Paladin (Africa) Limited says it is impossible for Malawi Government to increase its stake in the Kayelekera Uranium Mine venture and warned that any attempts to do so would be viewed as nationalisation.
Paladin (Africa) Limited general manager (international affairs) Greg Walker said in an e-mailed response on Tuesday that the Kayelekera Mine Development Agreement provides for a 10-year stability period to provide comfort to shareholders.
He said this was done due to Malawiâ€™s lack of track record in major investments in mining and to protect against the risk that government, in an untested jurisdiction, would seek to change the rules once a substantial investment had been made.
There have been increased calls from members of Parliament and activists for government to renegotiate the Kayelekera Mine deal and increase government stake up to 40 percent, arguing that Malawi is not benefitting from THE mining proceeds.
Said Walker: “People who claim that Malawi is not benefitting from Kayelekera Mine either are unaware of the benefits flowing into the country from the operation or do not fully appreciate the implications for Malawi of what they advocate.â€
Under the terms of the 2007 Development Agreement, in exchange for its carried 15 percent stake in Kayelekera, government reduced Paladinâ€™s corporate tax rate from 30 percent to 27.5 percent and removed 10 percent resource rent tax, which would apply to a high rate of profit.
Walker said for government to increase its stake to 40 percent, it would need about $125 million to purchase an additional 25 percent stake in the mine, but cautioned that it would face the same exposure to risk as the projectâ€™s current shareholders.
“Mining is a risky business. This was demonstrated by the Japanese earthquake in March last year with the subsequent suspension of Japanese nuclear power production. The spot price of uranium oxide dropped from $75/lb when the Kayelekera Project commenced to a low of $47.50/lb in the aftermath of Fukushima. The spot price is currently $49.50, this is below the direct cost of production at Kayelekera,” said Walker.
He said to support Kayelekera Mine, Paladin has injected $145 million into the local operation.
“Contrary to popular misconception, money is not flowing out of Malawi. It is still flowing in. Largely as a result of this situation in Malawi, the Paladin Group recorded a net loss of $137.7 million for the nine months ended 31 March 2012,” he said.
Minister of Energy and Mining Cassim Chilumpha, in an interview on Wednesday, said government is not keen on increasing its stakes in Kayelekera. He said government is moving away from running companies and leaving this to the private sector.
“If individuals and private companies want, they should raise the money and come to government and say we want to invest in Kayelekera Mine then that would make sense. If we raise such money, then we would invest it into health, public universities, agriculture and such other areas,” said Chilumpha.
He agreed that increasing stakes in Kayelekera would be like nationalising the entity.