Mining in Kenya and Government’s participation in large scale mining operations 

Mining in Kenya is regulated by the Mining Act, 2016 (the Mining Act). The Mining Act prohibits any person from searching for, prospecting or mining any mineral, mineral deposits or tailings in Kenya without obtaining a permit or licence under the Mining Act, collectively referred to as “mineral rights”. These mineral rights may be granted to or held by persons who qualify to do so under the Mining Act.

Mining operations, under the Mining Act, are categorized into small-scale and large scale operations. 

Small-scale operations are restricted to Kenyan citizens and body corporates which have at least 60% shareholding by Kenyan citizens. Small-scale operations are required to obtain a “permit” to operate. 

An applicant for mineral rights in respect of large-scale operations is required to have the requisite technical competence, financial resources, proposals on local employment and training, work programme, consent from landowner and an environmental and social impact assessment licence. Large scale operations require a “licence” to operate.

There are several two main types of permits or licences that may be obtained in Kenya. Prospective permits or licences are issued for operations to search for and define the extent of a mineral deposit and to determine its economic value. Mining permits or licences are issued in connection with a mine to win a mineral from where it occurs; to extract metal or precious mineral from a mineral so won or beneficiate a mineral so won; or to dispose of a mine waste or tailings resulting from winning, extraction or benefaction.

The holder of a prospective licence is however eligible to apply for a retention licence if a mineral deposit of potential commercial significance within the prospective licence has been identified and the deposit cannot be developed immediately due to temporary adverse market conditions, economic factors, technical constraints, or other factors beyond the reasonable control of the holder of the licence.

Obligations of holders of mineral rights

The holder of a mineral right, in the conduct of prospecting, mining, processing, refining and treatment operations, transport or any other dealings in minerals is required to give preference to the maximum extent possible to material and products made in Kenya; services offered by members of the community and Kenyan citizens; and companies or business owned by Kenyan citizens. 

An obligation is placed on the holder of a mining licence whose planned capital expenditure exceeds the prescribed amount to list at least 20% of its equity on a local stock exchange within 3 years after commencement of production. Further, it is a condition of every mining licence that the mineral right in respect of which the licence is issued shall have a component of local equity participation amounting to at least 35% of the mineral right.

Free carried interest

In 2017, the Ministry of Mining enacted the Mining (State Participation) Regulations, 2017 (the Regulations) to provide for State participation in prospecting and mining operations carried out by a holder of a mineral right. The Regulations provide that where a mineral licence is granted after the coming into effect of the Regulations, the State shall automatically acquire 10% free equity participation or free carried interest in the mining operations to which that licence relates for no financial consideration. 

The Cabinet Secretary and the holder of a mining licence are required to agree on the timeframe within 1 year from the grant of the mining licence within which the State will be issued with the 10% shareholding in the holder of a mining licence (licensee), to be held on behalf of the State by the National Mining Corporation. Once this interest is acquired, it may not be diluted unless the State transfers, assigns or sells part or all of interest to the holder or any other party. 

As a shareholder, the State shall have the right to vote; to receive dividends; to appoint director(s) proportionate to its shareholding; to receive notice of and to attend and speak at a general meeting of the members of the licensee; to transfer, assign or sell all or part of its shares to the licensee or a third party for a consideration to be agreed with the licensee or third party. The State is however required to give the licensee the right of first refusal in any transfer, assignment or sale of part or all of its shares. The free carried interest does not give the State the right to manage or participate in the day to day management of the operations of the licensee. 

In addition to the free carried interest or equity, the State may purchase an additional interest or share capital of the licensee in respect of the mining operations at a fair market value.