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Aviva and Base Resources cranking up mining in Kenya with gold and mineral sands projects

Kenya is looking to new mining ventures in industrial metals and gold to assist the country in its bid to diversify away from its traditional agricultural focus.

Author: Christy Filen
Posted: Monday , 13 Feb 2012

JOHANNESBURG -

Kenya's main economic money spinners have traditionally been tea, horticulture, tourism and coffee. New mining ventures would assist the country in its bid to diversify away from the agricultural focus of East Africa's hub and gateway to the continent and there are now some mining projects under way which could make a significant contribution.

Site visits arranged around the Cape Town Mining Indaba saw journalists and analysts descend on ASX listed Base Resource's Kwale mineral sands project south of Mombasa.

The project is relatively small in mineral sands terms with a resource base of 146mt at 4.9% heavy mineral content for its Central and South dunes (Kenmare's Mozambique operation-Moma mine-has almost a billion tons of proven and probable reserves) .but the potential impact on Kenya's exports is significant.

The project, which is in its implementation phase, will see Kenya's mineral sector export earnings more than triple (US$1.9 billion in sales) and will replace coffee as the country's fourth largest sector in terms of export value.

Analysts expressed satisfaction with the robustness of the project and the front ending of cash flows whereby the higher grade areas are to be exploited first. With an estimated total capital expenditure of US$256m, including contingencies, the payback period is expected to be less than two years.

Price forecasts used in the definitive feasibility study are based on an April 2011 price outlook from TZMI (TZ Minerals International - an independent consulting and publishing company).

Long term prices used are as follows: rutile US$1000/t, ilmenite US$135/t and zircon US$1715/t.

In comparison, Iluka Resources recently hiked its outlook for rutile for 1H 2012 to US$2400/t. Base Resources see supply remaining tight and demand buoyant thus keeping prices high.

Over the first seven years of operations, production volumes are to average 330kt for ilmenite, 79kt for rutile and 30kt for zircon respectively. Over the final 6 years, production volumes are to average 200kt for ilmenite, 55kt for rutile and 19kt for zircon.

Rutile and ilmenite are traditionally used as feedstock in the production of titanium dioxide which in turn is used as a pigment to provide whiteness to products such as paints, plastics, paper, inks and toothpaste.

Production, using a dozer trap mining method, is scheduled to begin in the last quarter of 2013.

The Perth based company, with a market capitalisation of approximately A$212 million at $0.47 per share, has secured development financing (US$170m) for the project and has signed an off-take arrangement with DuPont Titanium Technologies.

The agreement requires DuPont to purchase a minimum average of approximately 72% of annual rutile production for a period of six years at prices to be derived from an agreed quarterly index of market prices.

An equity raising of A$163m was also completed in September 2011.

With the project being just 50km from Mombasa, the company has acquired land on the southern side of the Mombasa port and will construct a storage facility and jetty to export its product through Kenya's principal port facility. A congested but viable road from the operations to the port will enable the mine to truck product up the coast to Mombasa.

Power supply will come via a link up to a new substation built by the Kenyan government to upgrade supply to the area and water supply will be provided by the Mukurumudzi dam that Base Resources is in the process of constructing.

With the North sand dune yet to be included in the numbers, there is the potential to increase in resources by another 116mt. Further afield, the Kilifi and Mambrui dunes could also potentially add 1.4bn tons.

The project is breaking new ground in Kenya and will set the stage for future developments due to its high profile.

Meanwhile another ASX listed company, Aviva Corporation Ltd, is undertaking exploration drilling for gold North West of Nairobi near Kisumu in Kenya.

The company has a 51% interest in the West Kenya joint venture with Lonmin subsidiary, AfriOre and can earn up to 75% of the project should a pre-feasibility study be completed to demonstrate a pre-tax net present value of US$50m.

The areas under licence are vast (2800 square kilometres) and comprise of the Ndori Greenstone belt similar to the greenstone areas in Tanzania. Tanzania has significant gold with Geita (12Moz) and Bulyanhulu (12Moz) being some of the larger resources. A base metal precinct has also been identified in the area.

A site visit to the northern part of the licence area (Kakamega gold camp), where there is significant evidence of artisanal mining taking place, is significantly underexplored. The company is targeting a 350koz resource in the area at grades of between 3-4g/t.

Drilling at the Bushiangala prospect in the Kakamega camp has been a focus point and has shown drill results of 3m @ 2.5g/t from 82m, 7m @ 8.3g/t from 98m, 5m @ 3.7g/t from 44m, 17m @ 7.2g/t from 25m, 16m @ 5.9g/t from 58m and 20m @ 9.4g/t.

The company will look to raise capital in the second quarter of 2012 to further its exploration efforts.

With Kenya having put a new constitution in place and making an effort to stamp out corruption, the elections pegged to occur towards the end of 2012 may derail significant progress made should violence erupt.

It is hoped that this will not be the case and that resources as prolific as the numerous speed bumps on the country's roads are discovered and contribute to the prosperity of the economy.

(This journalist's visit was sponsored by the companies concerned)