Namibia: Diversifying for Growth

Namibia harnesses stable governance to diversify its mining industry.

Elisa l. Iannacone

Namibia_BLOGColonized by Germany in the late nineteenth century and ruled by South Africa in the early twentieth century, the Namibian cultural fabric has been woven with a history of genocide, forced labor, and racial segregation. Despite its turbulent past, Namibia now stands as one of the most stable countries in Africa and has been an independent country since 1990. Known for its gem-quality alluvial placer deposits along the Orange River, Namibia is the world’s second largest producer of diamonds and fifth largest producer of uranium.

Softening commodity prices have not stopped Namibia’s mineral growth. The government is determined to unlock and optimize Namibia’s resource potential, and growing demand for mining and oil and gas products has triggered the development of projects such as the Walvis Bay Harbour. Initially scheduled for 2016, the project was pushed ahead of schedule to next year and will facilitate faster and more efficient imports and exports, particularly for commodities.

In addition to Walvis Bay Harbour, there are vast amounts of exploration taking place in the country because of its stable governance. Though Namibia “does not have an extraordinary geology for copper, like Zambia and DRC do, it has a stable government and sufficient support systems set in place,” says Mr. Craig Thomas, Operations Manager at Weatherly International. Political stability is a huge attraction for investors, as well as Namibia’s strategic opportunities as a regional hub for transport and logistics opportunities. “Though the population of Namibia is only about 2 million people, the country is positioned as a gateway to the region’s market, which has over 300 million people,” said Mr. Martin Inkumbi, CEO, Development Bank of Namibia.¬¬

Namibia is now diversifying beyond its mainstay industries of uranium and diamond production. Full production at B2Gold’s Otjikoto gold mine is planned for 2015 and will make Namibia Africa’s seventh or eighth largest gold producer. An $88.3-million investment for refined copper by Weatherly International is rapidly approaching production. “Tchudi will produce 17,000 metric tons of copper/year, for an initial mine life of 11 years. Officially we are going to produce in the second quarter of next year, though we are on track to achieve this goal comfortably,” Mr. Thomas said. Moreover, the Tsumeb plant now provides local acid production. “Swakop Uranium’s Husab is being built and they also have plans to build their own [acid] plant; Skorpion is analyzing a similar possibility. Perhaps eventually Namibia will have an acid production surplus and then become an acid exporter,” says Mr. Thomas.

Despite the progress at Walvis Bay Harbour and Husab, Namibia’s mining sector has not been immune from the global capital shortage. “Namibia has certainly faced challenges with the softening of uranium prices and the iron ore price dropping by around 37%,” said Mr. James Grobler, Member of the Board for Lodestone, a junior supplying the market with high-grade iron-ore.

Still, a diverse portfolio of projects is moving forward. Lodestone has recently received approval for their Dordabis iron-ore project, while Samicor has discovered a phosphate reserve of over two billion tons, which places Namibia as third globally for phosphate rock reserves. Swakop Uranium’s Husab project is also scheduled to begin full production in 2017. Husab aims to become the world’s second largest producer of uranium oxide.

Some companies have entirely re-focused their operations to adapt to global prices. “We have closed down LLD Diamonds Namibia diamond cutting factory completely since the downturn in the diamond market. Currently Sakawe (Samicor) is not very active in the diamond business, as we are focused on the exploration and the mining of phosphates along the Namibian coastline to produce fertilisers,” said Mr. Kombadayedu Kapwanga, Regional Director, Sakawe Mining Corporation.

Namdeb, a 50-50 joint venture between the Namibian government and DeBeers, is increasingly focusing on marine mining, following the slow-down in terrestrial output for diamonds. “The technology required in the diamond marine mining environment is unique to Namibia and it is pioneering on a global scale. […] Moving forward, Namibia’s diamond mining operations will depend heavily on marine or offshore operations,” said Veston Malango, CEO of the Chamber of Mines, Namibia.
Though marine mining holds great potential for the country, environmental risks for marine phosphate production are still being assessed. “Samicor has to make sure that during our mining operations we do not disadvantage or disturb the ecosystem, or other marine operations such as fisheries,” said Mr. Kapwanga.

Though marine mining has been achieved successfully for diamonds, the impact that phosphate marine mining may have on the environment is still uncertain. Carla Murta, Laboratory Manager at Bureau Veritas, mentioned how “some of the materials that are settled on the bottom layers of the ocean, where phosphates are normally found, are not generally in contact with top layer living organisms, which are used for human consumption.” Though it is still uncertain what effect this may have on the marine landscape, “the government has placed a moratorium on marine mining due to their concern about how this new process will affect the environment in the country,” said Ms Murta. Despite theses restrictions, Namibia’s coastline continues to be explored for both oil and gas deposits.

Access to power and water resources remains a major operational challenge for Namibia. The development of new infrastructure, such as Nampower’s N$3 billion 230- to 250-megawatts generation facility in the Erongo Region, aims to address this gradually. With the Kalahari Desert to the east and the Namib Desert to the west, Namibia suffers from intense water scarcity. “All Swakopmund mines are taking water from the same source, which will cause logistical problems in the long run. Other companies, such as Areva, had to put up a water desalination plant,” Robert Grant, Senior Partner, KPMG said.

Being pegged one to one to the South African Rand means that raw product imports experience currency fluctuations. “The biggest challenge in Namibia is the rate of exchange, […] at the moment the Rand is loosing value every day,” said Mr. Jannie Kirsten, Managing Director, Desert Mining Suppliers.

Taxes in the mining industry also pose a challenge to investors, as rates can be as high as 55% for diamond mining, with additional royalties appended to this, and 37.5% for other kinds of mining. “Even in oil and gas production there is an additional profits tax. Namibia is definitely on the upper end of taxes within the region,” said Mr. Grant.

Chinese investors have not been dissuaded by the tax regime and their presence in the country is growing. Taurus Minerals Limited of Hong Kong, partly owned by the China General Nuclear Power Company (CGN) and the China-Africa Development Fund, has a 90% stake in Swakop Uranium. “Uranium’s primary use is as fuel for nuclear power plants […] and there is renewed interest in nuclear energy as one of the clean alternative energy sources of the future. Worldwide, more than 50 plants are currently under construction and 149 plants are planned,” according to Swakop Uranium.

Given the increasingly detrimental effect of coal-fired power plants on the Chinese environment, China is working hard to position itself as a nuclear energy leader, planning more than “a three-fold increase in nuclear capacity to at least 58 GWe by 2020, then some 150 GWe by 2030, and much more by 2050,” according to the World Nuclear Association. In mainland China there are currently over 20 nuclear power reactors in operation and nearly 30 under construction.

In terms of equipment, Chinese imports are also becoming more commonplace in Namibia. “A significant amount of Chinese companies are slowly starting to gain recognition within Namibia, and that does pose a challenge for Desert Mining Suppliers. However, Chinese equipment has a tendency to be less reliable than the internationally established brands,” says Mr. Kirsten.

In spite of the challenges, Namibia remains a country with vast mineral potential. Growing strong with a backbone of diamonds and uranium, the country’s diversification process has just begun. “Namibia is definitely the Guardian of Africa and the opportunities in the country are endless. With all of the projects entering the country and the diversification we are witnessing, we are in for a surprise in the next 7 to 10 years,” Johan van Wyk, GM, Windhoek Renovations said.

This article was written as part of the research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2015. To participate in this report, please contact Sharon Saylor at ssaylor@gbreports.com.

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