ISSUE NO. 50 June 2017 Mining & Business News that Matter Order Price: - MK1000

INSIDE

Mutharika spells outreforms to upliftmining sector

Page 5

Page 6

Page 8

ProudlySponsored

by

10 questions afterreading Malawi’sFirst EITI Report

Chamber hailsShayona for awesome

plant investment

Farming&EngineeringServices Limited

ChiwandamaGeo-ConsultantsMALAWI GOVT. RAKGAS L.L.C

Malawi has been applauded for taking a huge step towardsimproving extractives sector governance and revenuemanagement following the country’s submission of itsfirst-ever Extractives Industry Transparency Initiative (EITI)Report, which details collection, payment and reconciliation

of natural resources revenue.EITI is a global coalition of governments, companies and civil society

working together to improve transparency and accountability in the managementof revenues from natural resources, and President Peter Mutharika made publicdeclaration of intent to join the initiative during his inaugural speech as a Headof State of the Republic of Malawi in 2014.

Malawi was admitted as EITI candidate country in October 2015 followingthe establishment of a Multi-Stakeholder Group (MSG), a committeeentrusted to manage the EITI process, comprising government officials, civilsociety members and representatives from the extractives sector.

It is this committee that hired an ‘Independent Administrator’, MooreStephens International, a London-based global accountancy and consultingnetwork, to help prepare the report which has been submitted to the EITIInternational Secretariat based in Oslo, Norway for assessment, as the countryintensifies its efforts to attain EITI ‘compliant’ status.

The 99-paged report covers activities that occurred during the period betweenJuly 1, 2014 and June 30, 2015 in three sectors of Malawi’s extractives industrynamely; mining, oil and gas, and forestry.

By Chiku Jere

cont. on page 3 Pres. Mutharika: Spearheading transparency and accountability

Advertisers

SHAYONA CEMENTCORPORATION

Monumentalachievement!

Malawi submits extractives sector transparencyand accountability report

CSOs describe it as milestone but callfor supportive legal framework

ADVERTISEMENT June 20172

June 2017 NEWS & ANALYSIS 3The report includes company payments

as well as government receipts covering information on tax,royalties, rents, licences, contracts, and production, amongother key elements around resource extraction.

The aim of this EITI report is to strengthen theunderstanding of the level of contributions of the extractivesector to the economic and social development of Malawi inorder to improve transparency and good governance in allcomponents of the extractive industry value chain.

EITI principles are based on the belief that prudent useof natural resources contributes to economic growth,sustainable development and reduction of poverty inresource-rich countries.

The development, according to Natural ResourceJusticeNetwork (NRJN), an umbrella grouping of the country’scivil society organisations advocating for natural resourcesgood governance, is a very positive step for the country.

NRJN Board Chair Kossam Munthali, who also sits onthe MSG, said EITI is grounded on the principles of‘Transparency andAccountability’which are tenets of goodgovernance, hence adherence to EITI principles will help ridthe secrecy the extractive sector has been synonymous with.

“With EITI, the secrecy which breeds corruption andmismanagement in the Extractives Industries will havelittle space,” he said.

Munthali also said the EITI report will providerecommendations for Policy Reforms.

He explained that as a country moving forward, Malawiis on the right track because through such reports,communities will have access to information that willempower them to question how revenues from the mineralsextracted in their respective areas are being utilised.

Munthali noted that another facet of the report ‘disclosureof contractual agreements’ will help tame communityexpectations on mining activities in their vicinity.

“This will enable communities, who are Rights Holders,to be able to make informed choices and hold their dutybearers to account for decisions being made,” he said.

Munthali expects that with hard core advocacy andbacked by the newly enacted Access to Information (ATI)law, the information in the report will be demand driven.

“Submission of the report is not the end but just ameans of pulling us together to start advocating for theimplementation of the recommendations based on thefindings of the report,” he said.

Munthali, nonetheless, said NRJN’s major caution is thatfor EITI to work and benefit Malawians, there is dire needfor political transformation and to expedite the amendmentof the Mines and Minerals Act (MMA) 1981 withaspirations of Malawians factored in.

“The amendment of the MMA remains key because weneed a supportive legal framework in place if EITI is towork and benefit Malawians,” Munthali stressed.

