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.
