Bannerman taking the mining heat with ease
FOR African countries, the revenue derived from uranium mining operations by multinational corporations is minimal, uncertain and volatile.
The financial agreements these countries make with the uranium producers regarding their share in the profits are the primary reason for this state of affairs.
This is the conclusion of the report “Radioactive Revenues: Financial Flows between Uranium Mining Companies and African Governments” published this month by SOMO and WISE (World Information Service on Energy).
The report analyses the financial aspects of mining in the main African uranium producing countries – Namibia, Niger, Malawi and South Africa – and examines the activities of the four largest multinational uranium mining companies in Africa: the French AREVA Group, the English-Australian Rio Tinto, the Australian Paladin Energy and the South-Africa-based AngloGold Ashanti.
Currently, one-fifth of all uranium worldwide is mined in Africa, and production is expected to double in the next two years. Nevertheless, uranium mining remains an uncertain source of revenue for African countries given the unstable price of uranium and the dependence on corporate profits. The primary sources of revenue from uranium mining for African countries are corporate income taxes and royalties (a percentage of uranium sales).
But the financial arrangements between multinational corporations and African governments vary widely. For example, according to the report, Niger has acquired the right to sell a portion of uranium it produces rather than rely on AREVA to do so.
In addition, Niger’s royalties’ rate for uranium is higher than Namibia’s. Paladin Energy in Malawi and AngloGold Ashanti in South Africa pay less tax and other incentives per kilogram of uranium sold than Rio Tinto in Namibia and AREVA in Niger. The report alleges that multinational corporations are allowed to write off investments at an expedited rate, further reducing the value and certainty of revenues to host countries. Over the past five years, the report says total revenues received by host states amounted to approximately 17% of the value of the uranium sold.
Although in Namibia, investment agreements between governments and multinational have been publicly pronounced; SOMO researchers discovered that in Malawi, for example, Paladin insisted that the Government should not make any changes in domestic law unfavourable to its investment for the next 10 years.
Rossing Uranium, the world’s largest uranium mine founded in 1970 (now 68.6% Rio Tinto, 15% Iran, 10% Industrial Development Corporation of South Africa, 3% Namibian Government) responded to the report with Andy Lloyd, Chief Development Officer (Rio Tinto), blasting the report as “not justified”.
“In addition to paying royalties and taxes to the Government, Rossing takes great care to direct its spending on goods and services to local suppliers, which creates a strong multiplier effect from our operations in terms of indirect employment and local enterprise development. Over 98% of Rossing employees are Namibian. Development activities such as that undertaken by the Rossing Foundation, and the educational and training programs at the Namibian Institute of Mining and Technology and elsewhere have provided wider opportunity for historically disadvantaged Namibians to improve their economic circumstances. Historically, Rossing revenues have been as high as 18% of the GDP of Namibia, and currently at 4-5% of GDP a sign of success that the Namibian economy has grown and diversified.”
Alan Fine from AngloGold Ashanti which mines uranium only at its Vall River operations in South Africa, also weighed in against the report arguing that; “In South Africa, there exist no separate financial agreements between the State and any mining company. Taxes, royalties and other disbursements to Government are determined by statutes and regulations applicable to all companies that fall into the categories to which these apply.”
Namibia’s identified uranium resources are about 5% of the world’s known total. Those recoverable at up to US$130/kg are about 275,000 tonnes (tU). The Reasonably Assured Resources portion of this is 176,000 tU, accessible by open pit mining.
Uranium was discovered in the Namib Desert in 1928, but it was not until intensive exploration got under way in the late 1950s that much interest was shown in Rossing. Rio Tinto discovered numerous uranium occurrences and in 1966 took the rights over the low-grade Rossing deposit, 65 km inland from Swakopmund.
Two other significant deposits found in early exploration were Trekkopje, a calcrete deposit 80km from Swakopmund and near Rossing, and Langer Heinrich, a calcrete deposit discovered in 1973 by Gencor, 80 km inland from Walvis Bay and 50 km southeast of Rossing.
