Impact: Positive
Lotus Resources announced that it has signed a Mine Development Agreement (MDA) with the Government of Malawi, for its flagship Kayelekera uranium mine. MDA provides a 10-year stability period, protecting the project from any unfavourable changes to the fiscal regime. The Government maintains a 15% share in the project. MDA outlines a royalty rate of 5% and a tax rate of 30%, which is in line with DFS assumptions, albeit slightly above our estimates of 3.75% and 27.5%, respectively. It also provides reliefs on Resource Rental and Withholding taxes, in addition to exemptions on import/export duties and VAT on capital and consumables. Despite a higher royalty and tax rate than we had assumed, this is a major milestone and likely will allow Lotus to move forward with arranging Kayelekera project financing, specifically off-take arrangements that were awaiting the outcome of the MDA. We see Kayelekera as a relatively lower risk mine development project given its past production profile of 11M lbs between 2009-14. The mine restart is currently scheduled for 2025, but it remains to be seen if management adjusts the timeline after arranging project financing and offtakes. We look forward to the new FEED study that is due to replace the 2022 study. We expect the realized production rate to be beyond 2.4M lbs pa over 10-year LOM (based on reserves of 23M lbs U3O8), along with a slight cost creep on the US$88M restart Capex and US$29.10/lb LOM Opex. A Power Supply and Power Implementation Agreement will also likely impact costs. Meanwhile, we also anticipate a Letlhakane scoping study in September, as the focus will start to shift to this 190M lb project in Botswana.