Paladin crashes: Malawi uranium miner files for insolvency in Australia

Paaladin Energy, operators of Kayelekela Uranaium Mine in Karonga Malawi and Langer Heinrich in Namibia has filed for insolvency at the Australian high court after the company failed to pay a debt of USD277 million to a France based company called Electricite de France.

Kayelekera Uranium Mine in northern Malawi was the country’s only large-scale mining operation. But for more than five years, the mine is not operating and is under ‘care and maintenance’ because of global low uranium prices.

“I am not aware of this. But it means they cannot operate until the foreseeable future,” Minister of Finance and Economic Planning Goodall Gondwe said in telephone interview.

But Gondwe said “There is somebody is keen to buy it”. He did not divulge  information of the buyer.

Malawi awarded a 15-year license to Paladin to mine uranium in Kayelekera in April 2007. In return, Paladin agreed to build a school, a clinic and rehabilitate the airport, among other promises.

Economics Association of Malawi (Ecama) president, Henry Kachaje agreed with Gondwe saying the resumption of the mine is doubtful .

“The company was not profitable and filing for insolvency and the appointment of administrators is meant to protect shareholders, clients and creditors,” Kachaje said.

Ahmed Dassu, a Malawian human rights activist based in the UK commented to Nyasa Times:  “The biggest tragedy for Kayekelera mine was the resignation of John Borshoff and Greg Walker from the company, because both were emotionally committed to making the Kayekelera project a success.”

Dassu explained that under Borshoff the cost of producing a pound of uranium ore at the mine was reduced from approx. $55 per pound to $33 per pound, a very significant achievement though still more than the current market price of US $ 20+-.

“In fact had the government followed up on its promise and connected the mine to the power grid, by the mine not having to use diesel generators for power, the cost of production per pound would have been further reduced making it unnecessary to cease production, as uranium is usually traded on forward contracts which can be higher than prevailing market price of the ore.

“Looking ahead the reduction in the cost of production to $33 a pound still makes the mine an attractive and potentially valuable asset, for the right buyer. I repeat the right buyer, Dassu said.

He stated that  Kayekelera is a fully developed mine, with plant and equipment, in excess of the 30 million pounds uranium ore still remaining underground and a remaining mine life of 10 years or more at 2.5 million pounds production per year.

“Production can recommence quickly at a relatively low cost, when the expected demand for the uranium ore increases. There are not many mines like that around! Further if Kayekelera mine is not to be encumbered by the extremely high cost of employing South African to manage and run the mine, as Paladin had done and instead is operated by either a Chinese or Indian company, with local Malawian management and labour and only essential expertise from abroad the mine has the potential of being profitable and of increasing Malawi’s GDP very significantly,” he said.

However, until a buyer is found the government has to ensure that the assets of the mine are not asset stripped and disposed of by the administrators but instead the mine retains its production capacity to resume production under a new or restructured ownership, according to Dassu.

“The most suitable buyer would be a Chinese or Indian mining concern as both of these countries use uranium to generate power – they are in fact the major buyers of the ore and would be interested in securing the relatively huge deposit of ore in reserve. A mining company from either country which can sustain production and weather the price fluctuations of the more on the market would therefore in my opinion be an ideal partner to operate the mine.

“What is critically imperative is for Malawi to be proactive in in exercising its sovereign right to determine the future of the mine. No takeover or buyout of the mine should be permitted unless the buyer is vetted and selling serves the national interests particularly those of the local communities who should be assured of a stake in their resource,” he said.

Dassu said the sale of the mine or its reopening has be conditional on the administrators settling claims of the former employees and Malawian suppliers, and a fully independent appraisement of the health and safety hazards posed by the mine to communities living in nearby villages and also of measures in place to ensure that contaminated water does not flow into the rivers, and the lake.

“In fact I would go so far as to say that the Members of Parliament and Traditional Chiefs of the communities of Karonga District should be included in any discussions between the government and the administrators of Paladin concerning the future of Kayekelera mine. They certainly would better ensure their communities’ interests are better served and protected.

