EXTRACTIVE MINING IN NAMIBIA

Presented by Andre le Roux

Small upper-middle income Covers 825,418 km² Namibia’s GDP estimated at U$12.3 billion

in 2011 Population of 2.3 m World’s 122nd largest economy Mining is one of the largest contributors to

Namibia’s economy Extractive or mining industry – N$ 12 billion

in taxes and royalties, in the last decade

NAMIBIA: Introduction

Generated N$8.6 billion (+/- US$ 1 billion) Contributes 9.5 % to GDP Namibia’s GDP is N$ 90 billion Diamond mining consisted of N$ 6.5 billion Other mining and quarrying = N$ 2 billion

MINING AND THE ECONOMY

2009: Exports for mining sector reached N$ 10.9 billion (US$ 1.3 billion)

That accounts for 44% of Namibia’s total merchandise exports.

Trends: Dominance of diamonds from the 1990’s and

the decline in recent years. Small contribution made by other minerals Importance of metal ores, including

uranium, reflecting increased levels of uranium oxide production.

EXPORTS

Rough diamonds Uranium oxide Special high-grade zinc Acid‐grade fluorspar Gold bullion Blister Copper Lead concentrate Salt Dimension stone  Exploration in Oil & Gas and Rare earths-minerals Phosphate mining also planned but met with resistance

due to fears of the impact it may have on marine life and the environment

MAJOR MINING INDUSTRIES

DOMINATED FOREIGN OWNERSHIP

Rio Tinto

Rossing Uranium

Paladin Energy’s Langer Heinrich Uranium mine is in full production and expansion of phase 3.

5t largest producer of uranium globally with total production in 2011 coming in at 3 258 tonnes, or about six per cent of the world’s total production

(World Nuclear Association)

  Areva -Trekkopje

Bannerman – Etango

Forsys – Valencia

Husab - China Guangdong Nuclear Power Corp (2014)

Note: Because of current uranium prices analysts believe that Husab is the only uranium exploration project that, due to the size and ore grade of the deposit, will be developed into a mine in the near future.

If the price of uranium reaches US$ 70 or above, then only will it become economically feasible to develop other, smaller deposits such as Bannerman's Etango and Deep Yellow's Omahola projects

NEW DEVELOPMENTS: URANIUM

De Beers, Government of Namibia through Namdeb Holdings in a 50:50 joint venture, produces some of the world's finest gem diamonds. Namdeb's output increasingly comes from under the sea, thanks to the technical expertise of De Beers Marine Namibia.

Ranks 9th in the world Namibia produced just over 1% of the world’s

diamonds by weight but 6% by value. Namibia’s diamonds continued to be of the highest

average value of the top producing countries

DIAMONDS

AngloGold Ashanti produces gold bullion at Navachab Mine near Karibib (2 013 kg: 2011)

  The Otjikoto-project being developed by Canadian company B2Gold – expected to

commence construction 2014

Rosh Pinah Zinc Corporation, with Glencore and Namibian Investors as major shareholders, own the Rosh Pinah mine, producing zinc and lead concentrates.

Weatherly Mining Namibia operates the copper mines Otjihase and Matchless

Namibia Custom Smelters, wholly owned Dundee Precious Metals produces blister copper at the Tsumeb smelter, from imported copper concentrates.

Okorusu Fluorspar, owned by European chemicals, pharmaceuticals and plastics giant Solvay, is one of the world's largest producers of acid‐grade fluorspar.

OTHER

Mining Claims – Available to Namibian citizens only and concern small-scale mining operators. Duration of three-years, with a further two-year extension a possibility.

  Reconnaissance Licence – These licences are granted for six-months, with possible

extension of another six-months, for the purpose of conducting a preliminary exploration of a considerable expanse of land in order to determine where prospecting should be focused once an exclusive prospecting licence (EPL) has been obtained.

Exclusive Prospecting Licence (EPL) – Licence as being “available to enable the systematic prospecting of areas up to 1,000 km2 for a period of three years with the possibility of up to two two-year extensions provided sufficient progress can be demonstrated”. - Applies to minerals

Mining Licence – This licence is valid for 25 years “mining licences are granted to applicants who can show sufficient technical and financial capacity to develop and operate a mine.” A licence holder also has the right to “approve the development of other mines on the same area”.

Mineral Deposit Retention Licences – Retain prospecting and mineral rights without further obligations

LEGISLATION: Mining Act

Three types of licences:

1. Reconnaissance Licence

2. Exploration Licence – Applies to petroleum

3. Production Licence

LEGISLATION: The Petroleum Act

With regard to the provisions of this Act the followinglicences can be applied for to the Minister of Mines and Energy:

(a) a diamond dealer’s licence entitling the holder to carry on business as a buyer, seller and exporter of unpolished diamonds;

(b) a diamond cutting licence entitling the holder to polish diamonds for the purpose of business or trade;

(c) a diamond tool-making licence entitling the holder to set unpolished diamonds in tools, implements or other articles or to crush or to alter those diamonds for the purpose of trade;

(d) a diamond research licence entitling the holder to conduct research and tests in connection with diamonds, but not to polish diamonds for the purpose of business or trade.”

THE DIAMOND ACT

Before independence – South African dominated all sectors of economy

SA dominance had dwindled - Mining sector now dominated by multinationals – China, France, Australia, Canada

GRN not content with this development

But: Locals do not always possess the expert skills or capital required to

undertake large scale long term exploration and mining activities and thus, through an informal undertaking between authorities and mining companies, have to largely settle for passive minority stakes in exploration and mining activities.

EL’s for locals issued – farm-in international partners to carry burden Aim: to give Namibians opportunity to gain experience in oil and gas

industry…to continue further when discovery is eventually made

LICENSING REGIME

In practice: Speculative trade in Els “Fronting” – where locals had no substantial input before

cashing in

Epangelo: GRN enacted the Strategic Minerals Act which created the

Epangelo mine company. I.t.o the act Epangelo would own all strategic minerals

Strategic minerals - all minerals except fluorspar and zinc Not law yet.

Trend has emerged where private companies negotiate with Epangelo in good faith - shares Companies not compelled - Strategic move to safeguard their future ownership

Regime continued:

“…the risk of corruption lies not only in the flow of revenues from contracts and licences, but also right at the start, when extractive companies are granted access to these licences and contracts. Too often private ‘shell’ companies with opaque ownership structures are awarded lucrative concessions, with little information available as to who the beneficial owners of the company are, how much (if anything) the company has paid for the licence, and what the country has gained in return.

“If these companies do not have the technical capacity or financial resources to develop the asset themselves, they may end up being carried by international and national operators. Alternatively, they may squat on lucrative concessions by acquiring them from government before ‘flipping’ them quickly to other investors who actually have the capacity to develop the licence.

Rigged? The scramble for Africa’s oil, gas and minerals, Global Witness,

January 2012.

Quote:

Currently licensing is statutorily done on the basis of an open invitation to anyone to apply for a specific licence.

Authorities are looking at introducing a bidding system in respect of petroleum exploration licences.

A closed-bidding system is being considered

Reform in licensing

References:

Bank of Namibia Quarterly Bulletin September 2011

Institute for Public Policy Research: On a slippery slope: Corruption and the extractive industries in Namibia.

IJG Securities: Namibia's Export Performance October 2012

Chamber of Mines, Namibia