price increased greatly.

Africa’s mineral resource base is impressive given the new discoveries in most parts of the continent.

The East Africa region hosts several belts rich with minerals including gold, diamonds, base metals, ferrous minerals as well as a variety of gemstones as well as the rare tanzanite. Although not fully exploited presently, countries in the region have stepped up exploration efforts to tap the mineral wealth that lies underground.

The heritage of East Africa in relation to minerals mining goes way back in the last century. The earliest organised prospecting and mining were realised in the colonial era with gold discoveries in the Lake Victoria region witnessed as early as 1894.

The region’s gold prospecting industry declined to insignificance, and only started to rise after 1974-75 when the world gold price increased greatly.

In the late 1990’s, several mining companies from Canada, United Kingdom, Australia and South Africa arrived in Tanzania, interested in gold exploration and development. From 2000, production of gold at an industrial scale is growing, especially from the Geita (AngloGold/Ashanti) and Bulyanhulu (Barrick) mines.

Though relatively small, the mining industry remains as a significant source of export revenues in the region, Tanzania being the biggest regional gold producer in the East African belt.

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Mining and the economy The Tanzania mining sector is responsible for approximately 2.3 per cent of the country’s overall GDP and, based on the Development Vision 2025 plan, the mineral sector is expected to account for 10 per cent of the GDP in the coming years.

The emergence of Tembo Gold as a highly prospective gold asset is viewed as a big achievement owing to the fact that it drives Tanzania’s economic growth.

Tanzania’s mining sector is one of the leading methods for generating foreign exchange in the country and this has led to the emergence of Tembo Gold as a highly prospective gold asset viewed as a big achievement because of its determining factor in the economic growth.

Resources have indicated that Tanzania has the largest gold reserves in Africa behind South Africa with the Archean greenstone belt at an approximate value of 4Moz and 3Moz in the other reserves respectively. For this reason, the country has been the major focus for the exploration and development of gold on the African continent, receiving as much as 15 per cent of the exploration expenditure in Africa.

The discovery and exploration of gold in Tanzania offers one of the best areas for investment in the country’s mining sector, this has seen companies such as Tembo Gold and others that deal with mineral exploration pitch their tents with an aim of growing the economy.

East Africa Mining Review | October - December 2014

About Tembo Gold Tembo Gold is a Canadian publicly listed mineral exploration company focused on the exploration and development of gold projects in Tanzania and the rest of Africa. It currently has a 100% interest in the Tembo Gold project located adjacent to the African Barricks Gold’s 14Moz Bulyanhulu mine in the Lake Victoria greenstone belt.

The Tembo property consists of a contiguous area of 101km squared, 94km squared active licenses and 7km squared under application. With a capital of $5 million and skilled labourers who constitute geologists and experienced miners it has been able to identify over 1,600m of mineralised strike in two project areas on the Tembo property.

Tembo Gold has the highest exploration priority which consists of a contiguous prospecting area comprising of 33 prospecting licenses and 5 prospecting license applications.

It holds approximately 407 km squared under application. The areas include the Ngula 1, Ngula 2, Nyakagwe East and Nyakagwe village.

Ngula 1 comprises of an extensive area of artisanal mining activity which include some hard rock mining through deep shafts and adjacent exploitation of colluvial material. Ngula 1 has identified a 600m strike length across multiple structures, grades ranging between 3-300 g/t gold.

The drilling has intersected high grade and wide mineralization giving inconsistent results with the latest TDD0041 drilling deepened compared to the other years.

Nyakagwe east on the other hand has 52 drill holes completed, 41 reverse circulation and 11 diamond drill holes drilling on 100-200m spaced section lines along a 1,000m strike length.

Despite making an inroad in the industry, the most severe challenges that Tembo have experienced is raising funds for Gold exploration in the world financial markets due to weak Gold prices globally. David Scott the CEO and the president of Tembo Gold is of the view that only a strong gold price will improve this and that it is something beyond the control of exploration companies.

Their most talked about project the Ngula 1 and the Nyakagwe villages have considerable strike potential, in excess of 5001000m. Ngula 1 is higher grade and has wider intersections, whereas Nyakagwe East has narrower and lower grade intersections.

