Malawi’s Kayelekera Mine needs uranium price to more than double before production can restart

Kayelekera uranium mine is the biggest mining project in Malawi’s history and began production in 2009. In 2013, revenues from the mine contributed 2.6% to Gross Domestic Product. Yet production at Kayelekera was suspended as a result of the crash in uranium prices following the Fukushima nuclear accident.

The mine is operated by Paladin Africa Limited, a subsidiary of ASX- and TSX-listed Paladin Energy Limited. Paladin Energy acquired exploration rights in 1998 although initial exploration at this site commenced as early as 1982 by the Central Electricity Generating Board of Great Britain. The Government of Malawi has a 15% free equity stake in Paladin Africa.

In 2014, production at Kayelekera was suspended as a result of the crash in uranium prices following the Fukushima nuclear accident and the mine is now under care and maintenance.This price slump was coupled with high operating costs related to energy and staff costs. The mine had been operating using diesel generation and had so far been unable to connect to Malawi’s national electricity grid.

The model shows that the spot price of uranium would have to more than double for Paladin to restart production. It also explores the questions: What has total government take been to date? Which impact did the reduction in the general royalty rate have?

Over the last couple of months, Rachel Etter-Phoya and Grain Malunga (interviews below) have taken part in OpenOil‘s financial modelling training, culminating in a 5-day sprint, to produce a financial model and analysis of Kayelekera using public domain data. Most of the data is from Paladin Energy’s technical, annual and financial reports submitted to the Canadian and Australian stock exchanges where it is listed, gathered with the help of Aleph, a new tool to search corporate filings by mining, oil and gas companies.

The main findings of model and analysis are:

  • Kayelekera needs a break-even price of $58/lb to reopen (October 2016 uranium spot price is $20-26/lb)
  • Paladin Africa has lost $387 million to date
  • Government revenue is $12 million to date
  • Reduction of the general royalty rate for this project has cost $15 million so far
  • Further reducing the royalty would make only a marginal difference to the break-even price for restarting production

Take a look at the Kayelekera Project Fiscal Model, the accompanying narrative report, and a short-form presentation. Feedback and improvements are welcome!

As OpenOil Founder Johnny West writes, “The model is freely available on the Internet, as open data, for download and experimentation, and you can change parameters and instantly see the change in results.”

malawi-kayelekera-uranium-mine-narrative-report

Malawi Kayelekera Uranium Mine Narrative Report (download here)

malawi-kayelekera-uranium-mine-presentation

Malawi Kayelekera Uranium Mine Presentation (download here)

malawi-kayelekera-uranium-mine-financial-model

Malawi Kayelekera Uranium Mine Financial Model (download here)

This financial model is the second of 10 such models OpenOil will be publishing in the next few weeks.

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