Officially, Tibet Hima Mining Company (THMCOL)’s concession for Kilembe mines stands terminated as President Museveni ordered last June and as per the recommendations of the winding-up commission, which was established to study the salient issues leading to THMCOL’s non-performance. The commission’s report was submitted to government on October 31 last year.
Unofficially, multiple government sources talked to say they do not know what is next.
At the heart of the matter, sources say, has been the lobbying to have THMCOL “pardoned” but under revised terms.
Upon receiving the winding-up commission’s report, Ms Evelyn Anite, the State minister for Finance in-charge of Investment and Privatisation, told Daily Monitor that “it was studied and a request sent to the Attorney General to advise accordingly”. She, however, referred the matter to Finance minister Matia Kasaija.
Mr Kasaija had told this newspaper earlier on that he could not pronounce himself on the final decision.
When this newspaper contacted the chairperson of the winding-up commission, Mr Edwin Mwesigwa, about the ongoing maneuvers to ‘pardon’ THMCOL, he said: “I think we should equally wait for the Attorney General’s opinion if that is what Finance is waiting for.”
It is a busy sunny January day at the site of the proposed Osukuru comprehensive development project on the outskirts of Tororo Town at the Uganda-Kenya border.
Graders and excavators level a yard the size of seven football fields as tractor front loaders bundle murram onto large Isuzu trucks. In front of the levelled yard stands a storeyed complex due for completion in a few weeks, with masons balanced on scaffoldings to spray the first coat of paint on the exterior.
On another side, a construction crew is fitting steel purlins for a new structure we are told will double as a service and fuel pumping station. Within a spitting distance, a smaller yard is being cleared to make way for a proposed 132kilovolt (Kv) sub-station that will power the planned ‘mega’ industrial complex.
The site stands still, about 11km from Tororo Town, off the Jinja-Tororo highway – about 5km on the less busy but dusty Busia-Tororo road.
In the background lies the rugged verdant Osukuru hills that ordinarily pass as mere nature’s beauty but buried deep inside are large volumes of iron ore estimated to a tune of 213 million tonnes, and 75 million tonnes of phosphorite, which is associated with, among others, 1 million tonnes of rare earth, 429 tonnes of niobium and other metal resources.
Uganda’s natural resource base is one of the richest and among the most diverse in Africa. From fertile soils and good climate, the emerald hills and wild life, misty forests, fresh water bodies and snow-capped mountains, to the commercially viable oil reserves currently estimated at 6.5 billion barrels. For a very long time, before the discovery of oil, the country basked in adulation of its vast mineral deposits.
Across the world, there are a number of countries whose fortunes have been turned around by natural resources—mostly minerals—but in Africa generally, this has not been the case and there is little indication that this is about to change.
Neighbouring DR Congo is, for instance, considered to be one of the wealthiest countries in the world in terms of natural resources with huge deposits of diamonds, gold, coltan, uranium, tin, copper, cobalt, oil, tungsten, and many others but citizens of the war-ravaged country remain some of the poorest in the world. Economists and political scientists are constantly debating this contradiction. Yet 50 years ago, the mining industry was at the heart of many African economies—before and shortly after independence of many countries.
How and why everything fell apart is a combination of many factors ranging from political chaos resulting from civil wars, sporadic military coups, fall in prices of some commodities (including minerals), but mostly confusion and lack of prioritisation by successive governments.
In Uganda, towns such as Kasese in the southwest enjoyed the benefits of copper/cobalt and limestone mining; Tororo in the east bustled with activity of limestone and phosphate mining; Kabale and Kisoro with wolfram, tungsten, tin and beryllium, and Buhweju was a hub for gold mining. In fact, each region was famed for at least one or two minerals.
Things have changed
Today, gold mining in Buhweju and other new locations such as Mubende is a preserve of artisanals, including speculators, foreigners and big shots in government operating in shadows while in Kabale and Kisoro, it is the same script of illegal miners/smugglers and speculators running most of the show.
This state of affairs partly explains why the mining sector is in limbo and despite government’s various interventions over the last 30 years, including streamlining the regulatory environment through adoption of the mining policy in 2001 (currently under revision), the sector that once accounted for nearly 30 per cent of Uganda’s exports and 7 per cent of GDP has continued to perform way below average.