This has not deterred the company which has confirmed the presence of significant gold mineralization in an area in which there has been a long history of artisanal mining and positive early stage exploration results.

Further extensive drilling to define resources is now required in parallel with ongoing early exploration drilling.

The growing demand for Gold from central banks, mainly in emerging markets, which look for ways to diversify their foreign currency holdings, has made the mining industry more lucrative with other players joining in to share the spoils.

With the greatest risks and challenges faced by the exploration companies, such as the capacity to raise funding for ongoing exploration and mine development, Tembo gold is coming up with innovative ways to raise smaller sums of money locally to move known areas to production that will generate free cash flow to fund further exploration and development of the project areas.

The community has not been left behind. Since inception of the project, Tembo Gold has been committed to stakeholder engagement and becoming a valued member of the community and have identified considerable scopes to improve the social economic status of the surrounding villages and positively impact the natural environment.

Tembo has plans of expanding their projects beyond the greenstone belt into the rest of Tanzania and further into East Africa with explorations taking place in the Lupa goldfield with very limited gold exploration elsewhere.

EAST AFRICA’S MINING PERSONALITY

Why women can make strides in mining While the workforce in the mining industry is predominantly male, some women are ascending to senior leadership positions, signaling a growing role for women in the industry.

African Barrick Gold (‘ABG’) entered the local market in 2012 when it acquired the Kenyan assets of Australia-based Aviva Corporation, which held a number of prospecting licences in Western Kenya.

Two years on the company has continued to strengthen its operations in the extractive sector in Kenya. The EA Mining Review sought the views of a member of the ABG team, Kenyan geologist Philippa Hutchinson, on her experiences and vision for the sector.

1. What is your current position and how long have you held it?

I am the Country Manager, African Barrick Gold Exploration Kenya Ltd (‘ABG’) and I have served in the position for two years.

2. Can you give a brief overview of what your job involves?

ABG is currently conducting a gold exploration programme in Western Kenya, and my job is to maintain the ‘licence to operate’ in Kenya from a Government, tenement, community, and legal standpoint, as well as providing technical input to the exploration programme.

3. What is your educational background?

I began my education in Kenya before moving to the UK for secondary school education.

I later graduated with honours degree in Geology from the University of Reading in the UK. 4. What would you say motivates you?

The personal achievement and satisfaction derived from doing a good job.

5. How would you describe your experience in the extractives industry?

My career path has largely been in exploration geology, where to conduct your work, you have to go where the prospective rocks are.

This has taken me to different projects in many parts of Africa and elsewhere, so my journey has been hugely varied and interesting, and by turns tough, fun, challenging, lonely – you name it, exploration throws it all at you. Overall, immensely rewarding.

6. How did you become successful as a woman in a male-dominated industry?

Indeed, the extractives industry is not known for its enlightened attitude to women…

‘Philippa at the handover of an ABG-donated community borehole’

Through being tenacious and ‘sticking at it’.

put being a geologist too high on your list of options.

7. What has been your biggest challenge so far?

Weathering the job insecurity and the many changes in role and employer that comes with working in exploration – if you don’t find a deposit, which is the norm, the job will end after a couple of years. Also the pressures on family that having to work away from home for long periods brings.

10. What advice would you give women aspiring to join the extractives industry?

Try to get to get as much understanding of the challenges as possible before making any decisions; be comfortable with the fact that life will not always be a bed of roses, and embrace that challenge.

8. What are your biggest achievements?

Being in the industry 25 years later and still going strong!

9. Would you recommend this sector to fellow women?

With reference to the geological side of the sector, yes, but only if you are of a committed personality with the determination and drive to see you through the tough times.

If job security is high on your list of priorities, and you would be in your comfort zone in a predictable 9-5 office position that will bring you home every night, then I would suggest to any girls out there wondering which career path to take, don’t

The legislation governing extractives will be the determining factor in whether the sector develops wings and flies, or aborts on take-off

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East Africa Mining Review | October - December 2014

By Phillipa J. Hutchinson

11. What else would you like to share with the readers?

The Government of Kenya has Vision 2030, and I too have my own Vision 2030 – that by then, Kenya will have a vibrant mining industry bringing benefit to the country, to host communities, and to investors in a balanced and sustainable manner. We are in exciting times in Kenya’s extractive industry with the recent discovery of oil, the commissioning of Kenya’s first large scale mine at Kwale, and the increasing interest in the mining sector, but it is a fledgling sector that needs to be nurtured and allowed to grow. The legislation governing extractives will be the determining factor in whether the sector develops wings and flies, or aborts on take-off, and we look to and entrust our leaders and policy makers to put the legislation in place that will see Kenya develop into a major player in the extractives scene in Africa.

