Chinese Firm Takes Control of Kwale Titanium Mines

Sep 01, 2009 (Business Daily/All Africa Global Media via COMTEX) -- TMIRF | Quote | Chart | News | PowerRating -- State-owned Chinese mining conglomerate Jinchuan has acquired a controlling stake in Tiomin Kenya Limited, renewing hope that the Kwale titanium mining project that has been in limbo for more than 10 years will finally start.

Tiomin Resources Inc., the Canadian firm that fully owns Tiomin Kenya Limited, says it has sold a controlling stake in its Kenya subsidiary to the Chinese firm under an investment agreement signed on Monday.

The deal offers Jinchuan a 70 per cent stake in Tiomin Kenya Limited, leaving the Canadian parent with 30 per cent.

Jinchuan is expected to immediately invest $25 million into the mining project to offer it the financial muscle it needs to take-off.

Tiomin Kenya has full rights over titanium deposits in Kwale District but a combination of financial difficulties, boardroom wrangles in the parent company and controversy over relocation of displaced landowners has rendered it unable to exploit the minerals.

The new shareholding arrangement comes a year after Tiomin and Jinchuan signed a Memorandum of Understanding in July last year, paving the way for Jinchuan to invest about Sh2 billion in Tiomin Kenya.

"Tiomin Resources Inc. is pleased to announce that it has taken a significant step forward and signed an Investment Agreement with Jinchuan Group Limited," a statement from the Canadian firm said.

This latest investment agreement bears the same terms as last year's and requires Jinchuan to finance, develop and operate Kwale Mineral Sands Project.

"Closing this flagship deal, which has had such a long and painful gestation period, is a key event for Tiomin," said Robert Jackson, the President and CEO of Tiomin Inc.

The deal must however be approved by the Government to be concluded since the initial five years that Tiomin had to start work on the project have expired.

Leading producers

Titanium is mainly used in the aviation and medical industries.

Jinchuan's acquisition of a controlling stake in the mining project is expected to bring to a close the long-running uncertainty over what promises to be Kenya's biggest mining project with the capacity to generate up to Sh3 billion annually.

That should significantly increase the contribution of the mining sector to the Kenyan economy that according to the Economic Survey 2009 hit Sh12.3 billion mark in 2008.

Soda ash and fluorspar, which accounted for 1.5 billion tonnes last year, currently account for nearly 80 per cent of the mining sector's total output.

Jinchuan Group's plan to invest Sh2 billion into the local mining sector could further thrust Kenya into the league of mineral rich African countries such as South Africa and Botswana that have built and expanded their economies through mining.

The titanium exploration project has been on ice for the last 10 years. Kwale District has 116.9 million tones of titanium deposits bearing minerals rutile, zircon, ilmenite or 14 per cent of the world's titanium reserves.

Tiomin Resources estimates that titanium deposits should generate more than Sh3 billion in operating cash annually in the first six years of operation. The project has an expected mine life of 11 years.

Leading producers of titanium in the world include South Africa, Canada, Australia, Norway and Ukraine.

The metal is used in the manufacture of aeroplane parts, gas turbine engines, paints and human implants such as hip replacements and heart pacemakers.

Tiomin Resources was awarded a mining licence for the Kwale deposits 10 years ago but lack of funds and the refusal by the local community to vacate the titanium rich lands has stalled the project.

Tiomin's wrangling board has also made it difficult for it to attract external financiers.

Last year, Tiomin resources, reported heavy losses that appeared to hold back attempts to start the Kwale mineral sands project.

The company suffered a loss of an equivalent Sh577 million for the year ended December 2008 up from a Sh501 million loss in 2007.

These losses appear to have made it difficult for the Canadian firm to attract new financiers for the Kenyan project.

The Canadian firm sought help from Jinchuan Group, a Chinese government controlled producer of metals to start operations in Kwale.

But a vicious boardroom war erupted early this year with Jaguar Financial Corporation of Canada which owns 10 per cent of Tiomin resources accusing Tiomin directors of attempting to sell the company's subsidiary illegally.

This held back the plans to sell the Kenyan operations to the Chinese firm but Tiomin Resources later said it had cleared all the outstanding issues with its shareholders.

Jinchuan is the largest producer of nickel, cobalt and platinum group metals in China, which has for a yed into many African countries in search of raw materials to feed its roaring economy and insatiable appetite for oil energy and minerals.

"The Government of Kenya must extend the five year period originally granted to Tiomin Kenya Limited in 2004 to finance and build the project to 10 years. The Commissioner of Mines and Geology in Kenya has approved the extension and it awaits approval by the Minister of Finance" said Tiomin.

Signed deals

But the Commissioner of Mines, Dr Bernard Rop, was not available to confirm the deal as he was said to be away from the office for two days.

The entry of China into the local mining industry fits well with Kibaki government's policy of turning to the East for investment and aid away from the traditional Western Europe and America.

China has been particularly popular with African leaders because its financial assistance comes without demands for good governance and preservation of human rights.

Kenya has signed deals with Chinese companies ranging from oil exploration to mining to road construction.

The government has also opened its market to Chinese goods as shown by the mushrooming of Chinese textile and other product outlets in Nairobi.

However the result of the increasing trade cooperation between Kenya and China has been the proliferation of cheap or counterfeited Chinese goods flooding the Kenyan market, a situation which has stifled markets and prohibited employment because of inability of local manufacturers to compete.

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