UPDATE 2-Kenya acts to get a bigger share of mineral resources

* Licenses issued Jan-May 2013 cancelled

* Minister says Kenya must benefit from mineral potential

* Miners say were not told of new measures

NAIROBI, Aug 5 (Reuters) - Kenya has unexpectedly increased royalties on minerals produced in the east African country and revoked certain mining licenses to get a bigger share of earnings from its mining sector.

The new measures, which came as a surprise to mining companies in the country, followed a sector-wide review and was aimed at ensuring east Africa’s biggest economy got a more favourable deal, Mining Secretary Najib Balala said.

Kenya has proven deposits of titanium, gold and coal. But the country’s mining sector is a relatively small contributor to national output although its revenues are expected to grow as new mines come onstream.

Kenya’s action follows measures in Tanzania, Africa’s fourth-largest gold producer, which passed new mining legislation in 2010 to raise royalty payments on gold exports to 4 percent of gross value from 3 percent of netback value.

The Tanzanian government has also said it would consider windfall taxes on mining companies if they reap huge profits from the commodities.

In Kenya, in addition to royalty increases, the government has revoked all mining licenses issued in the months before and after March’s elections.

Balala said he was cancelling prospecting and mining permits issued from Jan 14 to May 15 this year, a transition period when some ministers from the old government quit their positions and parliament was dissolved.

“We didn’t see that one coming,” said a senior official at Cortec Mining Kenya, a subsidiary of Canada-based minerals and metals firm Pacific Wildcat Resources, which is scouring the coastal region for niobium reserves.

The official, speaking on condition of anonymity as the company was still digesting the announcement, said Cortec had not received official word from the new government that its licenses were revoked.

“We followed all the legally required procedures that culminated in our being given these licenses,” he said. “I am confident whatever the reasons for the revocations, we are clean.” He said if his company’s license were revoked it could be recovered “without much struggle.”

Niobium is used to make alloys for jet engines and to strengthen steel.

Royalties on gold, of which Kenya is a relatively small producer, would increase to 5 percent of gross sales value from 2.5-3 percent, Balala said.

For rare earth, niobium and titanium ores, royalties would rise to 10 percent of gross sales value for from 3 percent previously. Royalty rates for other extracted minerals would vary between 1 percent and 12 percent.

Drilling charges have also been hiked by at least tenfold, a government document detailing new mining charges showed.

“We want to ensure the country gains from the mineral potential,” Balala told a news conference.

The Kenya Chamber of Mines said industry players had not been consulted before the declaration and the body was examining the regulations governing the sector.

Australia’s Base Resources, which owns a titanium mine that will be Kenya’s biggest when it starts production before the end of this year, declined to comment immediately.

Kenya has more than 300 local and foreign firms prospecting for minerals or producing on a small scale, up from less than 30 two years ago, according to the Chamber of Mines.

The new measures do not affect the oil and gas sector, where a number of discoveries have led to a scramble by oil firms keen for a piece of the action. London-listed Tullow Oil last week said a new drilling success confirmed the commercial value of Kenyan fields.