EAST AFRICA’S MINING PERSONALITY

Doyen of entrepreneurship Patience is key in entrepreneurship. It attracts happiness; it brings near that opportunity which is far.

By Jimnah Mbaru Kenya’s extractives sector is full of potential. After decades of inactivity, the sector is finally coming to life and promises to change the fortunes of investors both locally and in the region.

The EA Mining Review sought the views of Jimnah Mbaru, chairman of Dyre & Blair Investment Bank on his experiences and vision for the sector. While others have called him the African Warren Buffet, Mbaru chooses to define himself as a true entrepreneur who invests in opportunities that he sees in the horizon.

What interests you about the mining industry in Kenya?

The mineral industry in Kenya is just beginning to get noticed.

It is a new department based on the recent discoveries of minerals such as titanium as well as minerals that have been exploited for a while such as soda ash and fluorspar. We have also seen major global oil, gas and mining companies move into the region to set up operations. These are indicators that this sector is going to be critical for the growth of this region.

What can you say about the potential of the sector?

The mining sector promises to impact the entire country and the region as a whole based on the number of industries it will affect.

The export sector for instance will benefit from the increased export products while the public sector will benefit from a significant increase in tax revenue. However, the extractive sector will only serve to grow the economy if well managed. Many African countries have been exploiting mineral resources for decades but have not progressed economically due to poor management of the resources. Eastern Africa should instead emulate the examples of countries such as Norway and Sweden that have optimally utilised the resources to secure the future of their countries.

How can the mineral sector impact the ordinary citizen and what are your recommendations for the small scale miners?

The extractive industry should work towards attracting plenty of individuals to small scale mining in order for the entire region to benefit. It is important to facilitate these small scale

miners to access capital. The more advanced players in the industry could support the smaller investors who demonstrate the capacity to advance towards exploring the opportunities. The government should also support the artisanal miners by creating a specialised board to promote small scale mining. The board would work on establishing support structures for the miners that would enable them to receive backing from both local and international organisations.

Special corporations could be set up to provide capital to enable the small scale miners to set up operations. The miners should also be empowered to raise funds in the capital markets by setting up less stringent conditions for them to list in the stock market. As the governments have promoted small enterprises in the region, they should also do the same for the extractives sector.

This can be done by holding industry workshops country-wide, conducting public education and promoting foreign partnerships, among other initiatives.

How would you get involved in the extractives industry?

There are many ways to participate in this nascent industry which we are considering. One of these is through investing in the different companies that are operating in the sector. We could also support the sector through investor backing where we will offer potential financiers advice on key aspects of the industry.

There is also an opportunity to work with county governments to ensure optimal utilization of the natural resources available while protecting the interests of the locals in the region. In addition to this, owning land and actively mining on a small scale is also a possibility. As one of the founders of the African Securities Exchanges Association, I have been involved in structuring markets for growth and would be interested in doing the same for the extractives industry. We would ensure there is enough information to ease participation in the industry, access to financial facilities, harmonisation of laws and value addition to minerals from eastern Africa.

Which countries in Eastern Africa would you venture into?

There is obvious potential in many Eastern African countries

including Kenya, Rwanda, Tanzania and Uganda. Each of these countries has both benefits and pitfalls when it comes to investment. Different aspects such as legal frameworks have to be considered before venturing into new markets. Countries such as Australia and Canada are forefront in attracting investors because of clear and investorfriendly structures put in place.

Eastern African countries should strive to establish similar business-conducive environments to benchmark against more established mineral-rich economies.

What are your expectations of MBI? Eastern Africa is a growing extractive industry market so the forum should target to involve international players, investors and the academia. I would want to listen to global banking corporations speak on international best practices that would advance Eastern Africa. I also expect to hold discussions on facilitating partnerships among the Eastern African countries as well as between the region and other international stakeholders.

