Stepping out the shadow

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The Chamber of Mines of Namibia (CoM) reported that total direct employment created by the mining industry in 2013, including temporary employees and full-time contractors, was 16 909 and provided 1 571 more jobs than in 2012, as Namibia steps out of South Africa’s shadow as a mining powerhouse.

The increase in employment is largely due to the construction of three new mines and other exciting developments which are currently unfolding in the local mining sector. The mining industry is the backbone of the Namibian economy and contributed 9.3% to GDP in 2013.

Once the three new mines come onto stream, this contribution is expected to increase significantly, currently forecasted at around 16% by 2018 and will induce many direct and indirect positive economic spin offs, some of which are already being absorbed by the Namibian economy.

Moreover, while new jobs are currently being created, it should be noted that more than 95% of the mining workforce are Namibians while approximately 4.7% are foreigners.

Despite the depressed global commodity market, particularly for uranium, Chinese owned Swakop Uranium is currently constructing the world’s second largest uranium mine, the Husab mine. The ground-breaking ceremony for the Husab mine took place on 18 April, 2013.

Construction commenced in the last quarter of 2012, and such progress is on track and up to date. Husab mine is scheduled to come into production early in 2016, with ramp-up to full production in 2017.

The N$20 billion mine is expected to employ approximately 6 000 people during construction and will create some 2 000 permanent jobs once in full operation. (The Namibian dollar is currently trading at the same rate as the rand).

The mine will be producing approximately 6 800 tonnes of uranium oxide per annum, exceeding the level of current combined production from Namibia’s two uranium mines.

Additionally, once in full production the mine is expected to contribute five to six% to total Government revenue.

B2Gold is constructing Namibia’s second gold mine, the Otjikoto gold mine, which is located between Otjiwarongo and Otavi. The mine is being constructed at a capital investment of N$2.44 billion.

Currently, there are approximately 1 040 individuals employed during the construction phase and 500 permanent jobs will be created during full operations. Construction of the mine is on par with deadlines, and production is scheduled to commence in the last quarter of 2014.

The life of mine, based on probable reserves is estimated at 12 years. The mine will be producing approximately 3 997 kilograms of gold per annum for the first five years and 3 175 kilograms per annum in the years to follow. The discovery of the Wolfshag Zone, just adjacent to the open pit, indicates the potential to expand future gold production and increase the life span of the Otjikoto gold mine.

On 8 November, 2013, Weatherly held the ground-breaking ceremony for the Tschudi copper mine, and is being constructed at an investment of N$900 million. This marks another first in the history of Namibia as the mine will be producing refined copper (copper cathode), paving the way for possible future investment in manufacturing activities.

The mine will produce approximately 17 000 tonnes of copper cathode a year and is scheduled to commence production in the second quarter of 2015. Once in operation, the mine is expected to create 500 permanent positions and 1,000 indirect jobs.

Namdeb has opened the new Sendelingsdrif diamond mine along the Orange River, another positive development in Namibia’s mining industry.

Dundee Precious Metals Tsumeb (DPMT), which owns Namibia’s copper smelter, is constructing a sulphuric acid plant at an investment of N$2.4 billion. The plant will utilise off-gases from the copper smelter to produce sulphuric acid. The plant is scheduled to come into production in the fourth quarter of 2014 and will be producing 340,000 tonnes of sulphuric acid per annum.

Rössing and DPMT have signed an off-take agreement to acquire 225 000 tonnes of sulphuric acid from DPMT per annum, exemplifying how local synergies can be created to enable up-stream value addition activities in the mining sector.

With a multiplier of seven, it is forecasted that 100 000 plus jobs will be created through the mining industry by 2017. Although mining is not the largest employer, this is a significant contribution to Namibia’s development, given the small population and the high unemployment. According to the Namibia Statistics Agency (NSA), the unemployment in 2013 was recorded at 29.6%.

Alongside employment creation, the Namibian economy will be absorbing many other positive economic spin offs through the development of the new mines such as increased revenue to Government through taxes and royalties, as well as increased export earnings.

Calculated risk

Meanwhile, international reports suggest that value addition in developing nations has become a risky gamble to take. Despite that, Namibia will maintain its stance that value addition is a core position for investment in the raw material sector, says Minister of Trade and Industry Calle Schlettwein.

“That is the principle that we have agreed on and we will stick to it without any doubt. It is a necessity to grow our economy.

