Mining for hope

Jo-Maré Duddy – Namibia’s mining sector – propelled by uranium and in particular Husab – is forecast to become one of the main drivers of the economy in the coming years with its growth likely to outperform relative to regional peers. This is the opinion of Fitch Solutions Macro Research as expressed in its latest Africa Monitor, released last month.Although much rosier than that of the forecast of the Bank of Namibia (BoN), the central bank and Fitch Solutions agree about the mining sector’s potential to help kick-start economic growth in the country.The BoN’s latest economic growth forecast, released in April, pegs expected growth in the local mining sector at 4.9% in 2020. If accurate, this will make mining the best performing sector in the economy. Fitch Solutions currently estimates annual growth of 9.7% in mining next year.The main driver of growth will be Namibia's uranium sector, which will primarily be boosted by rising production at Husab, Fitch Solutions says. “We believe increased mining sector activity and exports of uranium to countries such as China, where demand for nuclear power is strong, will see the mining sector continue to outperform the rest of the economy,” Fitch Solutions said in a report in April.In the BoN’s latest forecast, the central banks says the uranium mining industry is expected to remain under pressure due to low international prices for uranium. “While the Husab mine is expected to continue ramping up production during 2019 and 2020, there is high uncertainty about production from other uranium mines as the uranium price is expected to remain depressed for some time. The assumption is that both Husab and Rössing Uranium mines will increase production at least until the year 2020,” the BoN says.The BoN expects the uranium sector to grow by 8.2% this year, followed by 14.2% in 2020.Big bangMining and quarrying in 2018 had its best year since 2012 and boasted with annual growth of 22%.At current prices, the sector pumped nearly N$27 billion into the economy, contributing 14% to Namibia’s gross domestic product (GDP) in 2018.At constant 2010 prices, adjusted for inflation, mining last year contributed nearly N$12.4 billion to Namibia’s GDP of around N$108.9 billion.Annual growth was significantly up from the 13.3% of 2017, according to the latest preliminary national accounts released by the Namibia Statistics Agency (NSA).The performance in the sector is attributed to diamond, uranium and other mining and quarrying subsectors that recorded strong growth of 13.7%, 64.8% and 54.1% respectively, the NSA said.Despite low demand and depressed uranium price, uranium subsector is estimated to have registered a robust growth in real value added of 64.8% in 2018, compared to 23.4% recorded in 2017, the NSA said.“This performance was reflected in the increase in the production volume of uranium due additional mine [Husab] reaching its full potential,” the agency said.Emerging giantThe Husab mine, majority owned by China General Nuclear Power Group (CGNPC) through its subsidiary Swakop Uranium, has had a significant impact on Namibia's mining sector since coming online in 2017, Fitch Solutions says.Following annual growth of 13.6% in 2016, the uranium sector expanded by 23.4% in 2017. Husab is one of the largest uranium mines in the world, with indicated reserves of about 140 kilotonnes (kt) of uranium and an expected life of 20 years, Fitch Solutions points out.Swakop Uranium, owners of the Husab mine, last year was the biggest mine employer in the country, the latest figures of the Chamber of Mines in Namibia show. Its permanent labour force at the end of 2018 was 1 582 and 40 temporary staff was employed. In addition, Swakop Uranium employed 720 contractors last year.Global playerThe Husab mine currently produces approximately 3kt per year of uranium while the aim of CGNPC is to ramp this up to 5.5kt of uranium this year, which would be the mine's expected full capacity, Fitch Solutions says. “However, we believe this figure is more likely to be reached in 2020 given the company track record of not meeting announced targets before as well as ongoing operational problems at the site,” it adds. Fitch Solutions explains: “As an example, in February 2019, up to 500 employees stopped working due to concerns that unchecked explosives and detonators were at the mining site. The mine's executive committee itself announced late last year that they expect the mine to produce only 5.0kt of uranium this year, which is slightly below full capacity of 5.5kt.” “This delay of full production from this year to next year is something we have included in our forecast assumptions and is reflected on our uranium production growth rates for Namibia,” Fitch Solutions says. Once the mine does reach full production it will reinforce its place as the second largest uranium producing mine in the world, only behind the McArthur River mine in Canada. It will also propel Namibia above Niger and Australia to become the world's third-largest uranium producer, Fitch Solutions says.Aside from Husab, Namibia has a number of other projects in the pipeline, the research group points out. One of these is the Etango mine owned by Australian miner Bannerman Resources. As of February 2019, the company is progressing the updated definitive feasibility study for the project.