McKinsey, a New York-based consultancy in a report published in 2010, noted that Africa’s mining sector presents a paradox. That although the continent is strongly endowed with mineral resources, mining has not been the consistent engine of economic development that people in many countries have hoped for.
Uganda’s mining story dates back to pre-colonial times, but gained momentum during the British colonial administration between 1902 and 1939. This was when the first prospecting concessions were issued to individuals and companies – the East Africa Syndicate– in 1902 to prospect 100 square miles in Butiaba in Bunyoro for gold. By the end of 1908, 22 prospecting licences had been issued to cover the entire crown land in the protectorate.
In 1913, a British prospector, W. Brittlebank, got the first oil prospecting licence covering 898 square miles centering on Kibiro near Lake Albert where he had located oil seeps. However, the outbreak of World War 1 halted his activities up to the time when his licence expired in 1922.
In 1920, Capt A. W. Hills and Sir Phillip Lee Brocklehurst bought exclusive oil rights over a large area of West Nile at £50 (just Shs200,000 at the current exchange rate).
According to the Uganda Journal of 1967, mineral prospector J. G. Currie discovered gold in West Nile as early as 1915, though mining in the area did not pick up until 1920 when the Kilo Moto gold mines opened in Congo.
The opening of the Kilo Moto mines led to a rush by other prospecting companies such as Nile Congo Divide Syndicate from Congo to the West Nile sub-region. Though it did not find gold of economic value, the company discovered low grade copper in Manya area in West Madi.
More commercial deposits of minerals were found: Tin was discovered in 1925; gold in 1915 but its commercial mining started in 1933; wolfram in 1933; alluvial diamond in 1933; beryllium in 1922 and by 1959, Uganda had exported 1,063 tonnes of it, representing 11 per cent of the total world production. Others were limestone, copper, phosphate, cobalt, steel, etc.
The mining industry boomed during the British colonial administration, who, in fact, were pilfering most of the proceeds back home until their departure in 1962.
In the mid-1960s, President Milton Obote sent shockwaves in the economy with his Leftist tendencies—through the Common Man’s Charter—which catapulted him out of power a few years later. The period from 1971 up to around 1990 was marred by not just political but economic instability too.
From boom to burst
At the time of independence, the copper/cobalt from Kilembe in Kasese accounted for 5 per cent of the value of Uganda’s exports and the mining sector generally performed modestly. These fortunes gradually dropped over the years to its current contribution of less than 1 per cent to GDP.
“Besides economic turmoil, which set back most of our industry, over the years the global market experienced a big shift in commodities and their prices,” the Commissioner for Mines in the Ministry of Energy, Ms Agnes Alaba, says.
“This meant that investment in certain minerals was no longer lucrative,” Ms Alaba says, adding: “But it was and is still a matter of refocusing our attention; there is still huge potential in the sector.”
In fact, McKinsey in its research indicated that the period after the 2007/2008 global economic crisis was marked by “less appetite for the relatively high risk that usually comes with mining in many African countries.”
“Despitethe recent market turbulence, most observers expect demand for major mined commodities to grow strongly in the next 10 to 20 years, to support increased urbanization and infrastructure build-out in China and the emergence of India’s middle class. Africa, given its share of global resources, will surely play a significant part in meeting that demand,” McKinsey brief reads in part.
According to Ministry of Energy statistics, foreign direct investment in the sector rose from Shs18b in 2003 to Shs3 trillion in the financial year 2015/2016, particularly in gold, tin, phosphates, copper mining and processing projects. This excludes new minerals exploration projects.
The much anticipated investment of $620 million (Shs2.2 trillion) in the Sukulu phosphate complex in Tororo is the main driver of the current estimates.
Other major players include Hima Cement and Tororo Cement, the largest players in limestone mining for cement production. Last year, a Chinese company, Dao Marble, started mining and production of marble products from Karamoja. In 2013, the government attempted to resuscitate the Kilembe copper mines by leasing it to a Chinese company – Tibet-Hima – but the deal encountered some headwinds.
