Cobalt explorer Hylea Metals (ASX: HCO) could potentially own 85% of the Kayelekera uranium project in Malawi after entering an agreement to initially purchase 65% of the asset from Paladin Energy (ASX: PDN).
The Government of Malawi holds a 15% equity in the project, with Hylea’s joint venture partner Chichewa possessing 20%.
Under a separate deal, Hylea has the option to acquire Chichewa’s stake in the project, which would effectively give Hylea 85% of the asset.
“The acquisition of 65% of Kayelekera is an excellent opportunity for Hylea,” managing director Simon Andrew said.
“Kayelekera is a world class uranium asset that has produced over 10.9 million pounds of uranium and represents an opportunity to use the past production information to re-engineer certain mining and processing processes in order to reduce the overall capex and opex of the operations.”
“We are optimistic about the global uranium market and the outlook for firmer pricing,” he added.
To secure its 65% stake in Kayelekera, Hylea will pay A$200,000 in cash and issue Paladin $1.8 million-worth of its ordinary shares.
On the third anniversary of the completed deal, Hylea will then issue an additional $3 million-worth of shares.
Paladin will also receive a 3.5% royalty on gross returns from the mine up to a maximum of $5 million.
Additionally, Hylea will pay Paladin’s environmental bond of US$10 million over three years.
The sale is scheduled to be finalised before the end of the year.
Kayelekera uranium project
Located in northern Malawi, the project encompasses 152 square kilometres of tenements and hosts a historic open pit mine, which produced 10.9Mlb of uranium between 2009 and 2014.
The mine was placed on care and maintenance due to prevailing low uranium prices.
During the 2013 financial year, Kayelekera produced 1.07 million tonnes of ore at 1,350 parts per million uranium.
More than US$200 million has been spent on plant and infrastructure at the asset including a 3Mlb per annum resin in pulp extraction plant.
A 2004 JORC resource exists for the project of 18.9Mt at 700ppm uranium for 28.7Mlb of the material.
Investors reacted positively to Hylea’s news, with the company’s share price sky-rocketing more than 407% to reach $0.066 by midday.
Unfortunately for Paladin, its share price dropped over 6% to reach $0.122 on the news.