The EITI report highlights discrepancies and shortfallsin the current governance system for the extractives sectorand has identified oversights on revenue management.But more importantly, it provides recommendations onmeasures that should be implemented in order to improvethe situation.

For instance, the report doubts reliability of the datareports from the companies and recommends an assessmentto ascertain credibility of the payments and revenues throughindependent auditing that applies international standards.

It urges authority to ensure that instructions for nextyear’s EITI reporting emphasizes on the importance ofreporting entities complying with international auditing

standards process as failure to do so will be viewed as lackof transparency.

The report also calls for mandatory EITI reportingobligations through enactment of EITI reporting regulations.

Inaccuracies with regards to disclosure of minerals’production data for the fiscal year covered, including totalproduction volumes and the value of production bycommodity, were also noted.

The report recommends that in order to maintainaccurate and comprehensive records of production, theDepartment of Mines (DoM) must produce reliable data forthe EITI process.

The document explains that this is important because itwill help in assessing and monitoring companies’ liabilitiesin terms of royalties on production, their revenue payments,as well as the development of the extractive activities in thecountry as a whole.

The report also advises that the DoM develops proceduresto ensure the completeness of the minerals’ production datareported by companies and implements a computerisedsystem to monitor, and update the data on a monthly basis.

“This would improve the department’s ability to reconcileroyalties and other non-tax payments with production data

and investigate any discrepancies,” says the paper.Weaknesses in revenue administration including

non-collection of payments particularly non-tax paymentssuch as royalties and ground rents are also highlighted inthe report, which suggests the need for the DoM to makesystematic follow-ups of all amounts due from companies toensure that all fees are collected on a timely basis.

The overall cut-across advice from the report is that theDoM should improve its tax administration and collectioncapacity to effectively discharge its duties and maximise taxcollection.

According to the report , total revenue from theextractive industries within the reported period was MWK5,935 million (USD 13.6 million) with 49% from forestry,40% from solid minerals, and 11% from oil and gas,translating to 0.9% of GDP, 1.1% of government revenues,and 0.6% of exports.

Joining EITI was part of fulfilment of MalawiGovernment reform agenda. In 2013, Malawi ratified theOpen Government Partnership (OGP), a 70 member-countryhigh-level Open Government Declaration to promotetransparency, empower citizens, fight corruption, andharness new technologies to strengthen governance

Cartoon

...from front page

5 top company extractive sectors revenue contributors in the report Munthali:We are on a right track

BByy JJaammeess KKaazzeemmbbee

ADVERTISEMENT June 20174

June 2017 OPINION 5

For advertising, subscription inquiriesTel:+265 (0) 111 744 071Cell: +265 (0) 993 252 656

For Editorial inquiries Cell:+265 (0) 888 356 536

(0) 999 038 428

For electronic copy visit: www.mininginmalawi.comor facebook page: Mining Review Malawi

Blantyre inquiriesTel:+265 (0) 884 610 303

Mzuzu inquiriesTel:+265 (0) 995 681514

Email: marcsmediamw@gmail.com

EEDDIITTOORRIIAALL

Malawi’s first Extractive Industries Transparency Initiative report was submitted to theMulti-Stakeholder Group in April by the Independent Administrator Moore Stephens.Last month, I shared the top 10 insights I gleaned from the report and this monthI highlight 10 sets of questions that I have after reading the report. I hope to followup many of these. It’s also up to the relevant stakeholders and MWEITI Secretariat

to ensure correct information is in the public domain. Private sector, civil society and governmentrepresentatives all had the opportunity to comment on the first report before it was finalised.

Next month, I will look at 10 recommendations for managing Malawi’s natural resources that emergefrom the report and some will touch on these questions. A shout out to Moore Stephen’s Ben Tooraballyand Rached Maalej for their input.

1. Why did eight companies not comply? (Mining sector: Shayona Cement, Kaziwiziwi Coal Mine,Intra Energy Trading, Malcoal Mining, and Premier Construction Equipment, Petroleum sector:Hamra Oil, Pacific Oil and SacOil Holdings)

2. What were the reasons for large discrepancies between the company payments and government revenue?

3. Why did the Auditor General not certify the data templates submitted by government entities? 4. Did companies pay all amounts due? (For instance, did Mota-Engil pay royalties on all rock

aggregate sold? Did Nyala pay all of the royalties due in accordance with its contract?)5. What did Government entities do in order to ensure collection of amounts owed? Have tax

verifications been conducted so far? How did government entities ensure independence of the officials responsible of verifying companies? Do Government entities have enough resources to ensure proper collection and verification of revenues?

