Government regrets Kayelekera closure
Malawi Minister of Mining John Bande on Sunday said government regrets the decision by Paladin Energy Limited to suspend production at its Kayelekera Uranium Mine (KUM) on Friday.
But Bande has said government understands that the suspension of production at Malawi’s largest mining investment is a business decision emanating from the tumbling uranium oxide prices on the global market.
In a statement issued by the company’s managing director, John Borshoff, Paladin advised that it is suspending production at KUM and that the suspension will involve placing the operation on care and maintenance until the price of uranium recovers.
This decision, according to the company, will preserve the remaining ore body until a sustained price recovery occurs and Paladin determines that production may be resumed on a profitable basis.
But Bande, while thanking Paladin for investing in the country, said the decision by Paladin will likely see some Malawians being rendered jobless.
“It is true that they [Paladin Africa] wrote to inform us on their decision. But as government it’s regrettable as some people will lose jobs,” said Bande.
Borshoff said two factors have necessitated the suspension of production at Kayelekera, namely the continuing depressed price for uranium oxide, which has been severely negatively impacted since March 2011 following the nuclear reactor damage caused by the Fukushima earthquake and tsunami in Japan and the unsustainable cash demand to maintain the loss-making operation at the mine.
Borshoff said while mining operations at Kum are being suspended, processing of ore will continue during a transitional rundown phase until reagents and consumables on site have been depleted and the production circuit has been emptied and cleaned.
He said Paladin is committed to maintaining the mine and infrastructure to facilitate a rapid resumption of production when market conditions dictate.
Borshoff said Paladin will retain some 194 Malawi nationals and 27 expatriate staff to maintain the site, including staff to strengthen physical security measures at the operation.
“In appreciation of their endeavours to drive down costs and improve efficiency, retrenched national employees will receive generous redundancy packages that exceed Malawi’s minimum legal requirements. Based on length of service, allowances and entitlements and an ex-gratia payment, the average payout for national employees will be the equivalent of 10.7 months’ salary,” he said.
The Malawi Government granted Paladin mining licence in April 2007 for a period of 15 years following the signing of a Development Agreement (DA) and construction commenced in June 2007 and was completed in April 2009.
This decision is unfortunate but entirely understandable. On the London Metal Market Uranium prices (U3o8) has dropped down to $35.50 per pound (lb) from the highs of $73/lb in 2011 (51% drop). The KUM mine cost benefit analysis assumed price of around $55/lb, say. Painful as it might be, this is good for Malawi so its mineral ores are not extracted at a give away prices to the world. Therefore, Paladin must be applauded for this brave move. The economics of this decision is easy to see. Suspending the production will reduce uranium supply on the world market e.g. London Metal market which in turn will drive up prices at a given demand level. The dynamics of supply and demand on prices. So well done Paladin!
The lesson is for the Malawi economy to diversify away from over reliance on trade in commodities!!
I read elsewhere that Paladin will not restart operation until the price goes to $75/lb. I suspect that it will be a long time before it reaches that, which is higher than it best ever which you quote.
It is an unfortunate development and hope the metal market prices will decrease enabling the operation of such mines.
Whatever the case, they should clean up the area completely before they leave and government should call in independent experts to certify that its been cleaned up.