Paladin announces monstrous losses whilst Malawian workers continue cost cuts

Paladin Energy, the Australia-based parent company of Kayelekera Mine, announced plans further to boost production at its mines and push ahead with the sale of its Namibian mine whilst more than doubling its full year loss in the reporting year to US Dollars 420.9 million.  The loss in the previous year was US Dollars 172.8 million. 

Kayelekera Mine commenced production in July 2008 and has a nine year shelf life. In the five years since mining commenced Paladin has not paid a cent in dividend to Malawi for the 15 per cent share it owns in the mine.

In a conference call for investors on 30 August 2013, John Borshoff, the CEO of Paladin Energy, announced that Kayelekera Mine had increased production by 20 per cent in the year ending, and that the company had targeted for a further increase of production of 20 per cent for both its mines.

That the workers at Kayelekera Mine continue to deliver record production achieving increases quarter to quarter, and that the cost of production had also fallen quarter on quarter from US Dollars 52.2 per pound in the June 2012 quarter to US Dollars 39.2 per pound in the June 2013 quarter, a decrease of 25 per cent, which Borshoff indicated would be reduced further by between US$4 to 6 expected by the June 2014 quarter.

John Borshof : Paladin boss

John Borshof : Paladin boss

Borshoff did not indicate if Malawian workers were receiving increased salaries or better benefits for the record production and for reducing the cost of production, neither did he indicate if the company pursued training of Malawians to take over from foreigners in jobs in administration who have been holding these positions for the five years or more, and have been taking up a large proportion of the salary budget.

He also announced that in early September 2013 the company would commence negotiations for the sale of a 15 to 20 per cent stake in its Namibian mine with two nuclear mining companies which had expressed an interest.

This follows the aborted negotiations for the sale in August 2013, following which the company’s share value dropped by more than 30 percent, and has just begun to recover.

At the same time Paladin Energy announced the writing off of US Dollars 268.8 million in the value of Kayelekera Mine, attributing this to lower uranium prices and asset write-off.

Paladin Energy is listed on the Canadian and Australian Stock Exchanges where its shares recovered slightly from the lows that they had reached after the announcement in August 2013 of abandoning discussions for the sale of its Namibian mine.

The recovery in the price of the shares on the stock market, analysts report to be attributed to the optimistic statement by J Borshoff that uranium prices are poised to increase dramatically in the near future because uranium power companies were running out of stocks and would have to replace stocks in the very near future.

Announcement of the potential buyers is also seen as a contributory factor.

Asked to comment, Ahmed Dassu, the Malawian campaigner for democracy and now the UK-based businessman commented:  ”Forgive me for commenting extensively as I will, but I feel it necessary.  In my opinion what we Malawians should be focused on is whether our Government, which holds 15 per cent of the equity in the Kayelekera Mine, is even aware that the write-off in the value of the company by US Dollars 268.8 million means that the value of its 15 percent share has been reduced by a further US Dollars 40.32 million?  This information may be relevant to the World Bank and IMF too.

“The Kayelekera Mine only has a production cycle of nine years and so far for the five years it has been in production the mine has not paid a cent in dividend to Malawi for its share.  Give or take a year the mine now only has a remaining life of four years.  After the 4 years or a little more the mine will be worthless or a liability if not made safe. The question arises therefore, can Malawi expect to receive the dividends it had been led to believe it would receive in lieu of the exceedingly favourable benefits which were granted to Paladin?  Indeed will the profits if any not be used up simply to pay off the loans from the parent company? My opinion is that Malawi will never see a cent in profit paid by the company.”

Dassu added:  “ Indeed Malawians should seriously be considering whether the arrangementsthat requires Paladin to place adequate funds in an escrow account for the clean when the mines shuts down and the  procedures to carry out the clean up  in 4 years are sufficient and to have these independently verified as adequate.  In view of the failure by the former DPP government to negotiate an agreement which benefited the people of Malawi, Malawi should not rely on what was agreed by some of the same officials as far as making safe the environment is concerned but should contract international expertise to determine whether the arrangements for dealing with the clean-up and making the area safe after closure are fool-proof and adequately funded. “

He said: “ As Malawians we should ask, as reportedly the mine is unprofitable, if Paladin Energy continues to sustain losses whether or not John Borshoff and the Paladin management want or are committed to keeping Kayelekera operational, how long can the mine be unprofitable for its shareholders?  Indeed what will be the mine’s future in the event of new management or a takeover by a company less committed to running unprofitable mines. The 4 years that remain are not too distant, so what happens to Karonga’s economy when the mine shuts?”

Turning to the parent company, once again Borshoff has gone back to what he is to be best at – forecasting the price of uranium ore, something he has not proved to be too good at in the past. He is also optimistic on the potential sale of a percentage of the Namibian mine.

“There is no guarantee that the price of uranium will increase, and the negotiations to sell the Namibian mine are just that – negotiations, not a sale.  In fact, any potential buyer will see that the better value is in buying Paladin shares at their current lows, which may prove a much cheaper way of acquiring a holding in Paladin,” noted Dassu.

“To further expound, the disaster at Fukushima Japan is responsible for the low demand and therefore the low price of uranium ore. In the last few days the Japanese have further darkened the prospects of reactors in Japan restarting by admitting for the first time that the consequences of the disaster are far worse than they have disclosed so far.  Japan just requested UN assistance, so how much confidence can we have in Boshoff’s forecast of demand for uranium will soon rise and prices will go up?  In fact the question is whether Japan will ever re-start its nuclear reactors, if it ever does this certainly will not be until and unless they sort out the mess at Fukushima.  For any demand which may arise, there are many uranium mines which will now be hungry for the same business, Paladin does not enjoy a monopoly,” said Dassu.

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