6. How large will revenues from the extractive industries need to be before they are traced separately in the government budgeting process? Will a specific percentage of extractive non-tax revenues (royalties, ground rent) be systematically allocated for regional development?

7. Why are tailored contracts signed with private companies that do not appear to be in line with existing legislation?

8. There are few large-scale Malawian-owned extractive projects. If financial and technical capacity is the reason for this, is government considering requiring foreign investors in the extractive sector to establish consortiums or enter joint ventures with Malawians?

9. Were all previous contracts awarded to companies operating in mining, petroleum and forestrysectors concluded without going through bidding process? If yes, does the government envisagechanging this and promoting fair and transparent awarding procedures of all contracts without exception?

10. Why did most of the reporting companies fail to report their social payments? Did local communities benefit from any social payments?

Take a look at Malawi’s first EITI report here: https://eiti.org/document/malawi-eiti-report-20142015

It is an undeniable fact that Malawi has madetremendous progress in its strides to join theExtractives Industry Transparency Initiative(EITI).

Such progress is vivid in the fact that thecountry has presented the first ever EITIreport to the secretariat of the global network

in the Norwegian capital, Oslo, which is a great achievement on theEITI process.

We, at Mining & Trade Review, join the State PresidentProfessor Arthur Peter Mutharika, who made the commitment forMalawi to join the grouping in his maiden state of the nationaddress in 2014, the government, stakeholders in the extractivessector and all Malawians in celebrating the achievement.

We find this as a worthwhile achievement since there has beena lot of talk, especially from civil society groups, that Malawiansare not adequately benefiting from the country’s mineral resourcesbecause deals in the sector are always shrouded by a veil of secrecy.

As the Chairman for Natural Resources Justice Network(NRJN), Kossam Muthali, is quoted in our lead article, with EITI,the secrecy which breeds corruption and mismanagement in theExtractives Industries will have little space.

He also says the EITI reports will provide communities withinformation that will empower them to question how revenues fromthe minerals extracted in their respective areas are being utilised.

However, the NRJN Chair recommends that Malawi’s joiningof the EITI must be accompanied by enactment of supportinglegislation.

We agree with Munthali’s recommendations and want to urgethe government to expedite the process to enact the new Mines andMinerals Bill.

It is surprising that despite assurance by Minister of NaturalResources, Energy and Mining, Bright Msaka, there is still no signthat the bill will be brought for debate in parliament soon.

The government must, therefore, know that by delaying theenactment of the new Mines and Minerals Law, it is being unjustto Malawians who contributed in the consultation process for theformulation of the new law.

Certainly, a sane person would ask why the government findsit appropriate to continue using an archaic piece of legislation tomanage the mineral resources sector.

Is it that there are some interested politicians in the rulingclique who are benefitting from the current status quo byexploiting loopholes that are known to exist in the old law?

Such questions will keep on lingering in the minds of membersof the public as long as the government keeps on delaying theprocess to adopt the new law.

These questions are capable of scotching the image of thegovernment which has won applause for enacting the Access toInformation Bill which is another crucial piece of legislation forthe country to succeed in the EITI process

EEIITTII ssuucccceessss mmuusstt bbee bbaacckkeedd bbyyssuuppppoorrttiivvee lleeggaall ffrraammeewwoorrkk

BY MARCEL CHIMWALA, PUBLISHING EDITOR

10 questions I have after reading Malawi’s First EITI Report

Ben Toorabally (L) and Rached Maalej (C) of Moore Stephens, the ‘Independent Administrator’, conversingwith Rakgas Country Manager Chimwemwe Chikusa (R)

NEWS & ANALYSIS June 20176

President Peter Mutharika says governmentwill continue advancing various reforms tofacilitate the growth of the mining industrywhich has been earmarked as a potentialvehicle to deliver economic fortunes to

the nation.In his State of the Nation Address (SONA)

delivered at the opening of the current session ofparliament, the President said government, willamong other reforms, establish a modern geo-datamanagement platform, which he said, once operational,‘‘will provide investors with a trouble-free access togeo-scientific information essential for makingwell-informed mining investment decisions.’’

