Mozambique Mining Project Delivers More than Minerals

Mozambique Mining Project Delivers More than Minerals

October 17, 2011—At a MIGA-sponsored conference in February 2011, the Honorable Luisa Diogo, former Prime Minister of Mozambique, discussed her country’s remarkable journey from a devastating 16-year conflict to a dynamic market economy. She noted that careful attention to the quality of foreign investment it attracted was one the key reasons Mozambique experienced annual GDP expansion of over 7 percent from 2004 to 2010. MIGA has supported many of the early-movers into Mozambique’s post-conflict economy. Since 1998, the agency has supported 12 projects in the country, including the MOZAL aluminum smelter project, the Sasol gas project, and the Marromeu sugar project.  Another early entrant into post-war Mozambique was mining and exploration company Kenmare Resources of Ireland. The company established the Moma Titanium Minerals Mine in Nampula Province—one of the poorest regions in the country, but also home to one of the world’s largest known titanium minerals deposits.

Given Mozambique’s recent history of conflict and little to no experience with foreign direct investment (FDI), Kenmare Resources plc and lender Kreditanstalt für Wiederaufbau (KfW) of Germany turned to MIGA for political risk cover. In 2003, MIGA issued guarantees covering their respective equity investment and shareholder loan to the project. The project involves the development of a titanium feedstock based on the dredge mining of a large heavy mineral sands deposit. Operational since April 2007, the mine is producing ilmenite, rutile, and zircon. Ilmenite and rutile are primarily used as feedstock to produce titanium dioxide pigment—used in paints, paper, and plastic production. Zircon is typically used in ceramic tile production and for heat-resistant ceramic products used in the steel and foundry industries.

"This project would not have been built without the support it received from international financial institutions. It was a good and commercially sound project, but even when we completed the full feasibility study in 2001 Mozambique wasn’t quite ready to attract international commercial financing", said Tony McCluskey, Kenmare’s Financial Director.  "I don’t believe that we would have been able to secure the KfW loan without MIGA’s support." Other development institutions participating in the debt financing included the European Investment Bank, African Development Bank, and FMO (a Dutch development finance institution). All institutions, including MIGA, coordinate due diligence and monitoring efforts in order to improve the efficiency of the process.

The project is operating successfully from a commercial standpoint. Global demand for zircon and titanium feedstock is strong, and an expansion is underway that will increase capacity by 50 percent by 2013. But one of the most notable aspects of the project is its commitment to the local community.

As McCluskey puts it: "We have a responsibility that extends to all members of the surrounding community—not just the employees of the mine." To help serve the local community effectively, Kenmare established a separate organization in 2004: the Kenmare Moma Development Association (KMAD). This independent not-for-profit development organization supports and contributes to the development of the communities close to the mine, assisting community members to improve their livelihoods and wellbeing. "These communities are generally extremely poor and disadvantaged, with the majority of the population engaged in subsistence farming and fishing," notes McCluskey

Some of the projects being implemented by KMAD include egg production, sewing, and savings and credit. For example, the egg production project initially included six chicken houses in nearby Mtitikoma that are producing eggs to supply to the mine. The egg farmers have increased production so that in addition to supplying the mine, the farmers are now able to sell surplus eggs in the local markets. KMAD has also provided business training to farmers who now operate independently in terms of sourcing materials and marketing their produce. This project is one of a number of capacity-building projects partially-funded by FMO of the Netherlands.

A key initiative for KMAD is malaria prevention. McCluskey notes, "Malaria is the single key health concern for this community." With financial support from MIGA’s Environmental and Social Challenges Fund for Africa, which is funded by the Government of Japan, KMAD was able to hire the Malaria Consortium, a leading organization dedicated to the control of malaria, to develop an action plan. The roll-out, now underway, includes community education, distribution of bed nets, and a regional spraying plan.

These efforts have not gone unrecognized. In September 2009, Kenmare Resources plc received the President’s Award for the Best International CSR Program from the Chambers of Commerce of Ireland, in association with the Irish Government Department of Community Affairs. The company was praised for "its commitment and efforts to develop the communities in which it works." In October 2009, KMAD’s work was again recognized with the Nedbank Capital Green Mining Award from a panel of independent and expert adjudicators. Nedbank particularly praised the fact that KMAD’s development work began before mining commenced, that it has an overall strategic vision and a ‘bottom up’ approach, as well as close partnerships with international and local non-governmental organizations and government bodies.

McCluskey notes the contribution that MIGA made in helping the company meet these milestones. "Working with visiting MIGA environmental and social teams has been very useful.  MIGA was here before we even started operations so we were able to build solid environmental and social management measures into the project from the very beginning."

With the planned expansion well underway, Kenmare is feeling upbeat. "We’ve had an excellent relationship with the government of Mozambique," says McCluskey. "Given the remote location of the project, we had to invest an enormous amount in surrounding infrastructure, which has helped the more remote communities share in the country’s progress."