Similarly, revenues from licence fees and royalties increased from Shs1.8b in 2003 to Shs52b in 2011 but “between 2011 and 2014 there was a continuous decline in mineral revenues plunging back to Shs7.2b by end of Financial Year 2014/15,” according to the ministry estimates.
And given the extent of artisanal and illegal mining in the country, Ms Alaba said “a lot of the statistics are not captured.”
According to the Energy ministry’s Directorate of Geology, Survey and Mines (DGSM) which oversees the sector, as at the end of 2015, there were 818 mineral licences issued around the country, up from 100 in 2003.
However, several companies do not submit returns on the exploration work they have carried out.
Additionally, areas that are licensed for exploration work to determine the mineral deposits are actually parceled out actual mining activity. As a result, the Auditor General – in various reports says (and DGSM also admits) – that the country lost a lot revenues. For example, the Auditor General John Muwanga in last year’s audit submitted to Parliament in January indicated that Shs2.7b was outstanding in “annual mineral rent fees” by DGSM.
The audit also shows that royalties amounting to Shs354m was uncollected as at June 2017, a practice which “denies landowners the revenues arising from use of their land, which potentially can affect the relationship between mineral right holders and landowners,” the report notes.
Separately, one private mining company had not paid royalties amounting to Shs679 million caused by failure by DGSM to enforce payment.
Grind to halt?
According to Ms Alaba, progress is being made: “[Previously], we did not know much about the proven reserves for the minerals and it was hard to convince anyone to come and invest in what we are not sure of but we are making good progress on surveys.
“In 2012, we undertook some airborne geological surveys that gave us preliminary estimates and we are working with data to attract more investments,” she says.
The World Bank, African Development Bank, and Nordic Development Fund funded the survey. At the several mining conferences convened by the Uganda Chamber of Mines and Petroleum (UCMP), an association of formal mining players, experts have repeatedly pointed out lack of adequate geological data for mineral exploration as a setback to the growth of the sector.
This is worsened by other challenges such as land acquisition and the poor infrastructure in the countryside, where most deposits are located. The government is currently in the process of revising the mining policy, which Ms Alaba said will “usher in a new regime” in the sector with the objective of increasing the economic contribution of mining to the economy through more private investment.
Additionally, there will be provisions that would finally define artisanal mining in Uganda and this allows a process on how it can be legalised. The policy also attempts to have a mix of competitive bidding and first come first serve basis in applications for an exploration licence.
Among the ongoing interventions to revive mining also includes surveying of the Karamoja sub-region to get enough geological data about mineral deposits in the area. UCMP’s board chairperson Elly Karuhanga says this was flagged a priority during the Presidential Investors Round Table (PIRT) meeting at State House in Entebbe early this year.
PIRT), conceived in 2004, is a high level forum chaired by the President and coordinated by the Prime Minister. It brings together select foreign and local investors to advise government on, among other things, how to improve the investment climate. President Museveni has on various occasions outlined plans to revive mining, including twice decreeing against exportation of minerals—Tungsten, iron, gold, cobalt, phosphate, Granite, salt, and copper—in raw form.
He argued that the country was losing a lot of money in wasted value addition but later made a U-turn following intensive lobbying and complaints by investors.
In part two tomorrow, we look at prospects of Tororo’s phosphate.
Challenges and opportunities
The United Nations Development Programme (UNDP) and European Union recently released a report titled: ‘Baseline Assessment and Value Chain Analysis of Development Minerals in Uganda’ detailing challenges and opportunities of Development Minerals (minerals and materials that are mined, processed, manufactured and used domestically in industries such as construction, manufacturing, infrastructure and agriculture).
“Despite multiple potential downstream applications, most Development Minerals are transformed into a limited number of products and/or produced in insufficient quantities, with implications for the trade deficit. Reliance on imports of many Development Minerals and their products constituted 3.2 percent of Uganda’s trade deficit of $2.56b in 2016,” the report reads in part.
The other challenge, as Uganda Chamber of Mines and Petroleum’s board chairperson Elly Karuhanga explains, is lately a lot of attention has been focused on the oil discoveries which are expected to earn the country between $1.5b and $2b in revenues once commercial production starts.
