Kwale miner banks on $26 million VAT refund to pay loan (Kenya)...

Kwale miner banks on $26 million VAT refund to pay loan (Kenya)
Business Daily, Kenya
By Staff | Business Daily, Kenya
20 April 2015

Base Resources is pushing for Kenya Revenue Authority (KRA) to hasten its tax refund ahead of June when it begins making the first repayments of a loan borrowed to finance its Kwale-based mining project.

The Australian miner said it needs the $25 million (Sh2.34 billion) value added tax (VAT) refund incurred when the firm was constructing the Kwale mine.

This comes at a time the price of zircon and other minerals have made it harder to generate enough revenues to comfortably service the $215 million(Sh20.1 billion) loan that partly funded the project.

The price of zircon, one of the minerals mined at the Kwale Mineral Sands Operations, was $1,000 (Sh92,000) a tonne as at the end of 2014 which is less than a half the $2,500 (Sh230,000) per tonne price of mid-2012.

Base Resources chief executive Tim Cartsens said while the operations have started returning a profit, the prices are not high enough for the company to pay the loans with ease.

“We hope we are able to secure funds in the next couple of months. We need that money to make debt obligation payments,” said Mr Cartsens when he gave an operational update at the weekend.

The $215 million loan was secured from six banks and is part of the $400 million (Sh36.8 billion) that has been invested in the operation.

Price of ilmenite and rutile, the other minerals exports, have also dropped in the international market.

The listed-Australian company said despite the fall in prices the operations returned $10 million (Sh920 million) in positive cash flows for the first quarter of 2015, up from $1.5 million (Sh138 million).

A research paper on Base Resources estimates the company will make Australian dollar 175 million (Sh12.8 billion) in revenues this year, up from Australian dollar 29 million (Sh2.12 billion) in 2014, the first year when mineral shipments were made.

Base Resources did not give complete financial information such as total sales or profitability pending regulatory approvals as it is listed in Australia.

Mr Cartsens, however, said production has been gradually growing and expects demand in its key market to increase with the coming of summer in the northern hemisphere when most painting is done.

The zircon, ilmenite and rutile are used in paint manufacturing and a key market for Base Resources is China. Analysts said that the Chinese market is set to grow, creating opportunities for companies such as Base Resources.

“Production costs in China have increased as inputs such as salaries and energy rose. In addition, the Chinese zirconium chemical industry continues to struggle with overcapacity, making some operations unprofitable,” said Roskill Information Services, a UK-based research company.

The Kwale project is expected to earn Base Resources Sh64 billion over the mine’s 13-year life and the government Sh20 billion in royalties and other taxes.