Mineral ore export ban leaves dealers in tears

Residents of Nakudi village, Banda Sub-county, Namayingo District, wash stones believed to be coated with gold last year.Photo by David Awori

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Loss. Uganda seems to be losing more than gaining from the presidential decree banning the exportation of mineral ore.

Uganda has so far lost about Shs162 billion as a result of the ban on mineral ore export, according to statistics from the Energy ministry. The ban was decreed by President Museveni, first in 2011, arguing that the country loses a lot of money and benefits from value addition to the ores.

In 2013, while attending a mineral conference, he emphasised the ban, and in February, while presenting a paper to the NRM parliamentary caucus retreat in Kyankwanzi, the head of state rallied his ruling party legislators to support the ban.
“Make it a culture not to allow minerals to go out of this country unprocessed. We must educate our people to defend our economy. I do not want to be part of these historical mistakes,” he said, citing an example of some minerals such as iron ore in Kanungu District, that have been exported unprocessed overtime. He pointed out a case of one individual who signed a contract worth Shs960 million ($300,000) to export unprocessed iron ore from the district.

Resultantly, the ban took effect but before even the slightest thought that it could backfire, mineral investors in the country in the different stages - exploration, field development and operations, are feeling its pinch. And it applies to all mineral ore, both industrial minerals and rocks (gold, tungsten, iron, cobalt, phosphate, copper, name it.)
Investors say Uganda risks a “reputational risk” with this decree. Officials in government are lukewarm to discuss the matter on record, while the Uganda Chamber of Mines and Petroleum (UMCP), an association of mining players, argues: “It has created a state of paralysis” in the sector.

Investors stuck
Minerals are used in various industrial and commercial applications worldwide, and global competition for the most-valued and increasingly scarce resources has seen the West’s renewed interest in Africa.
After setting up shop in Uganda and enjoying years of uninterrupted business, the presidential decree came down like a thunder. Investors, some say, are about to close shop. Others are cutting job costs but majority are stuck with mineral ore consignments because the Energy ministry cannot issue them with exportation certificates, while Uganda Revenue Authority (URA) keeps a close eye on them.

The officials of one of the companies, Krone Uganda limited, which deals in tungsten (typically in the form of the mineral “wolfram), said the ministry refused to allow them export three containers - 20 metric tons of wolfram worth about Shs1.4 billion ($450,000) that is stuck in various warehouses.
They are charged Shs640, 000 ($200) every day as “demurrage” (charges that the charterer pays to the ship-owner for its extra use of the vessel) since February.

As a result of delayed supply, Krone has been sued by its client, Kerilee Minerals Investment Rwanda, for failure to fulfill the contract of supplying the mineral ore.
“Our containers are stuck in the Nakawa warehouses,” the managing director of Krone, Isingoma Amooti Kateiza, told Saturday Monitor. The company operates in Karamoja and Kabale. Its ready –for export-tungsten ore stands is worth Shs2.3 billion ($720,000).

According to the officials at the Directorate of Geological Survey and Mines (DGSM), the lead agency in the ministry in charge of technical administration of mining, Krone is the biggest licence holder for the extraction of wolfram/tungsten.
Innocent Mutangana, the managing director of Kerilee, confirmed to this newspaper they had sued Krone for reneging on the contract. “We sued Krone. We want to be paid damages because he had booked time for smelting but they are telling us the containers are stuck in Kampala. This is not our problem,” he said.

Company officials at 3Ts Mining limited, equally tell the same story. Operating two mines in Wakiso and Lyantonde for tin, tungsten and tantalum, the company’s operations manager, Ikrom Muminov, says the company averagely loses Shs192 million ($60,000) every month as a result of reduction in revenues and penalties on pending contracts with its buyers who are still holding part its payments due to the company’s failure to deliver.
He, however, said they cannot go down alone so they have lately embarked on laying off more than 60 employees to cut costs.

The value addition argument
Mr Muminov says his firm currently has about 80 tonnes of well processed tungsten and coltan material respectively ready for export, with similar amounts being prepared for processing.
He explained that tungsten is got from the earth’s crust as a chemical compound and in less concentration but before exporting, they first do some leg work here - processing up to a certain level because Uganda does not have the capacity to refine the ore with other alloys into finished products.
There are only five tungsten smelting plants in the world and, establishing a refinery would cost up to the maximum of about Shs1 trillion ($600 million). Some of the countries with tungsten refineries are Australia, Vietnam, China, Canada and Ukraine—these are known to have vast reserves of wolfram.

Jennifer Hinton, a mining engineer, said a mineral smelting plant and even refinery to create more value addition like the president wants is only viable when a country has enough proven reserves.
Take for example tungsten, she explained, Uganda on average exports about 20 tonnes, which is very little to convince any investor to set up a smelter. “A smelter is not economic unless the reserves are sufficient in size.” Countries such as China smelt an average of between 300-500 tonnes. She explained already mines operating in Uganda are beneficiating (adding value) to the ore they are mining. Beneficiation is just another term for “mineral processing”.

