Lynas Corporation Limited (“Lynas”) (ASX:LYC, OTC:LYSDY) is currently assessing a recent decision of the Malawi High Court that may affect its proposed Kangankunde Rare Earths (KGK) resource development in Malawi.
Lynas announced on 30 November 2011 that it would seek to intervene in Malawi High Court proceedings as an “affected party”. Lynas was successful in obtaining a ruling from the Malawi High Court in May 2012 that it be added to the proceedings. However, in a recent decision of the Malawi High Court, another judge (in dealing with a related interim matter) went beyond the issues before the court to make remarks that appear to contradict the May 2012 ruling.
As previously announced, the Malawi Government formally approved and certified the transfer of a mining licence in relation to the KGK tenements (“Mining Licence”) to a subsidiary of Lynas in December 2010. Lynas subsequently completed the acquisition of the fully permitted KGK resource in March 2011.
At the end of October 2011, Lynas received correspondence on behalf of a third party claiming that it was seeking various orders in the Malawi High Court against the Malawi Government. These claims related to, among other items, the Mining Licence. Details are set out in Lynas’ ASX announcement dated 10 November 2011.
Lynas originally paid US$4 million net of VAT for its Malawi assets upon completion of a Purchase Agreement. The Purchase Agreement was signed in 2007, and it contained a number of conditions precedent that were satisfied before completion, including:
- Approval by the Malawi Department of Mines for the transfer of the KGK tenement to Lynas
- Approval by the Malawi Investment Promotion Agency for the Lynas project proposal
- Approval by the Malawi exchange control authorities for Lynas to make payment as a foreign investor.
Lynas’ subsequent capital investment in Malawi to date has not been significant.
Lynas intends to appeal the recent court decision, however in light of the decision, Lynas is reassessing the project’s risks in the context of Malawi’s present governance and institutional frameworks.
Lynas will continue to keep the market informed should there be further relevant developments in relation to this matter.
