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