Economy sobs as Kayelekera hopes falter

About 11 years ago, the country’s mining sector earned a historic glory.

It saw the advent of the country’s first-ever largest mining venture, Kayelekera Uranium Mine, an open cast uranium mine, 52 kilometres West of Karonga District.

The mine, owned 100 percent by Paladin (Africa) Limited, issued 15 percent of the equity to the Malawi Government, as a minority shareholder, under the stipulated terms in the Mining Development Agreement, signed in February 2007.

Two years later, the mine officially took off, having being opened on April 17 2009 by the late president Bingu wa Mutharika.

This was the genesis of Malawi’s blossoming journey, turned a short-lived voyage that keeps boggling a myriad of minds.

While the country at some point enjoyed the fruits exuded by the mine, subsequently the mine has been wobbling from time to time, in some cases dancing from the tune of external shocks while in some cases hit by internal shocks within the domestic market.

Yielding dividends from uranium exports

The emergence of the mine boosted economic prospects as it created a major structural shift in exports by raising the share of ores and metals in export bundle. Within a period of two years after it had commenced operations in 2009, uranium surpassed tea, cotton and sugar to become Malawi second most important export accounting for up to 11 percent of merchandise export receipts.

Besides, as if that was not enough, the mining venture completely overhauled the Foreign Direct Investment (FDI) landscape. Statistics show that on average, FDI inflow into Malawi was on the rise from $19 million in 2000 to a peak of $812 in 2011, thanks to the large investment in form of Kayelekera Mine.

At a time when uranium production was at its peak, the mine exported several consignments of containers of uranium oxide via the port of Walvis Bay in Namibia to overseas, which in turn brought in stacks of foreign exchange reserves into the country’s financial system.

In fact, the mining sector contribution towards Gross Domestic Product (GDP) peaked to a dramatic 10 percent at some point, thanks to the uranium mine.

No wonder, the then Minister of Natural Resources Energy and Mines Atupele Muluzi, someday in July 2014 retorted that the mining sector, if well nurtured and prioritised, could contribute over 20 percent of GDP, owing to Kayelekera Uranium mine and other emerging exploratory works.

In a nutshell, the coming of the mine came at an opportune time as Malawi had intensified its search for alternative sources of growth and exports, in the wake of unrelenting calls to diversify the economic base.

The distressing turning point

As the mine continued to enjoy its rich vein in form, on 11 March, 2011, a calamity struck the global uranium industry as the Fukushima nuclear disaster hit Japan, forcing closure of nuclear power plants across the world. This eventually triggered lower prices for uranium and consequently high operating cost (full-time reliance on diesel gen-sets for power). This rendered the Kayelekera mine unprofitable.

Eventually, since February 2014 to date, the mine has been placed on “care and maintenance”, essentially ceasing the exportation of uranium.

Prior to the disaster in 2011, uranium prices hovered to as high as $73 per pound and was expected to increase overtime. Such a price was deemed profitable by Paladin. But within six months after the Fukushima accident, which resulted into the shutdown of 58 nuclear reactors in Japan, uranium prices tumbled by 33 percent to less than $50 per pound.

In recent years, the price range of the commodity has nose-dived to a record low of between $20-$25 per pound. With this price environment, Paladin argues “is very weak” to resume production and exportation of the commodity.

“The current price is at eight-year low and there has been a 44 percent drop in the spot price for uranium over the past three years,” laments Paladin Energy Limited chief executive officer Scott Sullivan.

Paladin has persistently argued that the mine has not been profitable in recent years, forcing the company to induce cost reduction initiatives such as postponing non-essential capital works, and reviewing staffing levels, currently 117 Malawian national and two expatriate positions.

In order for the Kayelekera Mine to resume production, the world market price for uranium should be within the range of $70-$75 per pound.

Exiting the Malawi market

Burdened with escalating costs of maintaining the mine, Paladin has now offloading its stake in the Kayelekera deal to another Australian company Hylea, a subsidiary of Lotus Resources, a joint venture with Chichewa Resources.

The sale is premised on the fact that Kayelekera now needs to be an owners primary focus and it will be the principal asset for Lotus Resources and the company’s primary investment focus. For now, Paladin’s priority is the Langer Henrich Uranium Mine in Namibia which is also currently on care and maintenance, just like Kayelekera.

“Paladin cannot fund the required investment in two mines concurrently. Langer Heinrich provides a higher return for Paladin shareholders,” Sullivan justifies the exiting of the Malawi market.

As it stands now, Malawi government has already granted Paladin a Statutory consent in December 2019 which is basically an approval, consent, licence or permission issued by a competent authority (in this case government) to enable the developer lawfully carry out and complete their work.

Sensing foul play, chairperson for the Parliamentary Committee on Natural Resources and Climate Change Werani Chilenga says the committee is not amused with the apparent lack of transparency over the sale by both Capital Hill and Paladin, wondering why the two parties have already reached a statutory agreement without the involvement of the committee.

He says: “We commend government for taking the initiative at least to revive the operations of the Kayelekera Mine which has been under Care and Maintenance for quite a long time now. However, we were concerned as a committee that the process has not been as transparent enough because they have already reached what is called statutory agreement and they are waiting for the contractual agreement.”

Just like Chilenga, many wonder as to why Lotus is interested to take over an entity which has for the past years been incurring back-to-back losses due to tumbling uranium prices on the international market.

Defensively, Ministry of Natural Resources, Energy and Mines Principal Secretary Patrick Matanda clarified that it is Paladin that is selling its 85 percent to a third party and that Malawi government’s 15 percent stake in the mine is still intact.

Matanda, however, partly blames Paladin for initially announcing on the Australian Stock Market about the deal to offload its shares before consulting government as a minority shareholder.

The fact still remains that with the Kayelekera Mine on the death bed, mining and quarrying sector keeps struggling to expound its much-touted full potential, contributing only 0.9 percent between 2015 and 2017, before a further marginal reduction in terms of its contribution to GDP to 0.8 percent in 2018.

Overall, Malawi is still struggling to transform from an importing and consuming nation into a producing and exporting nation, with figures showing that between 1998 and 2018, exports grew at the rate of six percent (from $431 million to $1 billion) while imports increased at the rate of 10 percent (from $515 million to $2.8 billion).

As Kayelekera falters, the brutal truth remains that the country’s exports have increasingly been unable to cover the growing import requirements. Hence, whereas in 1998, Malawi’s exports could support 86 percent of the nation’s import requirements, by 2019, exports have generated foreign exchange enough to cover only 36 percent of import requirement.