Kenya’s gold miners miss the gravy train

Western Kenya’s gold brokers have raked in millions of shillings in the past 20 months helped by a record rise in international prices that have been linked to mass flight of investors from a turbulent currencies market.

International gold prices hit a record high of $1,320 an ounce last Friday having risen 47 per cent since January 2009.

It has, however, become clear that all the gains from higher pricing are accruing to the middlemen with little impact on the fortunes of thousands of Kenya’s small-scale miners.

Increased profitability of gold brokerage is confirmed by the recent increase in the number of dealers in the supply chain from three to five in a span of 18 months.

This stagnation in the gains accruing to upstream operators has however not dampened the enthusiasm of international prospectors who have intensified their search for the commodity in Kenya in the hope of striking it rich.

Data from the mines and geology department indicates that more than 10 foreign mining companies are currently working in Kenya, pushing the country on the brink of a mining surge that could boost its agriculture-based economy, which suffers turbulence from irregular rains.

“The rally in gold prices is simply news to us. Middle men are buying a gram of gold at about Sh2,100, almost the same price as early 2009,” says Odhiambo Opiyo, an official of Lakeside Mining Cooperative Society — a lobby for miners based in Migori.

“The exporters are selling the same gram at more than Sh15,000,” he said describing the margins as unacceptable.

Kenya’s gold is mainly bought from the miners by Nairobi and Mombasa-based jewellers who are licensed by the mines and geology department —making them the biggest beneficiaries of the Sh2.3 billion that the country earned last year from sale of gold. Kenya earned Sh593 million from gold exports in 2008 — reflecting a four-fold growth last year.

But a look at the western economy, particularly Migori and Transmara districts that account for a huge fraction of the output, depicts a different picture.

The twin districts rely heavily on the underperforming tobacco and sugar farming, and are ranked among the poorest in the country.

Nearly half of residents in the twin districts live below the poverty line compared to the national average of 46 per cent, according to the Kenya National Bureau of Statistics.

Miners say the disconnect between the lucrative international gold prices and the plight of the locals is the product of the firm grip that middle men have over the business.

“Exploitation by middlemen is to blame for the high poverty levels,” said Mr Opiyo.

The latest rally in gold prices is driven by growing demand for the commodity from emerging economies, particularly in Asia, and the weakening of the dollar that has nudged up demand as currency market investors look to gold as an attractive investment home and a hedge against inflation.

Analysts led by Merrill Lynch reckon that gold prices could hit $1,500 an ounce within the next three months on increased demand.

This outlook is spurring investor interest in mining, notably in Western Kenya, as listed multinationals scramble a share of the pie.

Goldplat, a listed firm at the London Stock Exchange (LSE) and Toronto, listed as Kansai Mining Corporation are planning to roll out mining plans in Kenya as soon as they get commercial licenses.

Kenya is yet to issue a commercial mining license and the bulk of the gold trading is from artisanal mining where miners use bare hands to tap the commodity.

Aviva Corporation—which is listed in the Australian Stock Exchange—is the latest multinational to join the gold rush.

This year the mines and geology department is projecting that the commodity will earn the country more than Sh3 billion in increased mining activity and the high prices.

The geology department says that Kenya has three companies licensed to export the precious metal and about eight local dealers set up to feed the exporters from the mines.

But given the secrecy of gold trading in Kenya, a huge chunk of the dealers are unregistered and their trade in the precious metal is not captured by official data.   

This suggests that the government is also losing big in terms of royalties and lost foreign exchange earnings.