“Players in the sector will also enjoy services ofa modern computer-based mining cadastral system,which once set up, will provide a more transparent,effective and efficient platform for the processing andmanagement of mineral rights,’’ said Mutharika.

He told the house that so far the government hascompleted the review of the Mines and Minerals Act of1981 to align it with the newly drafted 2015 NationalMines and Minerals Policy.

Mutharika explained that these legal reforms willassist the government in offering more competitivemining incentives, equitable shares of profit, soundinfrastructure development and local communityinvestments in so doing boosting the economy ofthe country.

On energy sector development, Mutharika said hisgovernment is implementing programmes and projectsaimed at improving energy generation, transmissionand distribution.

“We have set out to expand, diversify and liberalise

energy production to say farewell to blackouts in ourhomes and industry. I dare say – we have done in twoyears what this country could not do in the last fiftyyears,” he said.

Mutharika cited the creation of the ElectricityGeneration Company (EGENCO), which has nowtaken over the electricity generation function fromElectricity Supply Corporation of Malawi (ESCOM) asone of the reforms his government has undertaken toimprove efficiency in the area of power generation.

He said other initiatives the government isexecuting in the power sector include commencementof the Malawi Rural Electrification Program (MAREP)Phase 8, which will connect a total of 336 rural tradingcentres throughout Malawi to the National electricity grid,completion of a Feasibility Study and Environmental andSocial Impact Assessment for the Mozambique-MalawiPower Interconnector, completion of feasibility studiesfor the 300 MW Kamwamba Coal-fired Power Plantand geotechnical investigations and Environmental andSocial Impact Assessments on three potential hydropowersites at Fufu, Mpatamanga and Kholombidzo whichwill add about 700 Megawatts to the electricitygeneration capacity.

Meanwhile, Finance Minister Goodall Gondwe haspresented the 2017/18 national budget in which he saidMalawi and other emerging economies are expected tobenefit from strong economic growth in China, Indiaand many other commodity importers.

Malawi’s mineral sector has been strongly hit bylow commodity prices which have, among other things,led to closure of several mines including KayelekeraUranium Mine in Karonga, which is so far thecountry’s largest mining investment

By Jameson Salima

Despite its earlier announcement of its intention to sell off itsMalawian assets, ASX-listed Intra Energy Corporation (IEC) saysit is still forging ahead with plans to develop the 120MW PamodziCoal-fired power generation project at Chipoka in Salima.

The Aussie firm last year announced its intention to sellMalawian subsidiaries which include Malcoal Mining Limited,Pamodzi Power Limited, and Intra Energy Trading Limited “with aview to the long term supply of coal to the 120MW Pamodzi PowerStation from its Tancoal Mine in Tanzania.”

The company said it came up with the decision to sell the assetsdue to poor sales from the Malcoal Mine as a result of an increasein coal imports from neighbouring Mozambique and the adoptionof new trade policies in Tanzania that have restricted companiesoperating in that country from importing coal from Malawi andother neighbouring countries.

However, Intra Energy says in its quarterly report ending March2017 that despite continuing with arrangements to sell the Malawiassets, the company is forging ahead with the Pamodzi PowerProject and has so far signed a term sheet relating to the PowerPurchase Agreement (PPA) with Electricity Supply Corporationof Malawi (ESCOM) following lengthy negotiations with thegovernment of Malawi.

“This term sheet will form part of the sale of the Malawianentities, and in return Tancoal from Tanzania will gain an option tosupply coal to the power station in Malawi, which will be locatedacross Lake Malawi,” says CEO for Intra Energy Tam Brereton inthe report.

He says the sale of the Malawi Operations is pending tax clearancewhich has been further delayed but no production was undertakenat Malcoal Mine in the quarter and operations have stopped.

Project Pamodzi was identified by the recent review of UnsolicitedIndependent Power Producers (UIPPs) done by independentconsultants Mott MacDonald as one of the only two coal-firedpower station projects on the list of UIPPs to be considered forinclusion in Malawi’s Integrated Resource Plan (IRP) study.

