London-based Goldplat Plc is fighting an application by a rival mining firm to explore for gold in its Kenyan turf of Migori that is estimated to have reserves worth Sh16.9 billion.
Goldplat, which operates in Kenya through its subsidiary Kilimapesa Gold, said the dispute has been simmering since October 2017, when the Ministry of Mining notified it of an application by an unnamed company to explore for gold in the same area.
Goldplat, in a trading update, told its London Stock Exchange (LSE) investors that it is prepared to sue the Kenyan government if any part of its exploration zone is hived off without compensation.
“The area in dispute contains roughly 140,000 ounces of gold in resource, or approximately 20 per cent of the total resource for Kilimapesa,” Goldplat said, adding that “no exploration will be undertaken until this issue has been resolved and confirmation has been received that no part of the initial exploration licence has been taken away without compensation.”
Goldplat says the status of the controversial exploration application remains unclear despite its clear objection and numerous meetings with Mining secretary John Munyes and other government officials.
Goldplat’s operations in South Western Kenya include the Kilimapesa Hill – an area not targeted by the rival mining firm — where it is currently mining gold reserves estimated at 532,000 ounces and valued at Sh64.4 billion based on the commodity’s current global market price of $1,200 (Sh120,000) an ounce.
The dispute comes at a time when Goldplat is also awaiting a decision on its application for an exploration licence that will allow it to expand its operations beyond the Kilimapesa Hill.
The rival application risks spooking prospective investors who Goldplat has approached to inject new capital in Kilimapesa in exchange for an unspecified stake in the Kenyan operation.
Goldplat says the expected proceeds will enable it to share the burden of providing new capital required to turn around the fortunes of the loss-making subsidiary.
“But if efforts to find a partner to invest in the mine and the exploration licence are successful, the requirement for any more capital input by the Group will be removed,” the company said.
Goldplat has further disclosed that its board approved the search for an investment partner for Kilimapesa to enable existing shareholders realise value from the operation without having to invest additional capital. “Discussions have begun with a number of interested parties and operational focus remains on achieving profitable production.”
Kilimapesa has been making losses mainly arising from production hiccups, cost overruns and slow investment in new equipment, weighing down its parent company’s consolidated earnings. The Kenyan operation reported a net loss of £892,000 (Sh118.3 million) in the year ended June, an improvement from net losses of £1.1 million (Sh146 million) the year before.
The firm narrowed its losses after production jumped 50 per cent to 5,112 ounces, all of which were sold in the review period resulting in higher revenue.
“Kilimapesa reported an increase in revenue of 54 per cent from £3.1 million (Sh418 million) as a result of more ounces produced on the back of increased processing capacity in Plant 2,” Goldplat said. “The increase in revenue did not translate into increased profits due to lower than expected grades and higher than expected costs,” the miner added.
The multinational says it will continue to invest in the mine to boost production and improve efficiencies as it seeks to turn a profit.
Its capital expenditure at Kilimapesa stood at £489,000 (Sh64.8 million) in the year ended June, with the amount used to buy a ball mill and power generators among other equipment. The price of gold per ounce has dropped 11.8 per cent from a peak of $1,362 (Sh136,200) in January to yesterday’s $1,200 (Sh120,000), piling pressure on miners of the precious metal.
Gold producers recorded a boom in September 2011 when the commodity’s price touched highs of $1,833 (Sh188,000) per ounce as investors rushed to buy the metal as a safe haven in the aftermath of the global financial crisis, which eroded the value of currency-based assets.