Paladin Energy crashes, files for insolvency

By Collins Mtika

MUZUZ – Paladin 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.

Paradoxically, Gondwe said “There is somebody keen to buy it”. He did not divulge 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 a mirage.

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

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

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 percent to 27.5 percent; 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 percent, compared to the 5 percent 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,” Mr 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.

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

August 2017
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