Namibia’s electricity supply of some 3 billion kWh per year is half supplied by South Africa, which faces serious supply constraints itself. The Namibian Government has articulated a policy position of supplying its own electricity from nuclear power by about 2018, although there is no evident progress towards this goal.
While a moratorium was placed in 2007 over EPLs, Finland’s Radiation & Nuclear Safety Authority (STUK) has begun working with Namibian authorities to help develop uranium mining policies and safeguards a non-proliferation regime, under a program funded by the Finnish Foreign Ministry. As of early 2011 this did not include any development of a regulatory regime for nuclear power.
The Ministry of Mines and Energy (MME) placed a moratorium on the issuing of uranium Exclusive Prospecting Licence (EPL) in 2007, in the wake of an unprecedented wave of uranium prospecting licence applications that raised Government’s concern over the effect uranium prospecting and mining activities would have on the environment and affected communities.
In October 2010 Perth-based Bannerman Resources Ltd announced measured and indicated resources of 148.7 million pounds (67,450t) of uranium oxide (U3O8) at about 0.02% and inferred resources of 63.9 million pounds (28,985t) U3O8 at slightly lower grade, both with 100 ppm cut-off (JORC & NI 43-101 compliant) for the Etango project 30 km southwest of Rossing and 35 km east of Swakopmund.
The company is undertaking a definitive feasibility study for a large open pit mining operation with production from 2015. Production of 5-7 million pounds U3O8 per year for at least 20 years is envisaged.
The alaskite ore is similar in many respects to that at Rossing, but has very little marble which means the uranium quickly in sulphuric acid without consuming as much of the acid in the process. Whilst the proposed mine is up to 360m deep, more than two thirds of the resource is less than 200 m deep, and the feasibility study identified heap leaching as the most cost-effective recovery method. Capital cost is estimated at US$638 million, with cash costs US$ 42/lb U3O8 over the life of the mine.
“We have completed the geological work and de-risked the project technically, now we are going into the detailed engineering phase,” says Brandon Munro, Bannerman Resources’ General Manager.
He argues that the mine’s 20 year life span will have a positive effect on an entire generation, as this lifespan produces employment and skills benefits which are far more permanent and sustainable than a mine with short life span of five to six years.
Bannerman is an emerging uranium development company with interests in uranium exploration and development properties not only in Namibia but southern Africa and the company says it understands the nature of the environment it has ventured into in Namibia. Having spent close to N$400 million on its Etango project since 2006, it has little time for companies’ engaging in ‘boardroom drilling’ and blasts the SOMO and WISE report as not applicable to Namibia and compiled anti-nuclear sympathisers if not activists.
Munro, (35) a South African-born Australian, is the only non-Namibian employee of Bannerman in Namibia, which boasts of geologists and engineers, among others, and takes pride in the fact that foreign companies have an obligation to impact knowledge and skills into the local community.
“Mining is very important to the Namibian economy, but there is not yet enough expertise in the field. It is therefore up to multinationals coming on board to develop Namibia’s indigenous mining expertise, thereby leaving a sustainable legacy,” thus Munro.
He adds, “The Namibian Government policies put a lot of pressure on complex mining operations to pass on skills. Our strategy is not just about building an efficient mine, but also becoming a development house for people. We are encouraging the development of Namibian human capital through working with these policies, rather than resisting them.”
For a company that is expected to only start making profits from 2015, contributing anticipated corporate tax of US$50 million per year with royalties of US$15 million annually, Bannerman is walking the talk of developing communities through its workforce, besides financial investment in various projects.
The company has come up with a culture where all workers are challenged to come up with community projects and otherwise give time to volunteering. With the Etango Project set to generate almost 1000 new jobs by 2015, this approach could produce big dividends for the local community. As part of Bannerman’s employee share plan, in addition to being accountable for individual performance, each employee must prove that they have engaged in community work or else they do not qualify for their full allocation of shares.
