MINING: WATER AND POWER SHORTAGES SCARE INVESTORS: NCM

THE Namibia Chamber of Mines (NCM) recently organised the country’s first ever mining expo, a move, which was lauded as a positive step towards showcasing the industry, which contributes greatly to the Gross Domestic Product (GDP) but to some extend preferred to slouch ‘incognito’.

The mining industry, which contributed 12 percent to the county’s GDP in 2009 raised three key issues at the expo.

Power and water shortages, as well as (high) royalty tax legislation were identified as main challenges bedeviling the mining industry in the country.

These were also said to have a potential to scuttle investment in the industry and should be looked into as a matter of exigency, if the country still wants to entertain its hopes of becoming the world’s third uranium producer by 2015, as Mining and Energy Commissioner Erasmus Shivolo noted recently.

The country’s projected uranium output for 2015 is about 23 000 tonnes.

Namibia is currently the fourth-largest supplier of uranium oxide (U3O8) after Canada, Kazakhstan, and Australia, with about 12 percent of the world’s primary produced uranium. Rio Tinto’s Rössing Uranium and Paladin’s Langer Heinrich are currently the only uranium producing mines in the country, with production targets of between four thousand to 10 000 tonnes, and two thousand tonnes respectively.

Valencia and Trekkopje were expected to come on board in 2012, with 1 300 tonnes and about 3 500 tonnes as production targets respectively.

Etango is also expected to follow in 2013, adding another 3250 tonnes to Namibia’s output. There are several miners currently prospecting for uranium in the country.

Chamber of Mines president Mike Leech singled out uranium mines as being badly affected by the intermittent water supplies.

“We at the Chamber reiterate our concern about the overall water supply at the coast and urge NamWater to accelerate its efforts to develop further capacity urgently,” he said.

It is not a secret that the Namibian mining sector was caught up in a financial squeeze that nearly brought the whole world to its knees recently.

The central bank reported in its financial stability report for March 2010 that the Namibian real economy contracted by 1.1 percent in 2009 as the effects of the global financial crisis took its toll. The diamond and tourism sectors were the most affected as they experienced huge output losses and labour shedding.

However, the mining sector is expected to recover by 15.0 percent this year.

It is such setbacks that dogged Namibia, at a time it started experiencing its uranium boom, which unfortunately requires plenty of water supplies.

The chamber of mines president said there was need for a public‐private
 partnership
 in building the country’s water capacity, which had a potential to benefit both private mining concerns and the economy at large.

Public-private partnerships appear to be the only solution at the moment that can quickly produce results as more uranium mines are set to come on stream. Already there had been initiatives taken by some uranium miners to provide water to their mines and the surrounding communities.

NamWater and Areva Resources are said to have discussed a joint venture regarding the seawater intake north of Wlotzkasbaken.

Last April, the JSE-listed Aveng group inaugurated a US$200-million seawater desalination 
plant, located 30 km north of Swakopomund. This marked the beginning of potable water production at the plant and a major milestone in the mining project that Areva is developing. Designed and constructed by Keyplan, a specialist water treatment subsidiary of Aveng, the plant turns seawater from the Atlantic Ocean into high-quality potable water for use at Areva’s Trekkopje uranium mine, which remains the largest direct foreign investment ever made in Namibia.

The plant is expected to produce 20-million cubic metres of potable water a year, which is enough to allow Areva to operate the mine without pumping any ground water. Areva chief executive and President Anne Lauvergeon said the partnership with the Namibia government had been a ‘win-win’ for all.

“We ensured that we have a mutually profitable partnership that can be socially and economically sustainable. It shows the country’s trust in our expertise and I have no doubt that our sound partnership will go far beyond uranium mining,” she said.

On power supplies, the chamber of mines said if nothing is done to generate power for the country, which relies on its neighbors for energy then the industry was doomed.

“Security of power remains critical to the prosperity of the industry. Adequate own-generation capacity is the only answer to Namibia’s power woes,” Leech said.

The chamber’s president also noted that the country’s power regulator should raise electricity prices “gradually as opposed to instantly”, adding that this would enable the industry, particularly new mines, to plan effectively. PricewaterhouseCoopers said in a report recently that although Namibia gets half of its power from South Africa this supply was not certain, putting mining companies “under severe pressure”.

The regulator granted power utility NamPower an 18 percent hike in power tariffs for 2010/11. The utility had asked for a 35 percent increase.

Given such a scenario it becomes quite axiomatic that the Kudu field project should come on board soon, as it will have an answer to the country’s energy woes.

The mines commissioner said “serious negotiations” were underway to develop the gas field in the near future.

The future, he talked about is 2013 when the Kudu field project is expected to be commissioned.

The project would generate 800 MW and reports say nearly half of that power would be for local consumption, while the rest would be imported by South Africa.

Leech said the industry was also concerned about the royalty tax passed at the end of 2008.

He said the tax would “increase rather than reduce investor risk”.

“(The tax) is likely ... to make it harder for exploration companies to get projects past the credit committees of the banking institutions they will have to raise the money from,” Leech said.

Uranium miners pay 3 percent of their gross sales in royalty taxes, on top of a 37, 5 percent corporate tax, and some analysts expect royalties to rise due to higher demand for uranium.

Rio Tinto’s Rossing mine currently pays 6 percent in royalties, while Areva receives some tax breaks under an economic development scheme.

Though Leech called for the promotion of public-private partnership, to create some kind of a win-win situation, the government argues that it is capable of supplying water and power to uranium miners.

“There is no reason to worry for investors...it would be a concern if we issue mining licenses without being able to provide water and electricity,” Shivolo said. PF