Tiomin: The untold story

And even though Tiomin Kenya was given a license by the Government to mine the rare metal in Kwale District in 2005, a former manager with the firm, who asked not to be named, said the prospecting company assembled a team and took a major gamble on the Kwale project.

Knowing that it lacked the financial muscle, the team listed Tiomin Resources Inc on the Toronto Stock Exchange as a venture capital fund, hoping to raise enough money for its Kenyan venture.

Its other interest, the Pukaqaqa Copper Project in Peru, begun operations after it managed to secure an equity partner in a deal also structured along the lines of the Kwale mines— securing a licence before bringing on board a partner. The company controls a 49 per cent stake in Pukaqaqa Copper, but is not directly involved in the mining.

According to information posted on its website, Tiomin has three main assets. These includes a $24 million in cash, a 49 per cent interest in the Pukaqaqa copper and gold project in Peru and a 100 per cent interest in the Kwale project.

Tiomin‘s share price on the Toronto stock market only reflects the value of its cash position and it receives no value for its other assets in Peru and Kenya.

Sources close to the firm indicate that the parent company’s income has dipped to negative levels, while returns on equity, assets and investments have also plummeted.

These key financial indicators could have discouraged potential investors that the firm had hoped to enlist in its ambitious plan to raise investment capital. Those plans involved raising capital through equity or debt financing, once the licence was secured.

But what Kenyans may not know and which the FJ can authoritatively report, is the fact that despite brandishing a tag of a multinational with global mining operations, Tiomin Resources was a startup company, at the time it bagged the exclusive Kwale titanium rights deal from the Government in 1995.

Findings by the FJ indicate that Tiomin Resources Inc, armed with mining rights, had sought to list at the Toronto Stock Exchange (TSX) as a venture capital fund. It hoped to raise an estimated $201 million (Sh13.5 billion) to invest in the Titanium Kwale project.

We have since learnt that the company floated 445.365 million shares, at a price of Canadian $0.65 — managing to generate Canadian $289.5 million (Sh18.8 billion). But its market capitalisation has so far been diluted to Canadian $28.949 million (Sh1.9 billion) over the last 12 months.

According to Tiomin Resources Inc financial statements, the firms income before taxes (EBT) stood at a paltry Canadian $-0.92 million (Sh60 million) for the first quarter of this year.

Gross operating profits stood at Canadian $-0.05 million (negative Sh3.25 million) in the same period.

The company’s return on assets and investments for the last 12 months was fixed at -4.80 per cent and -4.90 per cent respectively, while return on equity could not even be defined.

The cash flows were estimated at Canadian $-0.01( negative Sh650, 000), while the company’s book value was pegged at a meagre Canadian $0.15(Sh9.75 million).

The shocking state of financial affairs also puts the company’s total net earnings for last year at Canadian $-8 million (negative Sh520 million), down from Canadian $-2 million (negative Sh130 million) in 2004.

Despite its wobbling balance sheet the multinational firm still harboured hopes of securing the mining licence from the Government, and thereafter pursuing various financing options, including equity and debt financing.

However, the ambitious plans were thrown into disarray by prolonged legal battles with the local land owners, and battle to win a mining license that lasted close to 10 years.

Years after the dispute over land and licensing was resolved, the firm is yet to start operations, and instead blames the Government for failing to put in place various regulatory and tax measures that it believes would have eased its entry into Kenya’s mining scene.

The blame game has been a cover-up for Tiomin’s inability to roll out the project.

Its complaints range from failure by the Government to Gazette fiscal agreement, not provideing an acceptable port tariff and the authorities failure to exempt it from certain stump duties and withholding taxes.

The Government was also accused of dragging its feet in relocating the 1,500 farmers living in the 5,000 hectares mining site.

But last week, the Commissioner of Mines and Geology, Lojomon Biwott, told FJ that Tiomin has perfected the art of being economical with the truth.

"Jackson (Robert Jackson, President and Chief Executive of Tiomin), has not been honest. The Government has fulfilled all their condition,s but the truth is that they do not have money," he said.

