Paladin did not “dupe” Malawian government over suspension of production at Kayelekera uranium mine

Paladin Energy

At the beginning of February, operations at Malawi’s largest mine were suspended. Paladin Africa Ltd was accused a month later by the Catholic Commission for Justice and Peace (CCJP) of disregarding Malawi’s mining legislation in the suspension of Kayelekera uranium mine, as reported by The Nation (“Paladin dupes Malawi govt: Disregards mines law” (Wisdom Chimgwede, 8 March 2014))

The Nation‘s article suggested that Paladin “duped” the Government of Malawi by not providing appropriate notification to the government regarding Paladin Africa Board’s decision to suspend production on 7 February 2014 (covered by Face of Malawi here and copied by Malawi Today here). The Nation reported

According to the Mines and Minerals Act Section 46, Paladin or any other mining licence holder, cannot suspend mining without a six-month prior notice to the Commissioner of Mines.

Further, the law says mining cannot be curtailed without a 12-month notice to government.

CCJP National Secretary Chris Chisoni seems to agree with The Nation over the alleged flouting of Malawian law,

This means they [Paladin Africa Ltd] have breached the law of the land and as such Malawi Government is supposed to put in punitive measures. Moreover, mining at such large scale is just developing in Malawi and if we allow companies to be such arrogant, then it won’t work for this country and it won’t bring any real value why we embark on extracting our natural resources.

This report and statement appear to be misleading.

The decision to suspend production at Kayelekera mine was resolved by the board of Paladin Africa on the morning of 7 February 2014. On the same morning, at 10:30, formal written notification was hand-delivered to the Commission of Mines, in line with Section 14.1 of the Mining Development Agreement and Section 46(2) of the Minerals and Mines Act 1981.

The relevant section of Paladin’s notification to the Commissioner of Mines reads:

 “Dear Commissioner

SECTION 46(2) NOTICE – SUSPENSION OF PRODUCTION

As you will be aware, Paladin (Africa) Limited (PAL or the Company) is the registered holder of Mining Licence 152 and owner and operator of the Kayelekera Mine (KM), located in the Karonga Region of northern Malawi.

We refer to clause 14.1 of the Development Agreement (Development Agreement), dated 22 February 2007 between the Government of the Republic of Malawi (GoM), the Company and Paladin Energy Minerals NL.  Clause 14.1 provides that, subject to the succeeding provisions of clause 14, the Company’s right to suspend production is governed by section 46 of the Mines and Minerals Act (1981) (Cap. 61:01 of the Laws of Malawi) (Mines Act). Section 46(2) of the Mines Act provides: ‘Where, for any reason beyond his control, the holder of a mining licence ceases, suspends or curtails production from a mine in the mining area concerned he shall, within fourteen days after the cessation, suspension or curtailment, give notice thereof to the Commissioner.’

Pursuant to section 46(2) of the Mines Act and for all other purposes under the Act, PAL hereby notifies the Commissioner that the Board of Directors of PAL met in Lilongwe today and resolved to suspend the Company’s Operations at KM until further notice, for reasons beyond the Company’s control, as more fully set out in the Company’s public announcement, attached hereto for your information.”

Greg Walker, General Manager of International Affairs, Paladin Energy, explained in an email

It should be noted that the report of The Nation newspaper omitted any reference to Section 46 (2) of the Act. You will note that Section 46 (2) makes provision for suspension for “any reason beyond …(the) …control” of a holder of a mining licence.

The company’s decision to suspend production was based on two factors that it describes in the aforementioned letter as “beyond the Company’s control”

1. 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; and

2. The unsustainable cash demand to maintain the loss-making Operation at KM [Kayelekera Mine].

The high cost of electricity has been a significant factor in this decision. Kayelekera mine has been run on generators reliant on imported diesel. Estimates provided by Walker suggest that if the mine had been connect to the national power distribution grid (Electricity Supply Corporation of Malawi, ESCOM), the cost per kilowatt hour would have reduced to USD 10 to 12 cents (from USD 40 cents/kWh). However, the announcement makes it clear that even if grid power was available at this time, it would be ineffectual in achieving profitability due to continued fall of uranium oxide prices,

The company also provided formal notification to:

  • the Executive Director of the Atomic Energy Regulatory Authority, pursuant to section 62(3) (a) of the Atomic Energy Act 2011, and
  • the Commissioner for Labour as the competent authority pursuant to Article 14 of the International Labour Organization Termination of Employment Convention 1982 (No 158), 

and informed

  • the Finance Minister Maxwell Mkwezalamba at a meeting in the afternoon of 7 February 2014,
  • the President Joyce Banda at a meeting at Sanjika Palace in the evening of 7 February 2014, which was attended by Minister of Mining John Bande, and
  • key stakeholders in Lilongwe and Karonga, including the Karonga District Commissioner, Paramount Chief Kyungu, government officials, suppliers, NGOs and Diplomatic Heads of Mission by hand-delivered letters.

The day after Paladin’s announcement, Brown Mpinganjira, government spokesperson explained that the company was not wrong to suspend production at the mine. While the “government regrets mine closure“, Minister of Mining Bande indicated that the government understands the suspension of production was “a business decision emanating from the tumbling uranium oxide prices on the global market” although a regrettable decision.

Paladin has also disputed reports suggesting that the suspension is because uranium has been exhausted at the mine. Zodiak reported (17 March 2014)

Greg Walker, Paladin Africa, country manager said in an interview there is still a five year mineral reserves at the mine.

“We have said publicly that there are some three to five reserves at the Kayerekera. We are in a rundown phase, that means we will continue producing uranium for another month or so,” said Walker.

“Kayerekera is not shutting down, clearing and maintenance does not mean closure. It means that the mine is suspending production until such time that it can resume profitably.”

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2 responses to “Paladin did not “dupe” Malawian government over suspension of production at Kayelekera uranium mine

  1. Pingback: Publication: Malawi Economic Monitor – Managing Fiscal Pressures (World Bank) | Mining in Malawi·

  2. Pingback: Mining contributes less that 1% to Malawi’s GDP – Government of Malawi Annual Economic Report 2015 | Mining in Malawi·

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