“But mining would make a much bigger contribution than oil and gas, for we are endowed with different types of minerals. No economy can develop without steel or cement and we have enough steel reserves to last Uganda more than 100 years; oil cannot last 100 years. We have phosphate and in fact world class reserves than can make this country rich,” Mr Karuhanga says.
From the private sector vantage point, Mr Karuhaga says Uganda has potential to revive its mining glory only if the government starts addressing the bottlenecks such as bureaucracy that every investor keeps raising.
“Implementation is the problem, not just in Uganda but the whole of Africa… But if the President can ensure that we have Hakuna Mchezo in the mining sector, I think we are about see a revival of mining,” he says, adding: “Nobody was going to invest in Uganda with all these bottlenecks.”
Research. The Global Witness report published in June last year titled: ‘Undermined: How Corruption, Mismanagement and political influence is undermining Investment in Uganda’s mining sector and threatening people and environment’, put prominent names in the government at the centre of the mess in Uganda’s mining sector.
The UK based anti-corruption group in the report accused President Museveni of influencing the awarding of deals to investors in the extractive sector. These investors, the report noted, sometimes turn out to be fake, evade taxes, and abuse human rights and the environment concerns.
Total investments in the mining industry: Shs3 trillion
Number of mineral licences issued as of 2017: 818
Mining sector contribution to the economy: one per cent from 30 per cent in the 1950s/1960s.
“The dry season is good for the construction, and we are doing everything possible to kick off and complete the phase before rains start,” says Dongsong’s chief executive officer Guo Yaqiong. “And since we are digging up a lot of murram, you know what happens when the rains start,” she adds.
The target, Ms Yaqiong says, is to have the plant running “by the end of the year with full-scale operations.”
M/S Guangzhou Dongsong Energy Group Company Limited arrived on the stage in 2012, embarked on geological explorations of the hills to verify the reserves, and a year later, was awarded a 50-year licence for the Osukuru hills. The licence covers an area spanning 265square kilometres.
The company signed a mineral development agreement with government to establish the Osukuru comprehensive plant that will comprise a fertiliser manufacturing plant (from phosphate) and a steel plant from the vast iron reserves.
The agreement spells out obligations of the two parties, with government required to provide necessary assistance to Dongsong during the implementation of the project. It is for that matter, highly placed sources in ministry of Energy say, President Museveni is very “enthusiastic about the project” and in fact is said to regularly check on its progress.
When in 2016 Inspector General of Government Irene Mulyagonja recommended for revocation of the mining licence after investigations pointed at company officials to have colluded with top Energy ministry staff, the President thwarted such attempts, telling a meeting at State House that he does not “want such things which disorganise my investors,” sources told this newspaper at the time.
Other assurances include providing land for the project. Already, 600 acres of land was allocated to construct the proposed dressing plant (where the ore will be separated), fertiliser and steel factories, and another plant for brick baking from the residues. Dongsong contracted fellow Chinese-based Yunnan Geological Research Bureau to undertake additional exploration and sample analysis of the ores.
According to Ms Yaqiong, the results showed that the iron and phosphate rocks buried in the hills are of “high grade” but intertwined, “which posed” significant challenges to separate them. This explains the planned dressing plant, and partly why it took the company long to get its foot off the ground as it figured a way out.
The company does not have current plans to venture into processing of rare earth metals, which Ms Yaqiong says will be piled on the side, pending more discussions with government for a way forward.
The entire project, according to various government briefs and the company, is up to $620m (Shs2.2 trillion). The money is mobilised from Industrial and Commercial Bank of China (ICBC), said to be the world’s most valuable bank by market capitalisation, and it is also lately involved in the proposed East African Crude Oil Export pipeline from Hoima to the Tanzanian ocean port of Tanga.
Previous attempts that never were
Phosphate, the mineral used in manufacturing of fertilisers, was first mined in Uganda in 1939 from small open pits on Busumbu ridge in eastern Uganda until 1963. The Osukuru deposits were discovered later in the 1940s during the search for limestone for cement manufacturing.
