(Courtesy of Ideal Logic, Ideological Logistics)

Malawi must “dangle exciting deals to mining investors” to increase mining’s contribution to the country’s national income, according to Alistair Stephens, Managing Director of company Globe Metals and Mining that is in negotiations with the Malawian government for a Mining Development Agreement for Kanyika Niobium Project.

Malawi set out this year to increase the contribution of mining of its gross domestic product to 20% by 2016, as outlined in the Mines & Minerals Policy (2013). Improving the country’s productivity will reduce reliance on donors, who usually fund 40% of the national budget. Just this month, the World Bank, African Development Bank, UK, Norway and EU, among other donors, suspended budget support over “cashgate“, which is the popular way to refer to the ongoing disclosure of high-level government corruption. Some estimates suggest USD 250 million has been stolen from government coffers.

This week, Globe Metals and Mining and Paladin Energy, the holding company behind Kayelekera uranium mine, which is Malawi’s largest mining project, held annual general meetings (AGMs). The AGMs follow the release of the companies’ 2013 annual reports in October (see the annual report for Globe Metals and Mining here and for Paladin Energy here). Discussions at the AGMs reveal the circumstances that may have spurred on Stephens to call on the Malawian government to offer “exciting deals” to investors.

Globe Metals and Mining is still negotiating the Mining Development Agreement with the Malawian government for Kanyika Niobium Project in Mzimba, northern Malawi. Initially, discussions were expected to be concluded at the beginning of 2013. In Globe’s 2013 Annual Report, the Chairman, Yi Shao, wrote that 

The Environmental Impact Assessment (EIA) has been approved and the Development Agreement is under review by both Globe and the Government of Malawi. It is my view that the agreement requires significant review and negotiation to achieve the best possible outcome for both parties.

The Government of Malawi has provided Globe with a draft agreement. Globe states in the annual report that significant assessment is necessary of the requirement in the development agreement for many subsidiary agreements. The next round of negotiations has not been determined, but is likely to be scheduled for this coming quarter.

Malawi’s Minister of Mining John Bande reiterated Shao’s call for a mutually beneficial agreement amid concerns of Malawi’s weak negotiation capacity.

What we want is the best for the country and the company as well. We were hoping to have the agreement finalised but Globe is yet to give us a response from our earlier communication.

Globe has also faced delays in taking a bulk sample from Malawi to a demonstration plant China, which is necessary to show that Kanyika is a viable proposition. According to the Mining Journal Online, the Managing Director of Globe, Alistair Stephens believes that 

The delay was a result of a misunderstanding in Malawi as to what the bulk constituted, with the locals apparently questioning whether it represented bona fide mining – in which case royalties, etc would be payable.

Malawi has only one modern mine, and according to Stephens, the limited in-country knowledge of the industry has also previously seen accusations of diamond theft levelled at another party as a result of confusion about a diamond core drill rig.

The bulk sample is still in Malawi, and it will take about 30-40 days to get to China once it clears the African country. The export delay, plus Christmas, and then Chinese New Year in February have all combined for the expected six month delay.

The low spot price for uranium, which is at an eight year low, has affected Paladin’s returns even though Langer Heinrich (Namibia) and Kayelekera (Malawi) mines delivered record production. The company continues to support the projects as they believe “that a strong future exists for the uranium industry” (Rick Crabb, AGM, Chairman’s Address).

The cost of operations at Kayelekera mine have been higher than expected due to the nature and location of the ore body and the company is seeking to sell a minority interest in the Namibian mining project. John Borshoff will continue as Managing Director and Chief Executive Officer of Paladin Energy until the end of December 2014. He has taken a pay cut and bonus plans have been suspended until the price of uranium has picked up.

In light of Paladin’s cost-cutting measures, it is likely that Borshoff would agree with Stephens’ desire to see Malawi offer “exciting” incentives to foreign investors.