“Bannerman has confirmed viability of an open pit and heap leach operation with expected production of over 3kt of uranium for the first five years. However, the company has yet to set a date for commercial operations to begin,” Fitch Solutions says.Project pipeline Another driver of growth for Namibia's mining sector over the coming years will be the country's strong project pipeline across a number of minerals, Fitch Solutions says.“Namibia ties with Botswana in the Southern African region in terms of new mining projects currently in the pipeline with 14 new projects, according to our projects database.”Fitch Solutions says half of these new projects will be copper-based, with the Haib deposit owned by Deep South Resources as one of the more important developments currently in the works. “However, we do note that most of these projects are all either in exploration or in the feasibility or pre-feasibility stage and such are not yet guaranteed to be reach full development and production, despite our positive price outlook for base metals over the coming years, which should increase economic incentives for project development.”Fitch Solutions highlights that the discovery of battery metal deposits in the country present another potential future growth opportunity for Namibia's mining sector, “as demand for these metals from the electric vehicle industry and other battery storage purposes booms”. “So far various small players have already shown interest in this regard. One example is Montero Mining and Exploration which acquired a lithium exploration license on March 5 2018, on the Omaruru Lineament. Furthermore, Australian company Celsius made the first cobalt discovery in the country in early 2019, declaring that it intends to bring the mine, located in the northwest of the country, into production by 2020.”Losing shine“On the less positive side, the country's diamond industry – traditionally the backbone of the country's mining sector – will continue to witness depleting ore reserves and high operating costs, leading to a deceleration in new projects,” Fitch Solutions says. Namdeb has announced that it plans to close four mines by 2022 for these reasons. “While this paints a bleak outlook for the sector we believe that offshore mining will continue to drive production slightly higher over the coming years, even if not at levels seen in the past,” Fitch Solutions says. “Namdeb estimates that 95% of its diamonds will come from the Namibian seabed in the future and the company currently operates five mining vessels - the Debmar Atlantic, the Debmar Pacific, Gariep, Grand Banks (put back in operation in 2015) and Mafuta.” Attractive“We believe that Namibia's favourable business and political environment will continue to spur investment and therefore growth in the country's mining sector over the coming years,” Fitch Solutions says. With a score of 50.5, Namibia ranks as one of the best performing countries in Sub-Sahara Africa on Fitch Solutions’ Mining Risk/Reward Index, considerably above the regional average of 38.3. “From a mining perspective Namibia is broadly seen as a safe and business friendly jurisdiction by mining companies due to a clear mining code modelled on the Australian and Canadian frameworks and relative low royalties and taxes compared to regional peers.” Fitch Solutions says government's decision to scrap a clause that mandated businesses to sell a 25% stake to previously disadvantaged Namibians as part of the New Equitable Economic Empowerment Framework (NEEEF), is an added tailwind” that will be seen as positive by mining investors. Labour tension“Despite this positive outlook we do note that labour tensions in the industry will present ongoing downside risks to our growth forecasts over the coming years. “An example of this was the aforementioned recent incident at the Husab mine where allegations of poor safety measures by employees led to work stoppages. As another example, also in February, employees at Basil Read Mining's Tsumeb Zinc operations decided to strike citing unfair labour practices and the payment of wages based on race. “While this is not something that has yet become widespread, we do believe it could become a broader problem for the country's mining sector if left unaddressed,” Fitch Solutions says.

Mining for hope

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