Tungsten is also beneficiated through investment in equipment, expertise and other costs from about 0.4 per cent in the ground to a saleable product (wolfram concentrate) containing 65-68 per cent tungsten.
“As a simple example, the gold mines extract ore from the ground containing about 0.001 per cent gold. Through their investment of several millions of dollars in mineral processing equipment, training Ugandan personnel and other investments in operations, they recover the gold through beneficiation (physical and chemical processing) to about 85 per cent gold, which is a saleable product suitable for export. Value has been added from 0.001 per cent to 85 per cent,” Hinton noted.
Given that we are already undertaking beneficiation for minerals currently mined in Uganda (vermiculite, gold, tungsten, tantalum, etc), she said it is unclear what the policy makers are demanding when they say “more value addition”.

However, government can learn from other countries that have put in place supportive strategies to increase the feasibility of additional in-country value addition.
These strategies, she indicated, range from government efforts to encourage exploration for certain minerals, conducting feasibility studies for different products that could be produced in the country, supporting human resource development programmes (e.g. university or vocational training), supporting infrastructure (e.g. energy, water) for different “value chains”, and providing fiscal incentives. Strategies are often very different for one mineral and product than for another mineral and product.
The vice chairperson of the Uganda Chamber of Mines, Richard Kaijuka, says whilst the argument of value addition is very rational, government needs to adopt “a more balanced approach towards supporting and ensuring the strategy.

“We have had interactions before on this matter but the decision-making process seems to be taking long,” Kaijuka, also former Energy minister, noted. “The policy pronouncement is very meaningful for the country but what we oppose is a total ban before taking into account conditions of the ground.”
He said from a very high vantage point, it is easy to conclude the President has not been briefed about the consequence of this decree—because it does not only affect investors but it also affects local capacity in form of jobs.

Ensuring value addition, Kaijuka said government has technical staff in the mineral sector and instead of the cross-cutting ban, they should instead sit down and revise mineral case by case.
“There are minerals like gold for which we will take even five years before we get a smelting plan so does it mean Uganda shall not export gold for all those years?”
The negative impacts of the ban, critics and some government officials said, has abetted mineral smuggling to record levels and the country is actually losing more.

The other misfortune is that mining investors are interested in different stages, say exploration, which takes an average of 5-10 years depending on the reserves and involves geologists, mining engineers and metallurgists; field development, which phase combines drilling and other processes, and mine operation. Different investors will invest into different phases but once a ban takes effect, it affects across.
The decree also affects small scale/artisanal miners (ASMs), who often use rudimentary technology to drill confirmed deposits and then sell to big and or even exporting miners. ASMs produce more than 90 per cent of metallic, industrial and building minerals, providing livelihoods to almost 200,000 mostly rural dwellers.

President has the final say
Several officials interviewed in the Energy ministry spoke in hushed tones and some requested not to be quoted for fear of being seen as making statements contradicting the word of the president. Nonetheless, they expressed disappointment with the ban, saying it was not well thought out.
Edward Kato, the commissioner at DGSM, the body in charge and actually issues mining licences, said his “hands are tied” by the status quo but for other explanations, he referred all queries to the president himself.

Alexander Kibandama, a manging partner at ENSafrica advocates, argued that it is understandable when bureaucrats in the Energy ministry elude conversation on the matter but in the likely event a time frame is not provided by government on when the decree will be lifted, what remains is to seek legal redress.
“Any decree of such magnitude has to be reinforced by a statutory instrument or a Cabinet resolution, which was not in this case that leaves room to challenge it in court,” Kibandama argued.

The 2001 Mining Act and Mineral policy of 2003, do not delve much into details on value addition, which explains the current problem.
But since the President was emphatic on value addition, the decree could remain in place until Uganda starts using its tungsten at local automobile manufacturing plants or until Uganda sees a smart phone making plant established.
Some countries, including Indonesia, have enforced a similar ban before but first made some concessions.

The Mining Sector
Uganda’s mining industry reached peak levels in the 1950s and 1960s, when the sector accounted for up to 30 per cent of Uganda’s export earnings. But with the persistent political and economic instability the country experienced in the 1970s and 80s and the recent global economic go-slow, led the sector to decline significantly. The energy sector’s contribution to total GDP was the lowest in 2009/2010, with a share of only 0.3 per cent and currently less than 5 per cent.

To establish a large scale mine by world standards, at least $5m (about Shs16b) to $100m (about Shs324b) is needed in the exploration process – from discovery to proving feasibility. However, due to a fall in commodity prices and a global economic downturn, exploration expenditure has plummeted by at least 30 per cent worldwide, with an additional 15 per cent to 20 per cent decline in exploration investment in Africa predicted in 2015 and beyond. An estimated 90 per cent of junior exploration companies that existed in 2010, are no more, hence there exists a very strong competition for this highly risk capital globally.

Over the last 10 years, the sector has been growing positively, with growth rates peaking 19.4 per cent in FY 2006/07. In FY 2009/2010, the sector grew by 12.8 per cent. In terms of licenses taken, in 1999, there were 66 licenses issued in the exploration and mining license categories combined. By the beginning of 2010, there was a total of 517 licenses issued.