According to the online Uganda mining atlas, until 1956, the ‘hard’ phosphate rock was excavated, crushed and screened before being exported to Kenya for the manufacture of citric-soluble soda phosphate fertilizer using soda-ash from Lake Magadi.
“The undersized, fine phosphatic material was used as direct application fertiliser. From 1956 onward, the customer requirement changed and ‘hard’ phosphate rock was replaced by a blend of soft phosphate rock. This phosphate blend was upgraded using magnetic separation techniques,” the mining atlas notes in a brief on its website.
The annual production of Busumbu reached 6,000 tonnes and a total of 62,000 tonnes of phosphate concentrate was produced over the period that the mine was in operation. Former ministry of Energy Permanent Secretary Kabagambe Kaliisa, in the journal titled ‘Phosphate Deposits of the World: Volume 2’, wrote that during the 1950s, pilot plant studies showed that phosphate concentrate containing “phosphorus pentoxide” could be produced, and various plans and estimates for commercial plans were considered.
“However, none of the schemes proposed was found sufficiently profitable to attract private capital investment required.”
In 1961, Mr Kabagambe wrote that the Uganda Development Corporation announced development of the deposits on a smaller scale than earlier envisaged, and commercial operations in Osukuru began in 1962, with production reaching 30,000 tonnes in 1970.
“The output was consumed in a 25,000-tonne per annum superphosphate plant operated by the Tororo Industrial Chemicals and FertiliSer plant,” the journal reads in part, until it was closed down in the mid-1970s because of the difficulty in obtaining spare parts.
The first phase of the feasibility study by US-based Bearden-Potter Corporation, which recommended rehabilitation of the plant was completed in 1984 “with encouraging results” but no decision was taken to reopen the mines.
The World Bank-funded study also recommended that “the best option for the exploitation of the Osukuru hills phosphate deposits is to establish a single superphosphates plant with an annual capacity of 217,000 tonnes using sulfuric acid based on imported sulfur.”
Guangzhou Dongsong, a hitherto unknown company, in 2013 beat the Canadian-Ugandan registered M/s Frontier Exploration, which claimed that due processes were deliberately short-circuited to favour its Chinese competitor to the mining license for the Osukuru hills.
Later the directors of the company, who included Ms Fang Min, the proprietor of the Fang Fang restaurant chain and was their local fixer for the deal, fell out over shareholding, which set in motion a protracted legal battle that is still ongoing. This is one of the headwinds that has dragged the entire process.
Then in 2014, several Tororo residents living near the proposed site threw the spanner in works over unfair compensation for their land and accused the company of unscrupulous practices, which both Ms Yaqiong and the company’s lawyer, Mr Denis Kusasira, denied.
“The law provides that compensation should be fair and adequate. So, compensation is not supposed to make affected persons rich, neither is it supposed to make one worse off, but restore the person to be able to re-establish themselves,” Mr Kusasira said.
“But I believe we dealt with the process in a very fair manner.”
He said the 2013 rates by the Tororo District administration were exorbitant and were not approved by the chief government valuer, who came in later in 2014 with compensation rates for the district, which were used for payment towards end of 2014.
Part of the other land needed was occupied by the National Livestock Research and Resource Institute, an affiliate of the National Agricultural Research Organisation (NARO), which meant back-and-forth haggling between the Agriculture and Energy ministries to reach a bargain. The process was concluded early last year and Dongsong got access to the land.
The proposed complex will sit on 26.5 square kilometres in Osukuru Sub-county and the neighbouring Rubongi Sub-county.
Mr Kusasira said it was agreed that NARO be allocated the land equivalent to 600 acres elsewhere.
Since 2013, Ms Yaqiong explains that the company, which operates several businesses in coal mining and real estate back in China, embarked on geotechnical studies on the site of the proposed plant and analysis of the suitability of the phosphate ore on the Ugandans soils for fertilisers.
Although the Osukuru project is hooked on manufacturing fertilisers, Ms Yaqiong indicates that “manufacturing high grade steel” from the vast iron deposits makes the “strongest business sense” especially against backdrop of the ongoing construction bonanza in the country.
