THE REPUBLIC OF UGANDA

STATEMENT BY THE MINISTER OF FINANCE TO

PARLIAMENT ON THE KILEMBE MINING
CONCESSION

BETWEEN

THE GOVERNMENT OF THE REPUBLIC OF UGANDA,

KILEMBE MINES LIMITED

AND

TIBET HIMA MINING COMPANY LIMITED

3 JULY 2017
 STATEMENT TO PARLIAMENT ON THE KILEMBE MINING CONCESSION

Rt. Hon. Speaker, on Wednesday 28 June 2017, the Leader of the Opposition
raised a matter of national importance with respect to the Mining Project at
Kilembe Mines, stating-

1) THAT Tibet Hima Mining Company Limited, the Company given the 25-year
Concession by Government in 2013, has defaulted on several obligations,
which include some of the following -

a) Failure to deposit a 15/o performance guarantee on commencement of the

Concession;

b) Failure to pay annual concession fees even after a (six) 6 month grace
period by Government;

c) Exploitation of the Kilembe Mines conceded assets from which the

Concessionaire is receiving revenue from electricity, the housing estates,
and a foundry.

2) THAT while thanking the Ministry of Finance, Planning & Economic

Development for issuing a Notice of Termination of the said Concession, the
investor continues to asset strip and is vandalizing the Mines in addition to
ferrying away several assets belonging to the Government.

3) THAT while the Project Coordination Committee has given the Concessionaire
two (2) more months, the Concessionaire will not be able to cure the defaults
and will continue to deplete the Mines including tampering with the River
Nyamwamba which might cause a flood.

4) THAT there are several allegations suggesting that Ministers are believed to
have helped Tibet Hima to get the Concession Agreement.

Rt. Hon. Speaker, we undertook to provide an update on the Kilembe Mines

Concession and to respond to the concerns raised by the House.

Statement to Parliament by MFPED on the KML Concession- 3 July 2017 Page 2 of 7

Background
1. Kilembe Mines Limited was incorporated in 1950 by a private company to
undertake commercial mining activities under license from the Government
of Uganda. KML started operations in 1956, operating a copper mine at
Kasese and a copper smelting plant at Jinja. In the mid-1970s, a global
financial crisis led to a collapse in commodity prices (including copper)
resulting in the 197 5 acquisition by Government of interests of private
owners in Kilembe Mines. Mining operations went on until 1982 when
copper production ceased due to lack of economic viability of the business.
Since 1982 when mining ceased, the plant operated on a care-and-
maintenance basis in anticipation that mining will resume at a future date
when global prices are more favourable.

2. Rt. Hon. Speaker, Global commodity prices eventually begun to recover and
the price of copper became attractive owing to the industrial boom in China
and India. Consequently the Government decided to redevelop Kilembe
Mines through private-sector led participation. Accordingly, it undertook a
due diligence investigation to evaluate the key impediments and divestiture
options for the revival.

3. Based on the findings thereof and subsequent stakeholder consultations,

Government divested Kilembe Mines by way of Public Private Partnership
(PPP), specifically a Concession.

Redevelopment of Kilembe Mines

4. In Government's efforts to re-develop Kilembe Mines, a detailed due
diligence investigation was carried out in 2009 to identify the key challenges
towards resuming mining operations and divestiture options to achieve the
same. Wide consultations were thereafter carried out and Government came
up with the following options: -

a) Sale of Government shares in the company to a private investor;

b) Joint-venture;
c) Public Private Partnership (PPP)/Concession.

Statement to Parliament by MFPED on the KML Concession- 3 July 2017 Page 3 of7
5. Rt. Hon. Speaker, after considering the relative merits of each option,
Government opted for a PPP I Concession mainly because it allows
Government to remain the owner of the assets and to maintain control of
the Mines as a strategic asset.

The Tender Process

6. Rt. Hon. Speaker, through the normal Government tender process and
based on Government's choice of a PPP I Concession for the re-development
of Kilembe Mines, nine (9) bidder submitted proposals in September 2012
from which three (3) were shortlisted to make final proposals to the
Government. According to the records, out of the three (3) shortlisted
bidders, a consortium led by Tibet-Hima Auto Industries Limited
presented the most competitive proposal and subsequently a Concession
Agreement was signed on 6 September 2013 with a special purpose vehicle,
Tibet Hima Mining Co Limited as required by law and the bidding
instructions.

Terms of the Concession Agreement

7. The Concession Agreement requires Tibet Hima to undertake the following-

a) Payment of an upfront signature fee of USD 4,030,000 (United States

Dollars Four Million and Thirty Thousand) to Government;

b) Payment of an annual concession fee of USD 1,005,000 (United States

Dollars One Million and Five Thousand) on each anniversary of the
Concession Agreement commencement;

c) Investment of US$ 175,000,000 (United States Dollars One Hundred and

Seventy Five Million) for phase I (first 3 years) of the project, focusing
on commercializing the estimated 4.5 million tonnes of ore as well as the
enhancement of the reserve potential in the area.

d) Carry out exploration studies to expand the reserve base;

Statement to Parliament by MFPED on the KML Concession - 3 July 2017 Page 4 of 7

 e) Rehabilitate Mobuku 1 Hydropower Station and expand its capacity
from current SMW to 17 .6MW for a self-reliant renewable energy
scheme sufficient for the entire Kilembe Project;

f) Introduce modern, environment-friendly mining and processing

technology capable of achieving 99/o copper concentration;

g) Spur growth in the local economy through payment of royalties, taxes

and direct and indirect Employment; and

h) Invest in downstream value addition (copper wire factory planned as

well as industrial park).