Topics such as the protection of investors, appropriate legal frameworks and fair play in the industry are also of great importance.

The MBI is a great platform for engagement and dialogue on pertinent issues in the industry, which is a crucial step towards the development of this industry. I would also suggest the organisation of focused forums with stakeholders to structure strategies for achieving the goals set out during the conference. For example, organisations such as the national securities exchange markets in different countries could be contacted to discuss formulation of a fair list of rules for listing extractive industry companies.

What advice would you give potential investors in Eastern Africa?

Eastern Africa is a liberal environment that is striving to increasingly protect investors as is evident from the changes being made in the laws and regulations of the sector. Kenya for instance has a bill in parliament aiming to regulate the industry fairly to ensure its growth. These actions

should be fully supported by the investors as the end result will greatly benefit those venturing into the market. Investors should also make an effort to consider and involve local communities in their operations. The communities are significant stakeholders in the extractive operations as the natural resources are found within their communal land. It is also imperative that as these companies extract the minerals, they employ methods that are safe and do not harm the environment.

The extraction sites also have to be rehabilitated by the companies operating there.

What are your thoughts on the Kenyan Mining Bill that is currently in Parliament?

The mining law currently in use is outdated and barely represents the industry in the Kenya. We therefore commend the Ministry of Mining for starting the process of changing the law to adequately govern the industry. Kenya now needs to be keen to ensure the new laws will not hinder development of the sector. Investors in the extractive sector take huge risks, expecting matching returns on investment. The laws should make the sector attractive to investors by lowering these risks, improving chances of success of operations and promoting a fair business environment.Kenya should take lessons from countries whose legislation supports extractive industry growth to avoid making mistakes that would cost the country economic prosperity. The country’s legislators should also consider every player’s interests in formulating the law. This will enable the development of proper structures to address every aspect of the industry, including dispute resolution.

What else would you like to share with our readers?

My interest in the extractives sector was sparked, albeit accidentally, by the discovery of minerals on my personal land. This happened when workers digging a pit latrine on my land realised that the soil looked different from the usual soil at that particular depth.

After consulting with geologists, we were informed that the land indeed held minerals that could be extracted. This has led me to the realisation that there is possibility that there are significant deposits of natural resources in Eastern Africa that are yet to be discovered due to the lack of knowledge and technology to map the resources in the country.

East Africa Mining Review | October- December 2014

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KNOWLEDGE and SKILLS

Entrepreneurship and the role of Impact Investment It is important to note the role of social enterprise in contributing to the wider economy while addressing the societal challenges that

By Kenneth Macharia need new and innovative approaches.

Social entrepreneurship is now recognised as an important vehicle for building sustainable business while bringing about social good in the form of better livelihoods. Governments sing their praises, business schools teach their methods and award schemes elevate them to iconic status. It’s not hard to see that the pressure is on them to deliver on this newly found status, but can they?

Entrepreneurship, be it social or otherwise requires commitment and investment in both time and money. S. Honda, a Japanese Industrialist, observed that, “Many people dream of success. To me success can only be achieved through repeated failure and introspection. In fact, success represents one percent of your work which results from 99 percent that is called failure.”

report recognised The that social enterprises have different requirements as they work towards proving their business concept to scale. It also highlighted the need for different players at every stage.

For example, a grant could be beneficial to an entrepreneur developing the blueprint for their business (proof of concept). At the validate stage, an impact investor like Acumen provides much needed patient capital in order to further refine the business concept and in doing so prepare it for scale.

I. Blue Print Pioneers need to blueprint their designs. They will often be striving for radically better solutions to meet the needs of underserved low income communities. This stage involves connecting the capability for

PIONEER BLUEPRINT

VALIDATE

PREPARE

Developing the blueprint for the future business

Testing and refining the business model

Enhancing conditions required for scaling

This is true of entrepreneurship in its nature and as the late Indian academic CK Prahalad argued, entrepreneurial solutions can also bring economic prosperity.

This further underlines the importance of social entrepreneurship, combining both the need to offer solutions for some of society’s challenges but doing this with the lenses of building sustainable business.

