Kenya: Kwale miner pays Sh6.5bn dividend to Australia parent

Thursday September 09 2021

The payout ranks the Perth-based multinational second in the list of foreign companies whose dividend receipts from Kenya have been disclosed.Kwale miner pays Sh6.5bn dividend to Australia parentBy VICTOR JUMA

IN SUMMARY

  • The payout ranks the Perth-based multinational second in the list of foreign companies whose dividend receipts from Kenya have been disclosed.
  • South Africa’s Vodacom Group is the top dividend earner from the local market, receiving a gross payout of Sh19.2 billion from Safaricom for the year ended March.
  • Base Titanium previously used its surplus cash to redeem preference shares, a form of hybrid security which earns a fixed rate of dividend and may be converted into ordinary shares.

Base Titanium, the company extracting titanium minerals in Kwale County, paid its Australian parent firm Base Resources a dividend of Sh6.5 billion in the year ended June, highlighting its lucrative mining venture.

The payout ranks the Perth-based multinational second in the list of foreign companies whose dividend receipts from Kenya have been disclosed.

South Africa’s Vodacom Group is the top dividend earner from the local market, receiving a gross payout of Sh19.2 billion from Safaricom for the year ended March.

Base Titanium previously used its surplus cash to redeem preference shares, a form of hybrid security which earns a fixed rate of dividend and may be converted into ordinary shares.

The preference shares have since been retired, freeing up more cash and revealing the profitability of the mining operation.

“During the reporting period, the group’s Kenyan subsidiary, Base Titanium, distributed $60 million (Sh6.5 billion) of surplus cash, via a dividend, to the group’s ultimate parent entity, Base Resources Limited,” the Australian multinational says in its latest annual report.

“Previously, surplus cash distributions from Base Titanium occurred by way of redemption of preference shares. However, these were fully redeemed during the reporting period.”

The Kenya Revenue Authority (KRA) received a withholding tax of $9 million (Sh990 million) calculated at the rate of 15 percent of the dividend paid to the parent company.

The Kenyan government earned a total of $32.9 million (Sh3.6 billion) from Base Titanium in the review period, comprising the withholding tax (Sh990 million), corporate income tax (Sh1.1 billion), and royalties (Sh1.5 billion).

Royalties dropped from Sh1.6 billion a year earlier while the corporate income tax increased from Sh664.6 million.

The mining firm pays royalties at a rate of 2.5 percent of sales of the titanium minerals rutile, ilmenite, and zircon but says it is ready to double this to five percent if the government agrees to a deal it has proposed.

“The group is in ongoing discussions with the Government of Kenya with respect to the royalty rate payable for the Kwale Operations in the context of resolution of a number of outstanding issues, including refund of $16 million (Sh1.7 billion) VAT receivables related to the construction of Kwale Operations,” Base Resources said.

The multinational added that it wants the extension of its special mining license to incorporate the Kwale South Ore Reserves presently outside the lease boundary.

Base Resources has been making provisions for the increased royalty payouts should it strike a deal with the government. Funds set aside to make the higher royalty payouts rose to a new high of $31.4 million (Sh3.4 billion) as of June.

“Royalty costs are provided for, and expensed, on the basis of a five percent royalty rate being payable to the Government of Kenya, whereas the royalty rate applicable under the terms of the special mining lease, and currently being paid, is 2.5 percent,” the multinational said.

The Kenyan mining operation sales dropped five percent to $198.2 million (Sh21.8 billion) in the year ended June from $208 million (Sh22.8 billion) the year before.

Net income fell 39 percent to $28.8 million (Sh3.1 billion) from $47.3 million (Sh5.2 billion) on the back of the reduced revenue and higher costs.

“The company’s Kwale Operations in Kenya is a consistent and efficient high margin operation. With mine life extension and wider Kenyan exploration options being pursued, there is an opportunity for further value creation,” Base Resources said.

The multinational noted that its special mining licence is likely to be extended, enhancing the mine life to 2023, based on existing estimates of mineral deposits located within the proposed expanded mining lease.

The company’s continued operations will further boost government earnings besides sustaining jobs and creating opportunities for local suppliers.

Base Titanium says it bought goods and services worth $53.4 million (5.8 billion) from Kenyan businesses in the review period when its capital expenditure stood at $11.5 million (Sh1.2 billion).

The company added that the Kwale operation now employs 1,248 employees and contractors, with 99 percent of them Kenyans and 71 percent drawn from Kwale County.

The titanium mining venture is one of the most successful foreign direct investments that Kenya has attracted in the past decade, creating jobs, generating revenue for the government, and creating opportunities for private businesses.

The Australian multinational says it is keen on extending its local venture.

“Kwale Operations is a high quality, efficient operation for which we are working hard to secure a longer life and extend our stay in Kenya,” the company said.

The mining venture’s success has been helped by rising prices for the titanium minerals over the years, including from major markets like China.

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.

SOURCE: https://www.businessdailyafrica.com/bd/corporate/companies/kwale-miner-pays-sh6-5bn-dividend-to-australia-parent-3543520?view=htmlamp

SEE ALSOCase Study in Kenya: The Titanium Issue

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