The Malawi Government and Intra Energy Corporation (IEC)already signed a memorandum of understanding to construct the120MW coal fired power station at Chipoka in Salima to sell powerto the Electricity Supply Corporation of Malawi (ESCOM).

Intra Energy is a dominant coal supplier to industrial energyusers in the Eastern Africa region and has been developing thePamodzi Coal-fired power project in Malawi alongside Ngaka Coalfired power project in Tanzania

Aussie firm forges ahead with120MW Pamodzi power project

By Deborah Manda

Mutharikaspells out reforms touplift miningsector...Investors will enjoy services of efficientcadastral system

Coal-fired power station: Will Malawi have such a facility soon?

Gondwe: Mw economy to benefit from commodity importers

June 2017 ADVERTISEMENT 7

ADVERTISEMENT/NEWS & ANALYSIS June 20178

By Jameson Salima

The Chamber of Mines and Energy hashailed Shayona Cement Corporationfor i ts cont inued investment inexpansion works at its Kasungu factorydespite being exposed to market

challenges posed by untamed influx of cementimports.

“This shows patriotism and commitment on thepart of an investor worth emulating. Shayona isstanding out amidst all these challenges, particularlythat of unfair dealings on the market. This shouldbe the spirit,” said President for the Chamber DeanLungu in expressing his admiration for Shayona’snew state of the art cement plant.

Lungu led a delegation from the Chamber on afact-finding tour of mines across the country whichtook them to Shayona’s mine and factory locatedin rural eastern side of the district in the area ofTraditional Authority Wimbe, Group VillageHeadman Mwimila.

He said as Shayona is doing, it should start withindigenous investors to proudly take a leading rolein investing in the country and set required highstandards for foreign investors to follow.

“Difficult situations should not diminish ourresolute. Instead, it should embolden our drivetowards lobbying and achieving solutions thatcould turn the mining sector into a vibrant bedrockof our economy to drive the prosperity of the nationand its people,” he said.

The team was impressed with Shayona factorycompound, from safety measures, well-kept andenvironmental friendly premises grounds toworkers’ accommodation set up.

“The standard of investment, factory set up anddevelopment that Shayona has set should be amark-up challenge for all of us local investors tomeet and surpass. What we have seen here isawesome. And it should encourage, at the sametime challenge us with regards to our aspiration tosucceed as investors,” he said.

Shayona Operations Manager PrajeeshPadmanabhan and factory’s Human Resource &Administration Manager Austin Mvula, bothexpressed gratitude to the Chamber for the visitsaying it afforded the company the opportunity topresent challenges they are facing - the major onebeing current government’s policy that allowsinflux of cement imports on the local market.

“Importation of cement from surroundingcountries when local manufacturers can satisfactorilysupply the market is killing our business and thesooner authorities address this, the better or else wewill wake up one day to discover that the countryhas lost its cement industry, which will be

shameful,” Padmanabhan said.He also said apart from committing to the

development of the company through continuedcapitalisation, Shayona is also fulfilling itscorporate social responsibilities by investing ineducation and health of the nation.

“We are doing this because of the passion wehave to see this country and its people develop,but we also need help from authorities,” saidPadmanabhan.

On his part, Mvula said in addition to curbingthe importation of cement from surroundingcountries, the government needs to supportShayona’s investment by upgrading the 28kmMwimila Turn-off to Shayona factory Road.

Shayona opened its operations in 1997 and theCement Corporation founder, Jitendra Patel, whoalso serves as company’s Managing Director saidin an earlier interview that it has been a 20year-journey with millions of experiences.

In his reflection, Patel said it was not easy toget into the Malawian market that had alreadyestablished brands for a product like cement.

“I cannot forget, and shall never forget the badold days when we failed to convince our customersto offload even 10 bags from a 600 bag truckcapacity. However, as days passed by, with supportfrom our customers and many Malawians at large,things started picking up till today,” said Patel.

The Mulanje-born, Indian-trained mechanicalengineer said it is this experience that has broughtconfidence to the company to continue investingbig in Malawi.

Currently, Shayona is implementing phase II ofits expansion project at the factory site which hasseen the company installing a German-made stateof art MK30billion ($65 million) Rotary CementManufacturing Plant.

