Wrangle Over Niobium Deal, The Nation, 3 May 2013

In March, we blogged that the Board of Directors of Globe Metals & Mining had postponed a decision to give the go-ahead for the Kanyika Niobium Project in Mzimba because of ongoing negotiations with the Malawian government on the Mining Development Agreement. According to The Nation, no agreement has been reached. At the beginning of 2013, it had been expected that the board would meet in February to decide the future of the mining project in northern Malawi.

The process of reaching an agreement is coming under great scrutiny from the general public as many feel Malawi has missed out in the the deal made with Paladin, the Australian company behind Malawi’s largest mine, Kayelekera Uranium Project. Last month, however, Nyasa Times reported (yet to be confirmed by other sources) that the government is renegotiating the agreement with Paladin. The government has promised to make the agreement with Paladin public, but it continues to be shrouded by a confidentiality agreement.

Paladin’s Kayelekera project has had an impact on this agreement according to Neville Huxum, the Country Director of Globe Metals & Mining, who incidentally was also a country representative for Paladin four years ago. The government has received 1.5% royalties from Kayelekera, to rise to 3% after the first three years and has a 15% stake in the mining project. This time around, the government is negotiating for 5% royalties, in line with the outdated Malawi Mines and Minerals Act (1981) and for a 30% stake in the project.

Malawi needs to carefully revisit royalty rates and taxation in new legislation. This is one of the components of the joint World Bank and Malawian government Mining Governance and Growth Support Project launched in January 2013.

Nevertheless, the current 5% stipulated in the Act is above the average royalty rate in Africa that is approximately 3.5%. These low royalty rates are often not based on empirical evidence but influenced largely by the World Bank and other multi-lateral development banks (see Gajigo et al., 2012 Royalty Rates in African Mining Revisited: Evidence from Gold Mining).