In East Africa, we categorise enterprises using some distinct descriptions. They include: Start-ups, SME’s and mature business. A recent report however goes further to refine these definitions and provides a correlation to the need of capital or investment at different stages of the enterprise lifecycle.

In 2012, Monitor Group in collaboration with Acumen Fund produced a report called, “From Blueprint to Scale: The case for Philanthropy in Impact investing”. The report provided a good overview of the social enterprise sector with particular emphasis on their lifecycle and the need for investment in various areas.

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SCALE UP

business and often technical innovation to address the needs of customers or suppliers in the Bottom of the Pyramid.

II. Validate Having a product that works is not enough. In the second stage, pioneers need to validate the commercial viability and scalability of the business model described in the blueprint. This involves running market trials in which business plan assumptions are tested. Will customers want this product?

III. Prepare Successful validation sets the stage for pioneer firms to launch their products fully into the marketplace. However, alongside this initial period of commercial activity and growth, pioneer firms need to prepare the conditions in the market and within the firm in order to support sustainable scaling.

This is especially true where the firm is, in effect, attempting to create a new market, by virtue of establishing a new category of product or a new value chain model.

IV. Scale If the pioneer firm can successfully surmount these challenges, it emerges in a strong position to scale activities in order to reach many more customers or suppliers in the Bottom of the Pyramid.

During this stage, firms face new challenges as they enter new geographies, control costs, exploit efficiencies, and manage a more diverse and sophisticated group of investors and stakeholders. They will often also be responding to competitors, as new entrants are attracted by the success of the pioneer firm and see a way to benefit from the investment that it has made in preparing the market.

Enterprise philanthropy aims to establish models for inclusive business into which return seeking capital can be invested to drive scale. It can play an important role in closing the pioneer gap between Blueprint and Scale, turning the promise of inclusive business impact into reality.

Will they be willing to pay for it from their small and hard-earned incomes? Will this be enough to cover the costs of the business, not just the direct cost of the product itself? These are crucial questions, and the process for answering them is almost always iterative.

Why is Impact Investing important?

Market trials often reveal issues and weaknesses in the blueprint, leading to refinements in the product, technology and business model, and further trials. The greater the degree of model innovation involved, the more time and resources need to be invested in this stage.

Impact investing has gained traction over the years and according to the Monitor Institute (2009) the impact investment market could potentially reach $500 billion by 2020. This report was followed by a collaborative seminal report

by JP Morgan and Rockefeller Foundation in 2010 that claimed

East Africa Mining Review | October - December 2014

Since 2007, Acumen has invested $35M in game changing companies across East Africa, created 45,000 jobs and impacted 81million lives.

that the impact investment sector could reach $1 trillion by 2020.

There is evidence that investors are increasingly mindful of social and environmental indicators in their investment decisions and some focus on investing in firms that purport to generate social impact. Thus there is growing popular belief that combining profit and mission is an effective way of producing social wealth and promoting economic growth.

Africa has attracted its fair share of impact investors and the list continues to grow. The abundant talent, improving infrastructure and vibrant economies has created a recipe for great innovation and the continued growth of social enterprise.

Conclusion It is important to note the role of social enterprise in contributing to the wider economy while addressing the societal challenges that need new and innovative approaches.

It needs people that are willingGROWTH to challenge the existing approaches to business and in doing so create innovative approaches that will deliver positive change to society while building sustainable business.

As Napoleon put it “Life is either a daring adventure or nothing”.

Entrepreneurship requires a Rolling out the sense of adventure because model to reach large more often than not you will be scale creating and challenging existing approaches to doing business.

Acumen is working to change the way the world tackles poverty by investing in companies, leaders and ideas.

Our leadership program attracts aspiring leaders from Kenya, Uganda, Tanzania, Rwanda and South Sudan.

We invest patient capital in business models that deliver critical goods and services to the world’s poor, improving the lives of millions. Since 2001, Acumen has invested more than $89 million across South Asia and Africa of which $35M has been invested in East Africa creating over 45,000 jobs and impacting 81M lives in the region.

We are also working to build a global community of emerging leaders that believe in creating a more inclusive world through the tools of both business and philanthropy. Please visit www.acumen.org for more information.

East Africa Mining Review | October- December 2014

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