Uganda’s iron and steel product imports average to around 440,000 tonnes, according to the National Planning Authority, at a bill of Shs1 trillion. On the other hand, exports average to around 200,000 tonnes or Shs314b.
“The steel mill is the centre of everything,” Ms Yaqiong says during a guided tour of the site. The main hiccup is the key ingredients needed to produce the said “quality steel” such as coal, which has to be imported from their operations in China. She says they also need limestone, which they will have to import.
“In fact, it is the steel mill that has delayed us; before we were using technology that uses coal whose prices kept fluctuating, which means running an expensive operation but now that coal prices world over are falling due to the clean energy campaign, we are now certain.”
“The limestone in Uganda is good but only for cement manufacturing. Kenya too has some good limestone but we are still looking into where to get it from.”
Dongsong says it plans to manufacture bio-organic fertlisers, whose trials have been so far made on among other crops potatoes, vegetables, tea and rice in different parts of the country.
The problem though is that Uganda, according to the International Food Policy Research Institute, has one of the highest soil nutrient depletion rates in the world but at the same time with the lowest rates of annual inorganic fertiliser application (only 1.8 kg per hectare), a fact that both Ms Yaqiong and Mr Kusasira acknowledge.
In fact, Ms Yaqiong adds that “only commercial agriculture in Uganda is known to embrace fertilisers”, which explains the plan to start with small size operation. That notwithstanding, their target is to produce for the East Africa region.
“To manufacture fertilisers, you need to sulphur and it is not available in Uganda and neighbouring countries, so it has to be imported, which is very risky. So we have to process it from here,” she says.
For steel, which makes stronger business sense, she says they plan to produce 500,000 tonnes per year—from hoes, iron bars, etc.
Six years down the road after getting the licence, butting heads with bureaucracy from one office to another, and laying ground for the much awaited venture, Ms Yaqiong says they do not envisage any setback to hold back progress, going forward.
Full development of the project would represent an important step in the faded mining sector that is, among others, reeling from decades of neglect, grappling with setting up competitive infrastructure to attract private investors, and overhauling legislation to make it competitive.
Being their first project outside China, Dongsong is upbeat about the future. But whether everything will go according to plan or they can live up to the task is another aspect that only time will tell.
Details of the contract
Survey. In 2012, M/S Guangzhou Dongsong Energy Group Company Limited embarked on geological explorations of the hills to verify the reserves.
Contract. The company signed a mineral development agreement with government to establish the Osukuru comprehensive plant that will comprise a fertiliser manufacturing plant (from phosphate) and a steel plant from the vast iron reserves.
Funding source. The $620m (Shs2.2 trillion) is mobilised from Industrial and Commercial Bank of China (ICBC), said to be the world’s most valuable bank by market capitalisation.
Minor setback. The problem though is that Uganda has one of the lowest rates of annual inorganic fertiliser application. To manufacture fertilisers, the company must first process sulphur.
In Part Three tomorrow, we look at the haunting legacy of Kilembe mines
“As a Commission, we did our job. However, it is important to add that the issue as regards the next steps is perhaps larger than the question put. There is the strict interpretation of the concession agreement and applicable laws to take into consideration in terms of what the next steps are not to mention what government’s expectations still are,” Mr Mwesigwa said.
He added that “all these must be factored in to avoid a process that would be liable to challenge in future or expose government to public ridicule.”
THMCOL itself sued the government, seeking, among others, an interim injunction against the State from interfering with the concession until the main application has been disposed of and damages of at least Shs120b.
The company, in its suit filed at the High Court’s Commercial Division in Kampala on February 21, also accuses government of breaching terms of the concession, among others “failure to renew the company’s mining lease, failure to approve draft insurance policies, and failure to deliver permits and licences required to commence” it’s activities. Hearing of the case is scheduled to start soon.
The company’s temporary injunction was, however, dismissed with costs on April 5. The court said maintaining the status quo or not had no threat to hearing the main suit, whose hearing is yet to be fixed.
The winding-up commission was established by virtue of provisions of the concession agreement between government and THMCOL signed in September 2013. The consortium was said to have beaten the likes of China’s Gingko Energy Investments Company, Sino- Steel Limited (China) Konkola Copper Mines (Zambia), Tibet-Hima Industries Consortium (China) and Shree Minerals of Australia to the deal.
