* Minister says bill conforms to best practice
* Kenya unexpectedly raised royalties and revoked licences in August
* Frequent legal changes a deterrent to investors in nascent sector (Adds details and context)
By George Obulutsa
NAIROBI, Oct 17 (Reuters) - Kenya plans to claim a 10 percent stake in large mining concessions under a new bill intended to give the state a greater share in profits from the sector, Mining Cabinet Secretary Najib Balala said on Thursday.
Successive governments have had little success in trying to develop Kenya’s mining potential, with foreign exploration companies discouraged by poor infrastructure and an outdated legal framework.
The government that came to power early this year has tried to help matters with a new ministry and legal changes, but has at the same time made clear it wants a bigger slice of revenues to help ease pressure on the state budget.
“The bill ... envisages there will be a 10 percent free carrying interest on all larger mining concessions. And this will be held by government through the national mining corporation,” Balala told a mining conference in Nairobi.
“Free carrying interest” means the government does not expect to pay for the stakes.
“We are not going to be destructive,” Balala said. “We have gone to the best practice, and we have seen 10 percent free carrying interest on the large mining companies, and also on strategic minerals.”
Kenya has proven deposits of titanium, gold and coal and is also estimated to hold significant deposits of copper, niobium, manganese and rare earth minerals.
President Uhuru Kenyatta created the Mining Ministry this year to give the sector more prominence and try to diversify an economy reliant mainly on tourism and agriculture.
The Chamber of Mines says there are more than 300 local and foreign firms prospecting for minerals or producing on a small scale, up from fewer than 30 two years ago.
But analysts say the frequent legal changes have unnerved foreign mining companies.
In August, Kenya unexpectedly increased royalties on a range of minerals and revoked some mining licences issued between January and May, in the period before and after national elections.
Last year it passed a law requiring mining firms to have a 35 percent local shareholding, prompting foreign investors to warn that it could drive them off. In June, the new government promised to repeal the law.
“This extreme policy-making volatility has discouraged investors and is a serious disincentive to global mining companies,” said Aly Khan Satchu, a Nairobi-based analyst who was at the conference where Balala spoke.
Balala said the cabinet would discuss the new bill when it meets next Thursday. He said licence holders would be given a definition in due course of what constitutes a ‘large concession’.
The Mining Ministry expects to have communicated by end of November with all those affected by licence cancellations, and to start reissuing those licences before the end of the year, he said.
Balala said the new law would also lay out details on how mining revenues will be shared between the national and county governments, and also make applying for mining licences more transparent.
This month, Australia’s Base Resources started operations at a long-delayed $305-million titanium mine intended to be the flagship of Kenya’s mining expansion.
A subsidiary of Canada’s Pacific Wildcat Resources is scouring the coastal region for niobium, which is used to make alloys for jet engines and to strengthen steel.
The bill does not affect Kenya’s rapidly-growing oil and gas sector, which is subject to a separate set of laws.
Balala said Kenya also wants to encourage mining companies to list on the Nairobi Securities Exchange. (Reporting by George Obulutsa; Editing by Drazen Jorgic and Kevin Liffey)