The piece “Billion dollar mine scandal” featured below was initially published in Malawi’s Mining & Trade Review Issue Number 33 that is circulating this January 2016.
The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.
Billion dollar mine scandal
…Poor governance ruins progress at Kangankunde
…Aussie miner suspends work on deposit purchased for K2.5-billion
By Marcel Chimwala
Poor decision making by the government is proving costly to the nation and the investor for the Kangankunde Rare Earth Mining Project in Balaka as the investor, Australia’s Lynas Corporation, is failing to develop the resource it purchased for US$4-million (about K2.5-billion) due to legal complications.
Former President Bakili Muluzi launched construction works of the Kangankunde Mine, which is valued at over US$1-billion and at that time the tenement was held by a local consortium, Rare Earths Company.
However, a previous tenement holder, South Africa’s Rift Valley Resources, sued the Malawi Government and obtained an injunction against the development of the mine on the grounds that the Muluzi administration erred by not renewing its exclusive prospecting licence for the Kangankunde resource, whose rights at that time were with Rare Earth Company.
Seemingly for fear that it will lose the mineral rights, Rare Earths Company sold the resource to Lynas Corporation at US$4-million in 2007 and surprisingly the then Bingu Wa Mutharika administration allowed the deal to go through despite the prevailing court case.
In its announcement on Australian Stock Exchange, Lynas says the purchase agreement contained a number of conditions precedent that were satisfied before completion, including approval by the Malawi Department of Mines for the transfer of the Kangankunde tenement to Lynas, approval by the Malawi Investment Promotion Agency for the Lynas project proposal and approval by the Malawi exchange control authorities for Lynas to make payment as a foreign investor.
Australian press reports, therefore, say Lynas is blaming the Malawi Government for mishandling the issue.
We are reassessing the project’s risks in the context of Malawi’s present governance and institutional frameworks,
says the Aussie miner.
Meanwhile, frustrated by the events and in response to the injunction the High Court granted to Rift Valley Resources, Lynas Corporation has vacated the Kangankunde site.
Rift Valley Resources, owned by South African geologist Michael Saner, is claiming US$100-million from the Malawi Government for damages plus sunk costs, legal costs and interest.
The Kangankunde Deposit has been prospected since the 1950’s, and has an inferred resource of 107,000 tonnes of rare earth oxides with an average concentration of 4.24 per cent in their ores.
Lynas was involved in drilling works at the site to improve the understanding and size of the resource estimate.
The Government is also at the centre of another mineral rights scandal with Australia’s Paladin Energy after the previous Joyce Banda administration refused to renew the company’s five exploration licences and granted two of them to coal miners in the same area.
The current Peter Mutharika administration has, however, renewed Paladin’s three of the five exploration licences in the Kayelekera area and is failing to renew the remaining two, which were granted to a coal miner, for fear of complications with regard to the new mining legislation being formulated, which stipulates that licences for different minerals cannot overlap.
The current administration is also involved in a wrangle with oil companies claiming that the previous Joyce Banda administration awarded them dubiously.
It is over a year now since the Peter Mutharika administration suspended oil exploration saying it is reviewing the licences and the President threatened in an interview on state-run Malawi Broadcasting Corporation that he can cancel the licences and reserve the resources for future generations.
Mining investors at last year’s Investment Forum in Lilongwe also complained about the government’s poor treatment of investors which, they said, is sending a bad image of Malawi to international investors at the time President Mutharika is busy globe-trotting in the pretext of wooing foreign investors.