The plant includes a crusher, a stackerre-claimer, pre-heater column, raw and coal millamong other necessities, that would be centrallycontrolled in a room fitted with an automatedgadget.

The works at the factory are expected to becompleted by the end of this year and once that isdone, the company plans to invest further byinstalling cement mills in Blantyre and Mzuzu toensure uninterrupted supply of cement to theSouthern and Northern Regions of this country.

Shayona, which currently has a 1200workforce, started producing cement with less than100 workers and a rated production of 100tonnesper day from 250 kilns, but the production has now,grown to 650 tonnes per day and it is expected tojump to 1500 tonnes per day, translating to 30,00050kg pockets of cement a day, once phase II isoperational

By Chiku Jere

Chamber hails Shayona for‘awesome’ plant investment...these are the standards to match or surpass - Lungu

Shayona’s new Cement Mill , Upper right: Lungu at the mine, Lower right: On going development at the factory

June 2017 ADVERTISEMENT 9

ADVERTISEMENT June 201710

June 2017 ADVERTISEMENT 11

Issue No. 50 June 2017

MINING & BUSINESS NEWS THAT MATTER

Studies have confirmed the Malingunde graphitedeposit in Eastern Lilongwe rural as the world’slargest reported saprolite-hosted flake graphiteresource, says ASX listed Sovereign Metals,

which holds the mineral tenement for the deposit.“The recently reported maiden JORC Mineral Resource

Estimate for the Malingunde Project confirms its globalsignificance and provides the basis for a potentially low

capital cost and very lowoperating cost natural flakegraphite operation,” saysSovereign Metals ManagingDirector Julian Stephens inthe company’s quarter lyreport ending March 2017.

Stephens explains thatt o t a l s ap ro l i t e Mine ra lResource Estimate (MRE) forMalingunde is at 28.8Mtat 7.1% TGC and includesh i g h g r a d e s a p r o l i t ecomponent of 8 .9Mt a t9.9% TCG.

He says the high-gradecomponent is to providethe focus for the Scoping

Study which is well advanced and due for mid-late Maycompletion.

Stephens says the studies have unveiled beneficialfeatures that show that Malingunde has the potential tobe a world class asset which will have low capitalrequirements, low operating costs and high revenues perton of concentrates.

“Very soft saprolite is within 30m of the surface andwill be free-digging with very low strip ratio, which shouldequate to much lower life-of mine mining cost. The soft

saprolite material doesnot require primarycrushing or grindingwhich will result insubstantially reducedp r o c e s s i n g c o s t scompared to hard rockdeposits,” he says.

Stephens also saysthe s t u d i e s h a v eindicated metallurgyimp r o v em e n t s a scontinued flotation testwork on Malingundesaprolite has achievedexceptional flake size

distribution and very high purity concentrates. Saprolite-hosted graphite deposits are sought after as

they generally have lower capex requirement and lowoperating costs compared to hard rock graphite mines.

Results from expandability tes t -work conductedo n Malingunde f lake graphi te concentrates by arenowned German industrial minerals laboratory showworld class expandability characteristics across a numberof different graphite concentrate size fractions.

The concentrates are free of quartz grains and hencerepresent a good base material for the preparation ofexpandable graphite and production of graphite foils.

The report also adds that proximity of the deposit toMalawi’s capital means access to infrastructure, rail, water,power and labour is also a benefit to sovereign Metals.

Stephens says the excellent results enhance Sovereign’sability to target entry into the existing, traditional marketsfor its flake graphite products as the base case to underpinMalingunde development.

Expanded flake graphite has a wide variety of uses infuel cell, seals and gaskets, fire retardants, flow batteries,thermal management for consumer electronics and manymore other products.

Sovereign Metals Limited explored Malingunde areain 2015 and 2016, resulting in the discovery and definitionof the world’s largest reported saprolite-hosted graphiteresource

By Deborah Manda

Published by Mining Review Publications P.O. Box 206 Lilongwe, Tel: +265 (0) 111 744 071. Cell: +265 (0) 888 356 536, (0) 993 252 656Email: marcsmediamw@gmail.com

Studies confirm Malingunde as large high-grade graphite resource

Map showing location of the Malingunde graphite deposit

Samples for Malingunde Graphite