“I  now that hope the government will make public the so far secret development agreement it signed with Paladin so that Malawians are aware of what was agreed and why we got where we – a closed mine with former employees, the local communities and indeed the entire nation in the dark about the future of the mine,” Dassu said.

The development comes at a time when Malawi launched its first ever extractive sector transparency report, which showed that the sector raked $8 million into state coffers.

Paladin’s market value was USD 4 billion in 2007 when the spot price for Uranium was US$ 100 per pound. Now the company is worth a mere US$ 80 million.

The company has now been forced to appoint administrators after Electricite de France demanded repayment of USD 277 million debt, according to Mining in Malawi.

KPMG partners Mathew Woods, Hayden White and Gayle Dickerson are now the beleaguered company’s administrators.

Paladin Energy administrators have now secured a $US60 million, 12-month financing facility to keep the company operating while they work on a rescue deal for the collapsed uranium miner.

The Germany (Deutsche) Bank loan will refinance secured debt with Nedbank, keep the company’s Langer Heinrich mine in Namibia operating and provide additional working capital across the group.

Additionally, the Canadian Stock Exchange (TSX) has delisted Paladin effective at the close of the stock market on 10th August, 2017.

The delisting was imposed because of Paladin’s continued failure to meet listing requirements in relation to: insolvency or bankrupt proceedings, financial condition, adequate working capital or appropriate capital structure.

As a survival strategy, the company’s administrators are planning to transfer the TSX register to the Australian Stock Exchange (ASX) so that they secure the ASX listing.
According to Business News Western Australia, Paladin’s demise can be tracked back to March 11, 2011 when a 15-metre tsunami hit the north-eastern coast of Japan, killing about 19,000 people and triggering the Fukushima nuclear disaster.

The paper also pointed to a series of management decisions for a share the demise that has left about 26,500 shareholders at the bottom of a long list of creditors.

At the centre of Paladin’s problems, according to analysts, was a decision by Paladin, then led by former CEO and Shareholder John Borshoff, to rely heavily on debt financing to build its two African mines – Langer Heinrich in Namibia and Kayelekera in Malawi.

The complicated tangle of convertible bonds that have dominated Paladin’s story since Fukushima ultimately wind back to the decision to develop the mines in quick succession to try and capitalise on the climbing price.

A furore erupted in March 2013, however, when contents of the Paladin agreement were leaked to citizens in Karonga, a town about eight kilometres north of the mine.

The deal lowered Paladin’s corporate income tax rate from 30% to 27.5%; abolished its resource rent tax, a duty on profits from the mining of non-renewable resources; and reduced its royalty rate, a percentage of the revenue generated from the mine, to an initial 1.5%, compared to the 5% national rate, according to the 2013 church report. Many other discounts are listed in this 41-page analysis.

In February 2014 Paladin suspended its operations and laid off about 110 of the mine’s 613 employees. It claimed that it was operating at a loss citing the decline in uranium prices in the aftermath of the Fukushima nuclear disaster in Japan in 2011.

“People want to talk about the share of profits, but nobody wants to know that this is a loss-making entity,” said Greg Walker, Paladin’s former general manager, in March 2014.

Six years after it signed the Paladin agreement, the Malawi government admitted that the country had signed a “bad” deal with Paladin. It blamed Malawi’s lack of mining expertise for exposing it to exploitation by foreign companies.

The government tried but failed to persuade Paladin to return to the negotiating table.

“Pressure to renegotiate after $500m has been invested makes the international investors nervous,” Walker said in July 2014 during an interview with the Nyasa Times, an online newspaper. “Secondly, the mine has no economically recoverable ore as we’re operating at a loss,” he added.

Whilst the future of Paladin’s former employees’ remains uncertain, the former CEO of Paladin Energy, John Borshoff, who was forced to resign from his position in August 2016, has since, been appointed as the CEO of Yellow River, an Australian company mining uranium in Namibia.

Meanwhile, Alex Molineux who replaced John Borshoff as CEO at Paladin has been appointed executive chairman of Crater Gold and Greg Walker has been appointed as CEO of Birimian Gold, a company mining gold in Niger, Mali and Mauritania.

• This story has been supported by the Center for Investigative Journalism Malawi (CIJM) – www.investigative-malawi.com

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