Australia is becoming one of the main sources of financing for the Namibian mining industry as Canadian investors turn their sights to cannabis and cryptocurrencies.
Namibia has strong financial markets of its own but traditionally its mining companies – in particular juniors – have turned to Canada’s capital markets to raise additional exploration financing. For example, a number of Namibian miners – including Trigon Metals and Namibia Critical Metals – are listed on TSX Venture Exchange, headquartered in Calgary, Alberta.
A joint venture
However, Canadian investors are increasingly being lured away from African mining projects and towards the emerging domestic cannabis sector (the recreational use of marijuana became legal in Canada in October 2018). Instead the Australian Securities Exchange (ASX) has started to play a pivotal role as a source of additional capital for Namibian miners. For example, Namibian uranium exploration company Deep Yellow raised A$15m ($10.2m) on the ASX in 2017, even though Toronto-based Sprott Asset Management is one of its major shareholder.
“This would appear to suggest that North America is still not ready to finance Namibian projects,” says Brandon Munro, chief executive officer at Bannerman Resources, an exploration company with a 95% interest in the Etango uranium project in Namibia. “Many South Africans have come to work in Australia and that has helped Australians to understand the culture of southern Africa. This gives Namibia a big advantage compared with other African countries such as the Democratic Republic of the Congo.
“Namibia is seen as safe, reliable, easy to work in and fiscally stable. It must take advantage of that reputation and cherish it. Many of Namibia’s mineral deposits are low grade, so it is not the geology that brings investors there. The country has to be very careful to maintain its reputation for stability.”
Loss of funds
Some experts compare Canada's cannabis boom with the dot.com bubble in the late-1990s, which also led to a drying up of venture capital for mining juniors.
“Recently, an interesting new trend has emerged,” says Conrad Dempsey, chief executive officer at RMB, one of Namibia’s main investment banks. “A lot of the funds that used to be invested in exploration have migrated to the lucrative cannabis industry [since the change in] legalisation in Canada, a country that has traditionally been a key source for exploration funding.
“This means that new miners [in Namibia] have yet another obstacle to overcome, in addition to the challenge of attracting financing for projects that are often located in difficult territories.”
East replaces West
Namibia’s mining assets have seen a major change of ownership from Western to Asian shareholders during the past decade. The source of capital for large-scale mining operations is migrating to Asian markets. Apart from London-based Anglo American’s indirect involvement through De Beers, no global mining houses now has a direct active investment or any meaningful exploration activity in Namibia.
In March 2019, Schwenk Zement International, a German cement producer, agreed to sell its entire investment in Namibian cement company Ohorongo to International Cement Group, based in Singapore. In November 2018, Rio Tinto said it would sell its 69% shareholding of the Rössing uranium mine in Namibia to the China National Uranium Corporation. The deal should complete shortly.
“We estimate that currently about two-thirds of Namibia’s mining industry is in distress, being either in care and maintenance, loss making, or with a formal life of the mine of less than three years,” says Mr Dempsey. “This makes the need for the discovery of a new mine urgent.”
Namibia’s ranking on Fraser Institute’s Mining Investment Attractiveness Index has dropped dramatically during the past few years. In 2018, it was placed in 60th out of 83 jurisdictions worldwide compared with 21st place out of 122 jurisdictions globally in 2014.
Some old mines – including Namib Lead & Zinc Mining, Afritin Mining and the Desert Lion Energy lithium mine – are now being re-started, giving the industry in Namibia a degree of hope. Whale Rock has also completed construction of its cement plant near Otjiwarongo, which created 450 permanent jobs.
Furthermore, an improving international uranium market bodes well for the progress of major uranium projects in Namibia, including Bannerman’s Etango deposit, the Zhonghe Resources project, Valencia Uranium’s Norasa deposit, Reptile Uranium’s Tubas and Tumas projects and the possible re-start of the Langer Heinrich uranium mine. Desert Lion Energy is also raising financing to develop a lithium mine close to Karibib.
The country is a world-class producer of gem-quality rough diamonds, uranium oxide, special high-grade zinc, gold bullion, blister copper and lead concentrate, as well as salt and dimension stones.
“Namibia has a well-established capital market to support the mining industry and a tested regulatory framework,” says Mr Dempsey. “It offers a lot for investors to find and we share a lot of the positive sentiment with investors – new and established – about the potential opportunities.”
Good to grow
The mining industry was one of the few sectors of the Namibian economy to record a positive growth rate in 2018. It grew by 22% and contributed 14% to GDP, according to Namibia Statistics Agency. A jump in uranium and diamond production of 64.8% and 13.7%, respectively, was behind this strong performance.
However, fixed investment in the industry declined by 26% from N$5.61bn ($379m) in 2017 to N$4.14bn in 2018.
Not-for-profit organisation Chamber of Mines of Namibia (CMN) estimates that the industry directly employs 16,200 people and indirectly employs a further 113,500. The largest portion of the indirect job creation is through the local supply chains. The mining sector generated N$33.54bn in revenue in 2018 through the sale of mineral products, of which 40% was spent on goods and services from local suppliers. The sector has the greatest impact on local economic development – primarily in job and wealth creation – through this link.
However, in March 2019 the industry was left reeling after the government announced plans to stop royalties from non-diamond mining companies from being tax deductible and to increase the export levy for dimension stones to 15%, from 2%.
“The continued uncertainty does not support sustainable industry growth, which is desperately needed in lieu of Namibia’s depressed economic environment,” says Veston Malango, CEO at CMN.
“Instead, policies are needed to transform the sector from a perceived ‘sunset’ industry to a ‘sunrise’ industry, whereby investment into exploration can pave the way for new deposits to be discovered and new mines to be developed, enabling a new dawn in the era of Namibia’s mining industry.”