Guest Contributor | Sep 14, 2018 | 0
Building the mining house slowly, one brick at a time
It is hard to imagine there was a time when the entire Namibian mining sector consisted of only four large operations and three smaller outfits. But this week’s mining conference provided outsiders with a glimpse of how significant extraction has become in the relatively short time of two decades.
From one zinc mine, one diamond miner, one uranium mine and one copper miner, this sector has developed across a spread of minerals and now covers everything from base metals to precious metals and gem stones, involving at last count, some thirty entities either exploring or mining. Granted, mining has endured more than their fair share of problems, but it never fails to amaze me how a solution is always found, as well as new investors, and how, step by step, it has developed into the single biggest GDP contributor, excluding government.
Our earliest independent national accounts, twenty odd years ago, showed that mining’s contribution was around 10%. But due to various difficulties, and as the rest of the economy played catch-up, this eventually dwindled to less than 5%. However, over the past decade, a slew of new mines, and a wave of exploration work has propelled the sector back to just below 10%. When Husab comes on stream, this statistic will go up to about 15%, and given several other projects that are also under construction combined with those that are close to become real projects, there is no reason why mining as a primary activity can not contribute 20% to GDP.
The phenomenal growth since 2007 must be seen in context. Mines are notoriously long in the making. The exploration work is a capital drain and only very brave investors will be prepared to carry on funding xploration if tangible results are not produced in under five years. But as every geologist will tell you, exploration can sometimes be drawn out over ten years or more. It is only once a particular deposit has been identified and fingerprinted, that it may possibly become a real mining project. Amidst all this activity, investors must be enticed, policy must be refined, and the actual return on investment must be demonstrated. This only happens once a mine goes into operation.
It is extremely difficult from an analyst’s point of view to draw up a mining map and to plot a timeline for all current exploration work. So much depends on the actual results and on the willingness of investors to take the plunge, join the developers, and find the capital.
On top of all the usual problems, Namibian mines typically had to work in highly isolated circumstances. Many of the mines are located in areas so remote, there are hardly any local inhabitants. The absence of what can be described as industrial clusters, makes it more expensive to run a large mining operation, siphoning away potential profits, and scaring the hell out of investors.
So, obviously the Ministry of Mines and Energy, together with other development partners, must be doing something right.
I think the two most important elements are infrastructure and policy. When the secular commodities cycle was booming, i.e. before 2008, exploration activity followed the curve, but it did not lead to many significant mining projects, only a very few. Then the financial crisis struck, commodities started going down, and the incentive for new investments were largely neutralised.
The period since 2008 has been extremely difficult for all the mines. Still, the government did not neglect infrastructure investment taking roads and services over long distances to some very isolated mining operations. And despite the constant threat of insufficient electricity, somehow through well-crafted energy management strategies, there has always been enough to keep the existing mines going, and to promise new projects they will get the energy they need.
As far as policy goes, perhaps the strongest signal came from the way the Ministry of Finance handled the dispute regarding the export levy. This issue was handled, in my opinion, with sensitivity and in consultation with the industry. This also sent out a strong message.
I realise it is not possible to capture the entire mining sector in one broad overview, but the sentiments remain the same. The mines’ owners must show a profit to shareholders to stay in business while the government wants a fair share of the benefits to accrue to the Namibian people.
For this, investors must be reassured, and when a government visibly demonstrates its commitment by investing in infrastructure and by developing and implementing policy in a careful and considerate manner, then it builds confidence, and more parties flock to the table.
In a sense, I think this is exactly what has been happening for many years. Only now it has become so big, it is impossible not to notice the massive progress.