Mining: ‘Roll out the red carpet for investors’

Jo-Maré Duddy - Resource rent, policy uncertainty and high total effective taxation are hampering bigger job creation in mining and standing in the way of Namibia becoming a meaningful global player in the sector.

“Fix those three things and exploration dollars will flow very fast, ultimately leading to new mines,” says mining expert Mark Dawe, a twice former president of the Chamber of Mines in Namibia.

“If the new mines are operated by responsible corporates that are well governed, the benefits to the country are manifold and not only limited to taxes, royalties and levies,” Dawe adds.

“We need to roll the red carpet out to investors,” says Dawe, currently the managing director and country manager of B2Gold Namibia.

The only way to create more jobs in the mining sector is by “growing the cake”, he says.

“The only way to grow the cake is to roll the red carpet out to investors by ensuring that barriers to investment are removed and that work permits for experienced skilled professionals are easily obtained, with a commitment to investment in local training and skills development.”

Dawe continues: “Exploration companies need to be convinced that the policy framework is both attractive and stable. Policy instability is worse for investors than high taxes.”

Tax regime

Dawe says Namibia’s mining industry needs to be taxed at the optimum level of effective taxation in order to maximise the returns to government from what is a national resource.

“If government pushes the effective taxation rate beyond the tipping point at which investment in exploration slows down, revenue to the treasury will follow,” he explains.

Finance minister Iipumbu Shiimi’s job is to find out what that maximum tipping point is, and ensure that Namibia’s stay there, Dawe says.

“Currently the total effective taxation rate for non-diamond mining is extremely high by global standards (around 58% for a stable operating base or precious metal mine). The total effective taxation rate for diamonds is way over the top and will ultimately lead to the demise of land-based diamond mining unless this is addressed very soon,” he warns.

Dawe adds that the current government is “extremely supportive”.

An example of this is the recent abandonment of the “very poorly concocted proposals to make royalties and export levies non-deductible off the corporate income tax calculation”.

“This was effectively a double taxation that would have killed new foreign direct investment into the sector. The new minister of finance [Iipumbu Shiimi] removed that just in time, but not before a lot of damage had already been done,” Dawe says.

Competitive destination

According to Dawe, the competitive edge of Namibia’s mining sector is its fiscal, sovereign, policy and security stability.

“In Namibian mining circles, we say we are ‘rich in poor resource’,” he says.

The only way Namibia will get new mines operational to generate new cash for its ailing economy is by ensuring that the country safeguards that stability, he adds.

“Unstable countries have no low grade mines.”

Dawe says all of Namibia’s mines are low grade because of that stability.

“However, if they’re pushed too hard in terms of taxes, investment dollars will flow downhill to countries where the return on investment is better, notwithstanding the risk profile of that country,” Dawe cautions.

Asked what the potential of increased value-addition is in the sector, he comments: “That’s not for miners to answer. Value addition is the responsibility of the manufacturing sector and will only take place if there is an economic reason or incentive to do so.”

Dawe elaborates: “Government should learn to let the economy drive itself and not constantly revisit this issue of value addition and threaten to punish the industry. If it makes economic sense to enrich uranium, refine gold, etc., someone will do it. Nobody will do it if it’s a legislated condition of mining.”

Cooperation between government, employers and unions is vital, he added.

“The Mineworkers of Namibia (MUN) and government have been extremely cooperative with the mining sector as all parties realise the importance of the sector to the economy, especially in terms of foreign currency earnings,” Dawe says.

Creating jobs

Dawe stresses that government needs to be convinced to liberate the economy and get serious about corruption, especially in the area of resource rent and deposit accessibility issues.

The rest will follow automatically, he believes.

“Rather have many profitable mines run by environmentally and socially responsible companies than just a few that are struggling to survive under the burden of an over-taxed and over-regulated policy framework plagued by deposit accessibility hurdles,” Dawe says.

He refers to renowned diamond expert, Martin Rapaport, who was once asked at a mining investment conference in Windhoek what his recommendations to government would be in order grow the sector. Rapaport’s advice was a curt “don’t interfere”.

“This is the best advice anyone could give and is just as relevant today,” Dawe says.

“Government should provide and monitor a sensible policy framework that enables a responsible mining sector to thrive and hence maximise the benefit to the country, the people and the planet,” he says.

Covid impact

Dawe says the mining industry has not been significantly impacted by Covid-19.

“Initially, during the Phase 1 lockdown period many mines reduced their waste mining tonnages in order to minimise the number of people on the mine sites, but in most cases, the processing plants continued to operate on stockpiled ore, or ore that was still being mined during the lock-down period.

“After the Stage 1 lockdown, most companies resumed full mining production. In the case of B2Gold, the increasing gold price and weakening Namibia dollar exchange rate post Covid-19 have translated to increased profitability.

“I believe the diamond industry has been negatively impacted by Covid as diamonds are considered to be luxury/non-essential items and demand has significantly reduced post-Covid,” Dawe says.

Asked how long it would take for the sector recover, Dawe responded that metals and minerals prices are cyclic by nature, according to supply and demand.

“Demand for most metals and minerals (apart from gold) have reduced owing to Covid, so the recovery will largely depend upon the length of time it takes the global economy to recover once Covid has been brought under control, Dawe concludes.