By Duncan Miriri
KWALE, Kenya (Reuters) - Kenya's first ever large-scale mine, operated by Australia's Base Resources, is on track to start output in the third quarter of next year, potentially spurring further investment into the country's underdeveloped mining sector.
Output from the Kwale mineral sands mine at the coast, is expected to triple the country's mining export revenues and overtake coffee, which brings in about $200 million per year, as Kenya's fourth-largest source of hard currency.
"Kwale really represents that flagship mining project that Kenya's government needed to kick start the mining industry," said Tim Carstens, managing director of Base Resources.
The mine will produce 80,000 tonnes of rutile per year, or 14 percent of the world's supply, 330,000 tonnes of ilmenite and 40,000 tonnes of zircon, when it is fully operational.
Rutile, which is composed of titanium dioxide, is an important pigment for industrial, domestic and artistic applications. Zircon is mainly used in the ceramics industry, while ilmenite is related to titanium.
If the Kwale project is successful, the mining industry and Kenya's government hope it could prove to be a catalyst for further investment by foreign and local companies.
Authorities had concluded in the 1970s that the country did not have any mineral endowments, following the governments' geological surveys, opting to focus on farming, tourism, industries and financial services.
But investors have started to pay attention to the country's mining potential, driven by a global surge of commodities prices, which has sent miners into new frontiers.
The government has advertised for bidders to develop coal mines in the eastern province, where there are proven deposits, while African Barrick Gold in July said it was acquiring a licence to prospect for gold in western Kenya.
Carstens said there were opportunities to prospect for iron ore in the country.
Interest in the country's resources was enhanced in March when British oil explorer Tullow Oil announced significant oil finds in the northern county of Turkana.
Base Resources plans to start drawing down its $170 million debt facility with a syndicate of six lenders towards the end of this year, Carstens said, as part of the Kwale financing package.
The company raised a further $160 million from equity markets last year, deploying the cash into ongoing construction of an access road to the mine, a dam, a dedicated port facility and a 132 kv power line.
Carstens said the mine had already secured customers for its rutile, which will account for 51 percent of its revenue, and ilmenite, which will bring in 22 percent of revenue.
The price of ilmenite surged from around $100 per tonne at the start of 2011 to $300-$400 per tonne for delivery in the first half of 2012.
He added that Zircon, which is expected to rake in 27 percent of the firm's revenue, might be sold through a trading desk.
Base Resources has signed a deal with Dupont Titanium Technologies of the U.S. for the supply of rutile.
Carstens also warned any worsening of the global economic outlook could spoil the mining party for Kenya, especially if explorers and project developers are unable to raise funds for activities.
The Kwale project, which was first started in 2006 by Canada's Tiomin, ran into difficulties when financing for the project fell through.
An attempt to transfer the ownership to China's Jingchuan also failed, before Base Resources stepped in. Carstens said local capital participation was required to help the mining industry take off.
"Seeing a project like this successful will go a long way towards giving some of the existing funds in Kenya the confidence to look at some of the next generation of mining projects," he said.
(Editing by Drazen Jorgic and Keiron Henderson)