The consortium was said to be comprised of Shanghai Baosteel Group, which is an iron and steel conglomerate, with expertise in smelter technological supplies; Chinalco Luoyang Copper Company; Yunnan Copper Company with experience in exploration expertise provision; and Dongfang Electric Corporation, whose expertise is in hydro-power technical and development equipment supplies.
Others included Tebian Electric Apparatus, who are manufacturers of cables, cords and transformers; Zijin mining Group (mining and downstream beneficiation) as well as Zongshen Industry Group (mining financial investments). However, several firms in the consortium pulled out in due course, setting in motion THMCOL’s woes.
One senior official familiar with the matter told Daily Monitor that partly why THMCOL failed is that the company “naively” agreed to a number of the government’s ambitious targets such as setting up a smelting plant even when such facility clearly does not make any business sense.
“The mine had been abandoned for nearly 30 years and government expected it to be turned around in less than five years. Isn’t that madness?” the official said.
Mr Mwesigwa, however, disagreed with this reasoning, saying “the government packaged the Kilembe mines and carried out a procurement, which had several bidders participate. Tibet emerged the best after the evaluation and entered into the Concession Agreement.”
“They had the benefit of advisors; I did not participate, so I do not know who their transaction advisors were. We enjoy the principle of freedom of contract and a party is bound by the terms of the contracts they freely enter into. It would be inconceivable to imagine that they responded to a bid and actively pursued and eventually entered into a concession when they did not appreciate what it was and the scope or the extent of the investment that was required,” he said.
Therefore, he added that “it is not a question of government setting high standards, which if you ask me, [were] entirely within their remit to do.”
Copper is currently trading at $7,300 (Shs26m) a metric tonne in London, its best run in almost three decades. Had government managed to resuscitate the mines, Kilembe would be back on track.
According to bloomberg news, copper was at $7,289 a metric tonne in April at the London Metal Exchange, after earlier touching $7,312.50, the highest since 2014.
During the 1970s, production at Kilembe peaked at around 18,000 tonnes of copper cathode a year. However, Amin’s nationalisation policy led to things falling apart and also saw most expatriate workers, especially Asians – many of whom were Ugandan citizens – flee.
The mines ceased operations in 1978 as a result of the political strife coupled with a steep fall in prices of copper ore. From 1978 to 1982, the mines was placed under care and maintenance of Kilembe Mines Limited (KML), a state-owned company. In 1992, Kasese Cobalt Company Ltd was also established to recover cobalt from an unstable stockpile of a cobalt-rich sulphide concentrate, and see if one of the units could be converted to smelt copper and other metals.
According to the terms of the concession, THMCOL was to pay annual concession fees to KML in its capacity as the asset holding company, as partial consideration for the transfer of the fixed assets to the concessionaire.
The main objective of getting on board a private investor to take over KML essentially fit into government’s plans of reviving mining, but also to resuscitate Kilembe and to encourage further exploration and development of minerals thereat.
Prior to the termination, THMCOL had been routinely faulted for defaulting on key operational terms of the concession agreement such as non-payment of annual concession fees of Shs6b, failure to invest the minimum capital expenditures totaling to $175m (Shs618b), non-provision of an unconditional exploration bank guarantee and failure to submit acceptable feasibility study reports on the Smelter and Tailings Pond Project.”
The winding-up commission established that notwithstanding some work done, “there was little or no work done at 4,300 level; there was no clear indication of what had happened to some of the assets replaced; key operational areas such as the shaft and skip/hoist were not functional and that there was significant encroachment on the mines’ land”. THMCOL in defence said it had been “unable to fulfill its obligations on account of the floods in 2014; when three rivers; Nyamwamba, Nyamugasani and Mubuku burst following heavy rains”.
THMCOL also faulted government for having failed to grant it permits to export 30,000 tonnes of copper concentrate as samples to China for “metallurgical testing” whose results were to inform establishment of a smelter plant and machinery at the revamped Kilembe copper mines.
