Project Financing of the Kwale Heavy Mineral Sands Project, Kenya

In early 2011 SRK was engaged by the potential lenders as the Independent Engineer for the Project Financing of the Kwale Heavy Mineral Sands project in Kenya owned by Base Resources (Base).

SRK put together a multi-disciplined team of engineers and scientists to review all technical, environmental, social and economic aspects of the Feasibility Study (FS) that Base had completed. Most of the review disciplines undertook a site visit in May 2011, and SRK concluded its initial review in June 2011 by issuing a full due diligence audit report to the potential lenders, including an assessment of the project against the Equator Principles.

Kwale is located approximately 50km south of Mombasa and some 10km inland. The FS envisaged a project mine life of some 13 years, mining a paleo-aeolian dune deposit using a dozer mining trap unit and processing the ore through a ‘wet’ plant to produce a heavy mineral concentrate. Further processing in a ‘dry’ plant would separate out the final products of ilmenite, rutile and zircon. Final products would then be transported by road to a newly constructed storage and ship loading facility for bulk shipments of ilmenite and rutile, while zircon product would be bagged or containerised for export through the Port of Mombasa.

During SRK’s review of the FS, risks were identified and recommendations made for further work to be undertaken to mitigate these, prior to finalisation of the loan facility being agreed and before construction started. SRK also recommended adjustments to certain assumptions in the financial model the lenders used in assessing the project for the loan facility. Following interaction between SRK, the lender group and Base, an initial loan facility of USD170M was agreed and formally signed at the end of November 2011.

Detailed design and construction of the project commenced in late 2011 and production commenced in Q4 2013. The lender group retained SRK to monitor the project through its construction and ramp-up of production and to assess the project against Completion Test criteria. This has involved regular quarterly site visits by a technical team and review of monthly construction and operations reports produced by Base.

Undertaking the role of Independent Engineer can be difficult and challenging but has its rewards. SRK is pleased to have worked on what has become the first large-scale mining project in Kenya.

Nick Fox: nfox@srk.co.uk

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