PALADIN MOVES CLOSER TO URANIUM PRODUCTION IN MALAWI

UNCLAS LILONGWE 000928 SIPDIS SIPDIS E.O. 12958: N/A TAGS: EMIN SENV MI SUBJECT: PALADIN MOVES CLOSER TO URANIUM PRODUCTION IN MALAWI ¶1. Summary: Paladin Resources continues to make progress on its Kayelekera Uranium mine in Malawi, with commissioning and production start anticipated for early fourth quarter 2008. Several civil society groups had brought suit to halt development of the project, but have recently dropped their case. The GOM expects to have a new mining law in place by late 2008 to cover uranium and radioactive materials, but there is already a general mining law in place and passage of the new law is not a precondition for Paladin to begin operations. End summary. ¶2. Paladin Resources Limited, through its subsidiary Paladin (Africa) Limited, continues to make progress on the development of its Kayelekera uranium mine project in northern Malawi. Paladin reached a development agreement with the GOM in February 2007, and a mining license was granted in April. Since then the company has been making steady progress on the development of the mine. A used mill for the project has been obtained and is now undergoing refurbishment in Australia. The construction camp from Paladin's Langer Heinrich project in Namibia is being moved to Malawi and is now mostly assembled on site. Work has been completed on an access road linking the site to the Karonga-Chitipa road. Long lead time equipment orders, such as the captive power supply generators, have already been placed. Basic civil works have begun at the mine site. There are currently about 300 people already working on the site. ¶3. Paladin plans on operating a relatively small, conventional open-cut mine at Kayelekera, which it expects will begin production in the fourth quarter of 2008. Initial operations will rely on significant numbers of expatriate workers, but the company plans to train Malawian workers to take over operations over time. ¶4. Once the mine is operational, Paladin will pay a discounted corporate tax of 27.5% (reduced from 30%). It will also pay royalties of 1% for the first three years, rising to 3% thereafter. In addition, the GOM will hold a 15% stake in the Kayelekera mine and will earn revenue based on this holding. ¶5. Several civil society groups had been strongly opposed to plans for uranium mining in Malawi, citing environmental and health concerns. Six groups brought suit against Paladin to halt progress at Kayelekera. Following out of court negotiations with Paladin and the government, four of the parties withdrew from the suit and the case was dropped. ¶6. A Representative for the Centre for Human Rights and Rehabilitation (CHRR),one of the lead civil society groups opposing the mine, told Econoff that the group was now satisfied on the policies of the government and the company. He noted that compromises had been reached in out of court negotiations. Paladin's agreement with the government had been amended to provide for additional investment in water treatment facilities for the Karonga district. Additionally, the GOM made commitments to complete new legislation covering uranium mining and transport before actual mining operations began, as well as to invest a portion of its revenues from the mine in the local community. ¶7. Although not all civil society groups were satisfied, the existing court case could not be sustained with the withdrawal of four of the parties. Progress at Kayelekera had proceeded unabated while the court case had been pending, and with the case now dropped, Paladin stands a good chance of meeting its commissioning target. ¶8. GOM representatives in the Ministry of Energy and Mines admitted that Malawi's legal regime relevant to the Kayelekera project is scattered and does not address the special issues involved with uranium mining. The GOM has committed to completing new legislation to modernize the legal framework by late 2008. Nevertheless, the Ministry insisted that the general provisions of the existing mining law cover the Paladin project and that there is no reason that the project cannot legally go forward. ¶9. In addition to Kayelekera, Paladin holds three other tenements in the area. Company representatives told Econoff that the company plans extensive exploration on these tenements. Oropa Limited, a subsidiary of Oropa Exploration Pty Ltd, another Australian group, has secured exploration rights to two holdings in Malawi, 20 kilometers north of Kayelekera. ¶10. Comment. Fueled by high oil prices and rising global demand for energy, market prices for uranium have surged in the past year. Although down from a June record high of $139/lb., uranium prices remain strong at $92/lb. as of Dec. 7, with analysts predicting average 2008 prices of $160/lb., rising to $190/lb. by 2010. With commodity prices in this range, the Kayelekera mine represents a potential windfall for Paladin and Malawi. Further exploration and development are almost a certainty. With Kayelekera Malawi now has the opportunity to put in place a sound regime to properly regulate what may soon become a major industry. EASTHAM