Questions over 3.5% royalty rate in Kayelekera as Paladin  sells Malawi uranium mine

Critics are questioning whether  the 3.5 royalty rate to  Paladin Energy  has been given exchange control approval by Malawi authorities after the Australian miner has agreed to sell its 85% interest in the Kayelekera uranium mine  to Hylea Metals Ltd for USD3.5 million in cash and shares.

The contract gives government an opportunity to revise  the agreement that existed between Paladin and Malawi government and also with Reserve Bank of Malawi (RBM).

The news about  Paladin selling  its 85 percent stake of the mine to Hylea’s subsidiary, Lotus Resources Pty Ltd in a joint venture with Chichewa Resources Pty Ltd, raises more questions on the royalty. Malawi government owns the remaining 15 percent.

Paladin managed to negotiate a tax break which saw them lower some tax rates in Malawi and exempt them from paying some taxes altogether.

This included a lowering of the so-called ‘royalty rate’ that Paladin pays for the right to extract uranium. This rate was lowered from the normal 5% of sales to 1.5% of sales for the first three years and then 3% in all subsequent years.

The  tax break – which was negotiated in secret without public scrutiny – hadcost Malawi  over US$15  million.

This tax break was, however, not enough for Paladin, who found other ways to lower their tax contributions in Malawi. Normally companies have to pay a so-called withholding tax when they pay e.g. interest payments or management fees from Malawi to another country.

From the 85 percent  , among others Paladin will receive $10 million (about K7. 4 billion) value plus return of $10 million (about K7. 4 billion) previously advanced to Kayelekera as security for its environmental performance bond.

The company will also receive $5 million (about K3. 7 billion) for significant reduction in ongoing care and maintenance costs of circa per annum associated with Kayelekera.

The transaction is, amongst other things, subject to approval by Hylea shareholders and the government of Malawi approvals. Completion is expected in late 2019.

Paladin operated Kayelekera between 2007 and 2014 but stopped due to claims of decline in uranium global prices.

Paladin chief executive officer Scott Sullivan has justified the sale saying other than spending on maintenence and care of Kayelekera mine the move enables the company to focus on restarting its operations at Langer Heinrich Uranium Mine in Namibia.

Hylea Managing Director Simon Andrew said the acquisition was an “excellent” opportunity for the company, describing Kayelekera as  a world class uranium asset.

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