Our Comment on the New Kayelekera deal

The sale by Paladin of Kayelekera to Hylea Metals may be good news for the mining industry in Malawi. Paladin hasn’t given any impression it has plans for Kayelekera other than waiting for prices of uranium to hit US$60. It is now around US$24, an improvement over the rock bottom prices following the Japanese nuclear power plant disaster.  Paladin’s focus has been on restarting its flagship Langer Heinrich uranium asset in Namibia. Selling Kayelekera, will,  according to Paladin CEO Scott Sullivan, release cash resources which will allow the company to concentrate on Langer Heinrich.

Hylea Managing Director Simon Andrew said the acquisition was an "excellent" opportunity for the company: “Kayelekera is a world-class uranium asset … and represents an opportunity to use the past production information to re-engineer certain mining and processing processes to reduce the overall Capex and Opex of the operations," he said. "We are optimistic about the global uranium market and the outlook for firmer pricing.

We have heard from Hylea and Paladin but virtually nothing from the government. The government should use this opportunity to renegotiate the deal, especially around royalties and tax holidays.

What Kayelekera needs now is to lower its unit costs which make mining profitable only at US60 when other operators are profitable at $40, Some of the costs can be reduced by connecting the mine to the national electricity grid. However,  some of the costs have to do with a strange model used by Paladin to rely on very expensive expatriates who were flown up and down from Namibia.. In the new negotiation with the government, the government should insist that its support on infrastructure will be contingent on a serious programme of training local and recruiting and training local engineers.

Other questions need to answer. For what will Paladin be receiving a 3.5 per cent royalty? It does not own the “land”. Moreover, Paladin had argued against such royalty would make the mining unprofitable. The royalty should go to the Malawi government.