Tiomin announces delay of its mineral sands project in Kenya
As foreshadowed here on Mineweb on November 22nd, Tiomin Resources Inc. (TSX: TIO) announced yesterday that construction of its Kwale mineral sands project in the east African country of Kenya has been delayed to allow the Kenyan government resolve land wrangles with resident farmers, provide access to the project site and fulfill remaining conditions required by the contractual arrangements between Tiomin, the government and the lenders to the Project.
According to a press release issued by the Toronto based company and posted on its website, the Kenyan government is required pursuant to the contractual arrangement between it and the company to deliver the land required for the project.
”On November 10, 2006, the Government of Kenya issued public notices in the Kenya Gazette stating its intention to acquire the land of the seven farmers that control eight plots of land located within the area of the Kwale Special Mining Lease who have not voluntarily accepted an offer from the government to acquire their land,” reads part of the press release. ”The seven farmers, who are opposed to the Government of Kenya approved compensation agreement for the acquisition of their land, initiated court action against the government and Tiomin’s subsidiary, Tiomin Kenya Limited.”
According to the press release, the seven farmers have claimed, amongst other things, that the Government does not have the constitutional power to order the compulsory acquisition of their land, subject to appropriate compensation. It says the parties failed to reach an out of court settlement and that the judge’s ruling on the seven farmers’ claims is expected on or about December 21, 2006.
”The Project’s senior lenders have issued a letter to Tiomin stating that they would not be in a position to disburse funds for the Project if there are, at any time, incomplete legal processes that may impact title and access to the land required for the Project.
”Tiomin cannot predict when all of these legal issues will be resolved to the lenders’ satisfaction. The continued lack of access to the Project site is preventing the Company from proceeding with the construction of the Project and it can no longer meet the previously published development schedule and budget,” says the press release.
Following the announcement of the delay to start the Kwale mineral sands project, media reports indicate that shares in Tiomin Resources Inc. sank 33 percent on Tuesday ”“ the day the statement was issued. South Africa’s Business Day reports that on the Toronto market, Tiomin stock closed down 6.5 cents to 13 cents in trading of more than 20 million shares. A year ago, the stock traded just under 40 cents.
The company says it is a condition of the loan agreements provided to Tiomin Kenya Limited that the Government of Kenya meet certain conditions ”“ primarily related to delivery of the Project site ”“ in order for Tiomin to drawdown in early February 2007.
”As of today, insufficient progress has been made by the Government of Kenya to satisfy such conditions, including a failure to gazette the Fiscal Agreement (signed in February 2005) for the Project, to negotiate acceptable port tariffs with Tiomin Kenya Limited, to exempt the Project from certain stamp duty and withholding taxes, and to modify the existing mining lease to encompass all land required for the Project.”
Last month Mineweb reported the threat by the company that it would pull out of the project if the government there failed to given it access to the land by early December. The company planned to complete host resettlement in March 2007.
According to the company its titanium and zircon mine holds proven and probable reserves of about 117 million tones in its Central and South dunes. The company expects the mine to produce 330,000 tones of ilmenite, 75,000 tones of rutile and 40,000 tonnes of zircon per year.
The company expects the mine to generate more than $40m in pre-tax operating cash flow during the first six years of operation in its life span of 11 years.
The latest development has put spanners in the works of the company on the Kwale project having secured in mid-2006 US$155 million in debt finance for the mineral sands project. The Standard Chartered Bank, WestLB and Caterpillar Finance also made available US$80 million to Tiomin after it secured US$40 million from the African Development Bank and US$35 million in subordinated debt from Jinchuan Group Ltd. It also secured a cost-overrun facility with Netherlands Development Finance for this project whose viability stands threatened following wrangles in the east African nation.