Peter Koven
Wednesday, Jun. 15, 2016
On May 5, Pacific Wildcat filed all its evidence in Washington for the US$2.1-billion arbitration case against Kenya. Later that day, Jacob Juma, a director from its Kenyan unit, was shot dead in Nairobi. Handout
U.S. President Barack Obama made a frank declaration when he travelled to Kenya last summer that corruption in his ancestral homeland was rampant and needed to stop.
“It’s important that not only low-level corruption is punished, but folks at the top, if they are taking from the people, that has to be addressed as well,” he said in a rousing speech in Nairobi.
But the recent crisis at Pacific Wildcat Resources Corp., a small Canadian company, suggests conditions haven’t changed enough.
In 2013, the company’s licence for its Mrima Hill niobium project was cancelled by the government under suspicious circumstances, prompting cries of corruption and an international arbitration case being launched against Kenya. But all that turned out to be a precursor to something much worse.
On May 5, Pacific Wildcat filed all its evidence in Washington for the US$2.1-billion arbitration case. Later that day, a director from its Kenyan unit was shot dead in Nairobi.
The murder of Jacob Juma, a high-profile Kenyan businessmen with interests in many industries, shocked the nation. The 45-year-old was an outspoken critic of President Uhuru Kenyatta’s government, frequently accusing it of corruption. No charges have been laid yet, and as details have trickled out, there have been more questions than answers.
The Pacific Wildcat case highlights the serious risk that resource companies take on in volatile emerging markets, particularly countries such as Kenya that have a limited history of large-scale mining. While this is an extreme example of what can go wrong, Canadian miners have fought arbitration battles in many other countries in recent years, including Venezuela, Mongolia and Ecuador.
The Kenyan government has taken control of the Mrima Hill asset with stated plans to develop the mine through a state-controlled mining company. For their own safety, Pacific Wildcat insiders have no intention of returning to Kenya. Their main hope to recover value is through arbitration.
“The licence has lost all value to us,” said David Anderson, a Pacific Wildcat director and head of its Kenyan unit. “It might have value to the Chinese or Russians.”
Like other miners in this situation, Pacific Wildcat flew under the radar until it discovered something big. Then it started running into opposition.
The company, which is based in Vancouver but has executives across the globe, started work in Kenya in 2007 and quickly identified Mrima Hill as a prime exploration target.
Pacific Wildcat began an aggressive drilling campaign and eventually proved up a resource of 1.5 billion pounds of niobium, one of the largest of its kind in the world. The deposit also holds significant quantities of rare earth metals.
The company applied for a mining licence, which was awarded in March 2013. A few weeks later, Pacific Wildcat representatives met with Kenyatta, the newly elected president. Kenyatta had his picture taken with his guests and posted it on Facebook, accompanied by a note saying he would “encourage growth” of Kenya’s mining sector.
The trouble started in May, when a man named Najib Balala was appointed cabinet secretary of mining. He quickly started making noises about nationalization, suggesting Kenya was not getting enough from its mineral resources.
Juma stepped in to try to address the situation. The businessman had only just teamed up with Pacific Wildcat, having convinced the board that he could help the company get through some of the inevitable bureaucratic delays in Kenya. This was going to be his first big challenge.
Juma was summoned to a meeting at Balala’s house in July, and what happened next is heavily disputed. By Juma’s account, the politician demanded a bribe of 80 million Kenyan shillings (about $1.04 million) or else the Mrima Hill licence would be cancelled. Pacific Wildcat executives were stunned, according to Anderson.
Later that month, the company hosted a press conference after it received a key environmental approval for Mrima Hill. Balala no-showed the event, but Anderson said that Moses Masibo, Kenya’s commissioner of mines at the time, pulled him aside to say the minister wanted to renegotiate the licence.
Pacific Wildcat’s board flat out refused to renegotiate. A few weeks later, its licence was indeed cancelled, along with dozens of others.
The cancellation was officially announced on Twitter, according to the company. The resulting international arbitration case is believed to be the first to revolve around a Tweet.
Balala said he cancelled the licences because they were awarded during a transitional period in government, and he wanted to crack down on “briefcase” companies that did not invest in Kenya.
Juma was livid by what happened. Never one to shy away from scandal, he decided to call a press conference and publicly accused Balala of demanding the bribe. Masibo appeared at the meeting and supported the allegation. Juma also testified about it in Kenyan court. Predictably, it triggered an uproar in parliament, though Balala denied any wrongdoing.
Shortly after the cancellation, Pacific Wildcat let go its entire Kenyan staff apart from the general manager and a few employees. Anderson said the general manager, a South African named Deon Alberts, started to experience intimidation from local police and immigration officials and later left the country for his own safety.
“We abandoned everything. We abandoned vehicles, all our records, workshops and tools. Everything,” Anderson said.
He noted that even the logged drill samples were left behind, meaning Pacific Wildcat has essentially “drawn the treasure map” for Mrima Hill.
About a year after the cancellation, Anderson met with Balala and deputy president Ruto to try to resolve the crisis. To his shock, he said they demanded that the Mrima Hill licence be transferred to a new company, and that the government wanted to get up to half the project for free.
The company ultimately decided there was no way to get its licence back on reasonable terms, and launched the arbitration case last year. The company is seeking at least US$2.1 billion in compensation.
Juma continued to accuse the government of corruption right up to his death. He was particularly critical of deputy president William Ruto, who was facing murder and persecution allegations from the International Criminal Court until multiple witnesses recanted their statements.
Anderson said the businessman became increasingly concerned about his personal security in the weeks before he died. Indeed, Juma often said he expected attempts would be taken on his life, which unfortunately came true.
“Jacob had told us on a number of occasions how he was under threat of being murdered,” Kenyan Senator Boy Juma Boy said in a eulogy at his funeral, which was attended by thousands of people. “He also indicated that he knew who (would kill him). Little did we know how true these threats would become.”
Juma was found dead in his car. But an autopsy suggested that his bullet wounds were not consistent with being shot in the driver’s seat, according to reports, and guards at a construction site near the crime scene claim they never heard gunshots. Opposition politicians have alleged a coverup by police.
Pacific Wildcat is not the only Canadian company in Kenya to lose its assets under mysterious circumstances. The same thing happened to Vanoil Energy Ltd. in 2013, and that case is also in arbitration.
International arbitration is a long and costly process, but it is enforceable and can lead to big payouts for companies whose assets have been expropriated in foreign countries.
Canadian mining companies are in the midst of a big winning streak in arbitration: Gold Reserve Inc., Crystallex International Corp. and Copper Mesa Mining Corp. have all won awards in recent months. Khan Resources Inc. received a US$70-million payment from Mongolia last month after winning an arbitration decision in 2015.
In the meantime, however, the Pacific Wildcat situation is not helping Kenya attract more mining investment. In the Fraser Institute’s latest rankings of mining jurisdictions by investment attractiveness, Kenya ranked second worst in Africa (after Guinea) and eighth worst overall.
Clare Allenson, an analyst at the Eurasia Group, said that since mining is a nascent sector in Kenya without a lot of well-defined laws, it has been impacted by corruption far more than the broader economy.
“Because of that uncertain regulatory and legal environment, it’s seen as more of an opportunity by those who are interested in making extra money,” she said.
It could take years to resolve Pacific Wildcat’s arbitration hearing. But in Kenya, the Juma assassination and subsequent controversy has left much broader and more serious concerns for its citizens and foreign companies alike to contemplate.
Posted in: Mining Tags: International Arbitration, Kenya, Pacific Wildcat Resources Corp.
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