Issuance of Notice of Default by Government

8. Rt. Hon. Speaker, the majority of the above undertakings were not met by
the Concessionaire. Hence on 28 December 2015, the Hon. Minister of
Finance, Planning & Economic Development issued a Notice of Default to
Tibet for failure to -

a) Pay the Annual Concession Fees US$ 1,005,000 (United States Dollars
One Million and Five Thousand) by 26 November 2015;

b) Provide Government with a written undertaking from all consortium

partners by 26 November 20 14;

c) Provide an Exploration Guarantee by 1 July 20 14;

d) Submit a feasibility study for development and construction of a copper

smelting by 26 November 2015; and

e) Submit a feasibility study for a project to process the tailings into cobalt.

9. Rt. Hon. Speaker, the House may need to note that following the issuance of
the Default Notice, Government granted the Concessionaire more time to
cure the said defaults but which they failed to do, hence issuance of the
Termination Notice as provided under the Concession Agreement.

Statement to Parliament by MFPED on the KML Concession- 3 July 2017 Page 5 of 7

Issuance of Termination Notice
10. Due to the failure by Tibet Hima to comply with the indulgences granted
by Government, a Notice of Termination was served on and received by
Tibet Hima Mining on 5 May 2017.

11. The Concession Agreement requires Government and the Concessionaire to

set up a five-person Winding-up Commission. Two (2) of the Commission
m em hers are appointed by the Concessionaire whereas Government
appoints two (2) representatives together with the Chairperson who must be
a member of an internationally recognized accounting or law firm selected
by Government and reasonably acceptable to the Concessionaire.

12. The Concessionaire is required to present to the Commission within 30

(thirty) days of its establishment, a summary report, and within 60 (sixty)
days of its establishment a detailed report on the status of operations as of
the date of termination in order for the Commission to be able to make
recommendations to Government as to whether the Commission and the
Concessionaire should seek to transfer the assets and operations of the
Concessionaire to a third party, or to establish plans for curtailment or full
cessation of operations including disposition of assets and their demolition
or removal and the restoration of the areas environmentally adversely
affected by operations.

13. After issuance of the Termination Notice, Government appointed its two (2)
representatives to the Winding-Up Commission and the Chairperson.
Because the Concessionaire did not concur on the Chairperson nominated
by Government, another Chairperson (Mr. Noah Mwesigwa) was appointed
which necessitated the revocation of the first Termination Notice to ensure
compliance with the Concession Agreement, and prevent unnecessary
lawsuits. Government has appointed Ms. Agnes Alaba from the Ministry of
Energy & Mineral & Development and Ms. Joselynn Ategeka from the
Ministry of Finance, Planning & Economic Development, whereas the
Concessionaire has appointed Mr. Li Wei Guo and Mr. Bi Lei.

Statement to Parliament by MFPED on the KML Concession- 3 July 2017 Page 6 of 7



14. I have tasked Kilembe Mines Limited that is on site to be more vigilant in
their supervision of Tibet Hima, and to ensure that any suspected asset
stripping is prevented within the confines of the law and the Concession
Agreement.

15. Rt. Hon. Speaker, I invite the House to note that under the Concession
Agreement, Kilembe Mines Limited was required to transfer its Mining
Lease, Exploration Licence and Electricity Licence to Tibet Hima, in order for
the Concessionaire to take possession of the Conceded Assets and thereby
embark on fulfillment of the required obligations. Tibet Hima therefore has
legal rights granted under the licenses which explains why they have
continued to receive revenue from sale of electricity arising from the Power
Purchase Agreement they have with Uganda Electricity Transmission
Company Limited. When the Concession is terminated lawfully under the
provisions of the Agreement, all licences will be automatically revoked and
will revert back to Government.

16. Several allegations have come up suggesting that there may have been
some corrupt practices involving a number of individuals that unfairly
influenced the final award of the Concession to Tibet Hima. The Minister
of Finance, Planning & Economic Development has requested the IGG to
urgently investigate whether there were any corrupt actions attributable
to any individual who participated in this Concession before and after it
was awarded to Tibet Hima Mining Co. Limited, and to take appropriate
action. I beg to lay on the Floor the Minister's letter to the IGG dated and
received on 3 July 2017.

Rt. Hon. Speaker, I invite the House to note that Government is firmly on top
of this matter and is still committed to ensure the re-development of Kilembe
Mines for the betterment of the people of KasesefKilembe and Uganda at
large. I do hereby lay this Statement on the Table.

MINISTER OF FINANCE, PLANNING & ECONOMIC DEVELOPMENT

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