“We cannot perpetuate a situation where we are settled at the bottom of the value chain as the provider of raw materials and the importer of finished goods. That era has gone and we have to take the steps to industrialise,” he said in a recent interview.

Reuters recently reported that the efforts of African governments to force mining companies to process minerals before they export them might backfire as they come up against weakening commodity prices and investor demands that firms reduce risky investments.

“In the last year alone, Zimbabwe, Zambia, Democratic Republic of Congo (DRC), Namibia, South Africa and others have hinted at, announced or put in place measures aimed at adding value to mineral exports, which would boost tax revenue, encourage formation of new businesses and add jobs.

“But with falling metal prices and a drastic reduction in the capital available for the mining industry, wary companies are increasingly shying away from investment in countries where the rules of the game can change quickly,” the report said.

However, the Trade and Industry Minister begged to differ.

“I can understand that it would be a turn off for some, but surely not for all, because we still have a lot of interest in the manufacturing sector and investments in that sector are coming in,” Schlettwein said.

“Ohorongo Cement is one good example of where a raw material that is mined is processed into a finished good, cement. The investors that tell us that they are turned off by the requirements of the value chain development or manufacturing, I take it are the investors that are purely interested in the extractive industries, pure mining.

“From their perspective, it is an unnecessary or unwanted burden because they do mining and they trade in raw materials. But that does not satisfy our interests; if we continue to export raw materials only, we forfeit the economic opportunity that value addition brings.”
The top five mining companies have slashed total capital spending from a peak of about US$70 billion in 2012 to an expected US$46 billion in 2015, the report said.

“Investment sentiment in the last year has moved against the mining sector, but the governments tend to have a lagging view of how this is going to affect investment in their countries.

“They continue to argue that mining needs to make a bigger contribution to their economies, but you’ll have to see investment severely tail off to make them think they need to attract investment rather that scare it away,” the report quoted Mike Elliott, global mining and metals leader at Ernst & Young, as saying.

Kevin Goodrem, vice president of beneficiation for De Beers Group, said companies needed to decide whether they wished to continue mining in these countries and Value chains not a ‘turn off’ face what the governments wanted to do in terms of beneficiation, or pull out.
In some cases, he said, it would be a pull out strategy.

However, Chamber of Mines CEO Veston Malango said one should approach such reports with caution, as misunderstandings sometimes arose as to what both mining companies and governments were talking about.

“If you are talking of value addition in terms of mining companies producing final products such as cell phones, cars or jewellery, then that does not attract investment, because they do not have the technology and skills to do so, and that is not their line of business.

“Namibia needs to attract manufacturing investors that will advance the much-needed industrialisation based on pure minerals and metals that we currently produce. It boils down to the type of value addition the in the mining industry, another challenge for companies was that there were no economies of scale to result in further beneficiation.

“For instance, Weatherly Mining produces about 25 000 metric tonnes of copper concentrates from Otjihase and Matchless mines which it exports to China.

“Weatherly Mining exports concentrates although it is within our technological knowhow to produce refined copper but this has not happened due to lack of economies of scale.
“The new Tschudi copper mine in Tsumeb will produce refined copper (99.99%) for the first time in the history of Namibia because it’s an oxide ore body as opposed to the conventional sulphide ore bodies found in Namibia.

“From that pure copper, the manufacturing industry can produce final products such as copper wires and tubes,” he said.

He added that, expecting mining companies to put up refineries and smelters, for instance, would be an investment decision that would be purely based on economics.

“The same applies to zinc concentrate at Rosh Pinah Zinc Corporation. If they have to invest in a smelter then they need to have several times the production levels they have currently. That is what would justify such an investment decision,” he said.

Schlettwein said Namibia was in a position where it needed Foreign Direct Investment (FDI), and the country had a conducive climate for attracting that investment.

“We are also in a position where we export capital. We are sending our own savings out of the Namibian economy into other economies, so we also have an opportunity to utilise our own capital and channel that into industrialisation and development of value chains within our economy.

“I am still convinced that there is significant FDI potential in manufacturing and value adding activities in the economy of Namibia. So I don’t think that it is completely true that we will lose all the FDI if we attach a condition of value addition to it,” the minister said.

“A limited number of investors would probably not see that as a factor but there are very significant opportunities in value addition through developing regional value chains and participating in global value chains,” he said.

Furthermore, there were tremendous opportunities that came with penetrating large markets with semi-processed to finished goods, across various sectors, he added.

Veston Malango & Christine-Rita Abankwa

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Issue 42