The commission said it “carefully reviewed the concessionaire’s assertions and established” that although the damage caused by the floods was evident in certain places, it could not have affected other key areas such as exploration and that no force majeure was ever declared by THMCOL in respect of the floods.
A force majeure relates to the law of insurance frequently used in mining to protect the parties in the event that a segment of the contract cannot be performed due to causes that are outside the control of the parties such as natural disasters, that could not be evaded through the exercise of due care.
The commission also deemed the 30,000 tonnes of copper concentrate THMCOL wanted to export as “too large to be a sample for export”. That notwithstanding, the commission also established that the copper concentrate contained several other valuable minerals like gold, nickel and cobalt and that the Concessionaire had omitted to indicate the exact contents of other valuable minerals in the sample other than copper.
Back to square one
One of the things the government has stuck its guns to is value-addition, meaning it wants an investor who will install and operate a copper/cobalt smelting plan to enjoy related downstream benefits.
One official familiar with the matter told Daily Monitor that “it is in that policy that lies the problem” and partly explains why it is government itself “shooting itself in the foot; they are setting the bar too high for investors in a such [Ugandan] environment troubled by so many things.”
Similar sentiments were re-echoed by mining lawyer Denis Kusasira who in a separate interview noted that “the government needs to first realise what it wants from the mineral sector,” the official said. “Sustainable development of minerals does not mean keeping it in the ground for future use; it rather means you extract them, make money out of them and invest it wisely for the future generation.”
For example on the government’s value-addition policy, Mr Kusasira said downstream facilities in mining is not easy to dictate.
“Sometimes the feed stock is not big enough to warrant [smelting] plants but that aside, you need to know where your advantage is; is it in exporting/selling concentrates or finished products?
“The failure to analyse is costing us a lot as a country. No one is against value addition but the process must be defined,” Mr Kusasira said.
Copper alloy, for example, is used in the making of, among others, electrical wires, boat propellers, microchips, fire sprinkler systems, and welding electrodes. By emphasising value addition, Mr Kusasira wondered if the government wants an investor in Kilembe to “make all that here? Would it make sense to any investor?”
The board chairperson of the Uganda Chamber of Mines of Petroleum, Mr Elly Karuhanga, said: “Now we have a second chance to get a better investor. The country never lost the mines; we only lost time. Whatever we missed in the old concession we will ensure we get them right in the new one.”
He added that during the last Presidential Investor Round Table Initiative meeting early this year, they agreed to get on board a new investor for Kilembe by April. Ugandans are still waiting to hear the next step.
Kilembe’s mining history
The first recorded copper discovery in Uganda was by the Duke of Abruzz during an expedition to the Rwenzori Mountain in 1906. But the main commercial deposits were discovered in 1927 by D. Magee who was working for Tanganyika Concessions Limited, which had been given a mineral prospecting licence covering 9,360 square miles.
The company started trenching on the northern side of Nyarusingye stream but had its licence reduced to 200sq miles in 1933. During that time, little work was done on the mines mainly because of accessibility. The Mbarara-Kasese road was not built until 1939. This, coupled with the low prices on the world market and the looming World War II, saw the company abandon the mines.
Government fenced off 155sq miles around Kilembe to keep the deposits safe as it looked for another company to operate them. In 1942, rescue came in the form of Alderson, a Canadian who had developed the Macalder copper and gold mines in Kenya, who interested Frobisher Ltd, a Canadian mining company, forming a joint venture with Rio Tinto, a British mining giant.
The two carried out preliminary investigations and started drilling in 1948 until 1951 when 10.5 million tonnes of ore was discovered and another probable 4 million tonnes more. With ore of that magnitude, it recommended in 1951 that a railway line be extended from Mityana to Kasese, where it reached in 1953.
After the railway line, a power line from Jinja to Kasese was recommended, which brought the projected costs of the copper development to £8m, forcing Rio Tinto to pull out, leaving it to Frobisher.
A cheaper alternative of smelting copper in Jinja was devised, and production started in 1956 with a target of 7,500 tonnes of copper per year. Along the way, Frobisher’s interests were bought by Falconbridge Nickel Mines Limited, another Canadian company which owned 75 per cent of the mines until its closure.
In Part Four tomorrow, we look at gold mining