Royalty payout fight breaks out at Kwale titanium mine

Base Titanium factory in Kwale County where the minerals are processed. FILE PHOTO | KEVIN ODIT | NMG

A dispute has broken out between Kwale miner Base Titanium and the Canadian firm that sold it the project over payment of royalties on minerals mined outside of the original boundaries of the lease area.

Base acquired the project in 2010 from Canada’s Vaaldiam Resources (formerly known as Tiomin Resources) in 2010 for $3 million —Sh435 million at current exchange rates— with an agreement to pay the seller a two percent royalty on future mining revenue as part of the consideration.

Read: How Base Titanium injected Sh16.5bn into the economy

The company’s Australia-based parent firm Base Resources now says in its annual report for the year ending June 2023 that the disagreement over the royalties stems from the scope of the mining area, which has since the acquisition been expanded beyond the original boundaries.

“There is a disagreement between Base Titanium Limited and the current holders of the royalty in respect of the royalty’s scope—specifically, whether, and the extent to which, the royalty applies outside the Kwale Special Mining Lease 23 as it existed at the time of the acquisition,” said Base Resources in its annual report.

“One of the current holders of the royalty has taken formal steps to enforce their claimed rights in respect of the royalty, which Base Titanium is opposing. The directors have not disclosed any estimate for this contingent liability as a reliable estimate of the amount from any possible obligation cannot be made at this stage.”

It was not immediately clear whether Vaaldiam Resources held the royalty alongside others or if it traded its rights to other parties.

Initially, the special mining lease (SML 23) covered 1,661 hectares, largely on what are known as central and south dunes.

The central dune’s minerals were exhausted in 2019, while the south dune is expected to shut in March 2024.

In 2021, Base Titanium successfully applied for an extension to incorporate south dune ore reserves that previously fell outside the licence’s boundary.

As part of the deal, the firm agreed to double the royalties due to the government to five percent of export sales.

The company has also moved to exploit more minerals in a new area known as the Kwale North Dune, which it hopes will extend the life of the operation by six months to December 2024.

The titanium minerals being extracted in Kwale County are rutile, ilmenite and zircon. Titanium is an important pigment for industrial, domestic, and artistic applications.

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

The expected depletion of the South Dune recently saw the company project a drop in production at the Kwale operation in the current financial year.

The forward-looking projections showed that volumes of ilmenite —the most abundant titanium mineral in Kwale— will come in at between 130,000-160,000 tonnes, compared to the 297,861 produced in the year ending June 2023.

Read: Base Titanium to take hit on depletion of Kwale minefield

Rutile volumes are projected at 35,000 to 41,000 tonnes, down from 68,814 tonnes, while Zircon yields are projected at between 13,000-16,000 tonnes, from 25,954 tonnes in the previous year.

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