Biwott insists that a fiscal agreement that provided for a 50 per cent reduction of the corporate tax rate for 10 years from the start of commercial production was signed on February 2005. He added that although the Government knew the company was a start-up, it was then logical to issue Tiomin with the mining license to make up for its exploration efforts, simply because it was the one that discovered that Kenya is home to 14 per cent of the world’s titanium deposits.

It is estimated that the deposits amounted to 3.2 billion tonnes, and can be extracted in a span of 20 years.

However, Tiomin’s game plan started to fall apart the moment the company faced opposition from locals, non-governmental organisations (NGOs) and MPs, citing environmental concerns.

The firm had already worked out a plan to finance the project, but miscalculated that the project might take years to take off, owing to the spirited fight put by the locals and supported by NGOs.

While the thinking in Canada, the home country of Tiomin Resources, was that the opposition to the project would soon pass, the master plan crumbled when court cases opposing the project started to pile up.

"Tiomin did not have any funding for the project. It hoped to raise funding in the form of debt and equity. When this failed to happen due to court cases, the project stalled," revealed the former manager.

With funds not forthcoming, Tiomin was forced to reschedule the ordering of the necessary machinery needed to carryout the mining. In some instances, manufacturers would avail machinery on loan, which would be left to rust, because the company could not access the land.

When it became apparent that the court cases would take longer than anticipated, the company was forced to cancel machinery orders, and pay fines. Within no time, the costs for the project had skyrocketed beyond its imagination.

"Tiomin had not provided or foreseen the possibility of a long legal battle. When this happened, the cost escalations hit them really hard," the former manager told FJ.

Before the damaging legal battle, Tiomin, which was armed with an irrevocable, sole and exclusive right to mine and process the mineral for 21 years, was able to negotiate for a syndicated loan with the African Development Bank (AfDB) as the principal arranger.

Other financiers that came on board were Standard Chartered Bank, Germany‘s WestLBank and Caterpillar Financial Australia Ltd.

According to Biwott, who represented the Government side, as the company negotiated for the loan facility, Tiomin required a total of $201 million to undertake the project.

AfDB was willing to arrange for $155 million, but tied the financing to a requirement that Tiomin raises $46 million to show its commitment to the project. However, Tiomin failed this test leading to total collapse of the syndicated loan agreement.

But even so, the firm’s dilemma is far from over. Lately, the Government has increasingly become impatient with the delay in the start of the project, and has sold 20 per cent of the mining rights to Jinchuan Group of China, at a cost of $10.9 million.

"The Chinese deal was a desperate move by the parties concerned to show that the project was still on course," explained the former manager. He reckons that although Tiomin created the impression that Jinchuan had invested directly into TKL, this was not the case, as Tiomin is said to have remained with 30 per cent stake in the mining deal.

Under the deal, Tiomin, which ended up being a minority shareholder was not obligated to use the funds to develop the project.

The new capital injection has since remained in limbo even after all the legal handles were cleared more than 18 months ago.

According to the former manager, Tiomin has been weighing its options on what to do with the project. Having injected $12 million directly into the project, and much more on non-tangible costs, the company is hell bent to recover this amount.

"Unless the Government terminates the lease, the company will continue to sit on the land hoping it will recover the seed money," argues the former manager.But the continued failure of the company to embark on extracting the minerals is raising concern within Government circles.

Biwott revealed that Tiomin has been given a notice to explain how it intends to proceed with the project. He said that an inter-ministerial meeting is scheduled for August to decide on the necessary Government action. To pre-empt any Government action, the company last week announced it had signed a memorandum of understanding (MoU) with Jinchuan, that will see the Chinese company invest US$25 million directly into TKL.

Through the investment, Jinchuan will control a 70 per cent interest in TKL and in extension the Kwale project.

Under the terms of the MoU, Jinchuan will procure all financing required to kickstart the project. This latest initiative perhaps offers Tiomin a soft exit from a project in which it had hoped to strike it rich, if the court battles did not block its way.

http://www.eastandard.net/mag/InsidePage.php?id=1143991659&cid=457&

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