Mining & Trade News

By Marcel Chimwala

ASX-listed Lotus Resources has announced that it has signed a Mine Development Agreement (MDA) with the Government of Malawi (GoM), for its Kayelekera uranium mine, a major milestone in its redevelopment.

Lotus CEO Keith Bowes says the Agreement ensures that the mine will operate under a stable fiscal regime and provides the necessary confidence to investors.

Bowes explains that the MDA guarantees a Stability Period of 10 years during which the Project will not be subject to any detrimental changes to the fiscal regime.

He says the MDA’s key tax terms are aligned with the Kayelekera Restart Definitive Feasibility Study (DFS) assumptions, including royalty rate of 5% and corporate tax rate of 30%.

“There is also relief provided on Resource Rental Tax and Withholding Tax, specifically as it applies to dividends to non-residents,” he says.

The MDA also provides exemptions for import and export duties, plus excise and Value Added Tax (VAT) on capital goods and specified consumables directly related to mine production.

Bowes adds that the MDA includes internationally recognised principles relating to legal protection on security of tenure, dispute resolution and expropriation.

“MDA demonstrates the commitment by the GoM to develop the local mining industry, a key pillar of Malawi 2063, their new economic vision,” he says.

Bowes also points out that Rio Tinto’s increased shareholding in Sovereign Metals, which holds another key mining project in Malawi, indicates the increased attractiveness of Malawi as a mining destination.

He says: “We are extremely pleased to have finalised our MDA with the Malawian Government. I would like to thank all parties involved in these negotiations, especially the Presidential Delivery Unit who were instrumental in finalising the agreement. The relevant ministries including mining, finance and justice have all been very supportive in our negotiations as we have gone through multiple iterations of the MDA.”

“It has been a timely conclusion to these negotiations as we have seen increased demand for the Kayelekera product from a number of utilities which coincides with the current perceived shortages and strong prices in the market. With the completion of the MDA, we can now move ahead quickly with concluding some of our offtake discussions.”

MDA key terms

The MDA specifies key fiscal terms, legal protections and non-fiscal government support under which Lotus will develop and operate Kayelekera. Lotus has benchmarked comparable fiscal regimes elsewhere in informing its MDA discussions with the GoM.

The MDA is aligned with current Malawi legislation. Key terms agreed include:

• A stability period of 10 years from date of execution during which the Project will not be subject to any detrimental changes to the fiscal regime

• Royalty rate of 5% and the corporate tax rate of 30%

• Tax losses from acquisition are included, with protection from disputes on tax refunds through the principle of tax set-off. The agreement also includes ability to restructure historical loans and tax losses on a tax neutral basis

• Malawi’s currently legislated Resources Rent Tax (RRT), which is not fit for purpose, does not apply. Instead, the GoM proposes to consider an alternate supernormal profits tax (that may consist of a sliding scale linked to uranium price) to replace the current RRT. The Company will receive a waiver until such time as this is effective.

• Exemptions for import and export duties, excise and VAT on capital goods and on specified consumable items directly related to mine production

• Withholding Tax relief (currently 10% for a mining company) on dividends to Lotus for the majority of the mine life

• The maintenance of foreign currency bank accounts inside and outside Malawi that are supportive of project financier requirements

• A Community Development Agreement with a minimum value of 0.45% of project revenue set aside for community projects

• Specific legal protection is afforded to the Company, including Security of tenure, Dispute Resolution and Arbitration and non-discrimination

Engagement with Government of Malawi

Lotus’s negotiations with the GoM were based on the concept of a fair and equitable split of economic benefits for investors that meets the project financing needs, delivers an economically viable project and provides the necessary benefits to the local communities, the Malawian people and the GoM.

Consideration has been given to not only fiscal items such as taxes and royalties but also economic benefits including jobs, business development, local procurement and supporting local businesses and communities.

Next steps

Bowes states that the company’s current priorities include to complete offtake negotiations for the first phase of contracting with offtake agreements likely to have a pre-payment component to support project financing, complete the front-end engineering design program and finalise project financing.

He explains that Lotus’s debt advisor, Orimco, has identified potential financiers to assist in the project financing while Independent Technical, Environmental and Legal reviews are planned prior to receiving credit approved proposals.

Lotus is also expected to complete negotiations and sign a Power Supply and Power Implementation Agreement with Malawi’s electricity utility Electricity Supply Corporation of Malawi (ESCOM).

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