He is very cautious about the need not to harm the tourism industry, because of the concentration of uranium mining activities around the resort coastal town of Swakopmund.
The company is co-hosting a workshop in Swakopmund on Mining and Tourism this May entitled “Mining and Tourism – building synergies for sustainable development” in co-operation with tourism bodies such as the Coastal Tourism Association of Namibia and the Hospitality Association of Namibia.
“Mining should not be seen as a threat to tourism but rather an opportunity to boost tourism. There are a lot of expatriates and professionals in the mining sector and these people have big disposable incomes and the desire to travel and enjoy themselves. Add their colleagues, friends and family who visit them from abroad, a lot of money is being spent in Namibian tourism from mining,” he says, noting that he was responsible for around 30 foreign visitors when he married his wife, Angela, in Namibia last December.
A Pre-Feasibility Study (PFS) was completed by Bannerman in 2009, which highlighted the robust technical nature of the project and demonstrated the significant leverage to anticipated higher future uranium prices.
As a result, an application for a Mining License was lodged with MME in December 2009, and is still ongoing.
“It is pleasing to see us getting recognition from Government for what we are doing.We have created a number of Namibian businesses. When we started drilling, Metzger Drilling was a small business drilling water bores for local farmers. Now they have become a major Namibian company with a dozen drill rigs across the country. We have empowered Elga Enviro cc, who through contracts to rehabilitate our drilling sites and training on our health and safety systems; have developed into a fully fledged company which service other mining clients. We don’t sing and shout about it because that is how we should be doing business. For us, it’s normal.”
Bannerman’s Etango Project, one of the world’s largest undeveloped uranium deposits is headquartered in Perth, Western Australia. The Company is listed on the Australian Securities Exchange (code BMN), Toronto Stock Exchange (code BAN) and the Namibia Stock Exchange (code BMN).
“Uranium is not like gold or copper. Its breed and pedigree is important. No one wants to find out that the power for their nuclear plant is harming the environment somewhere in the world, or is produced with unfair labour practises.
“The impetus for nuclear energy in the world is so established that the Fukushima crisis in Japan will not impact the long term demand for uranium. Short term, yes, the industry is affected, hence the closure of eight reactors in Germany this month. But in the long term, the role of nuclear energy will not be diminished.”
He says Government has a good handle of uranium and MME has managed the balance between being a regulator and encouraging development, “appropriately”.
“The Namibian government is comfortable with uranium. What is needed is to remove the misconception that all foreign companies are here to take resources, leave nothing of value and head home. Communities need to be advised on that this is not the case. That is the reason Namibia needs responsible mining operators. Government has done well to encourage foreign investors but the industry now needs to explain their position to the communities.”
Munro backs Government on the 2007 moratorium on EPLs.
“This has given Namibia a good breather to assess what is needed to handle expanding uranium in the country. There has been a huge influx of interest in uranium before 2007 and the fear was that regulators would be unable to keep up with such a boom. So the move was timely and intelligent. Of course there may be an influx after the moratorium is lifted, but by then the regulatory systems will be able to cope with burden.”
But he challenges Government on keeping abreast with investor friendliness saying there is need to look for opportunities to clarify policy.
“For an outside company looking at Namibia, it is not always apparent to them what Government policy is on issues such as empowerment and immigration. So there is a need to look for windows to explain Government policy, and with increased certainty, the country will benefit.”
A mergers and acquisition lawyer by profession, Munro came into Namibia 18 months ago having previously worked in his native South Africa, Australia, China, UK and the Czech Republic as an executive for major corporates in the mining, infrastructure and renewable energy sectors.
He concludes; “Namibia is a stable operating environment and a good place to do business while making a difference. Rarely do you find such places on earth. Namibia has great prospects and have all the factors needed to achieve Vision 2030. It’s exciting to have a tangible impact on that.”PF