Namibia Mining Report

The announcement in Q211 of the government's 'strategic resources' plan threatens to capsize the otherwise robust recovery taking shape across Namibia's mining sector and presents significant downside risks to our estimate for long-term strong production increase. The industry is currently estimate to expand by additional than 50% in price terms between 2011 and 2015, resulting in an annual average increase of 6.7% over the period. The Namibian government has stated plans to protect amount 'strategic resources', giving uranium, gold and copper mining rights to the national-owned Epangelo Mining Company.

This declaration presents substantial downside risks to our forecasts as it will deter foreign investment into the mining sector. Furthermore, although the government has stated that the legislation will not affect existing projects, it is likely that the uncertain climate that has been generated will deter investment into current and next projects.

Diamond Sector To Regain Sparkle

Namibian diamond producer Namdeb's announcement in May 2011 that it had returned to positive earnings in 2010 hopefully marked the end of a difficult period for the diamond sector, which began after the country's total production contracted by 58.2% in 2009 due to the world economic downturn lowering world request. The company reported a NAD419mn (US$63.8mn) post-tax profit in 2010, after a NAD414mn (US$63mn) loss in 2009. The result was due to increasing world request, a 58% rise in production and a 12% rise in sales. The firm said it expected steady increase in 2011. Namdeb's recovery chimes with that of the sector as a whole: Namibia's diamond production came in at 1.58mct in 2010, up 70.1%. We expect output to surpass pre-crisis levels in 2015, and thus that the country will regain its status as a key increase area for diamond production.

Regulatory Environment

Namibia's regulatory set-up has until now been regarded as of the majority business-friendly in Sub- Saharan Africa as far as conducting mining operations is concerned, and the country has a successful history of cooperating with overseas firms additional change to the regulatory structure is the move towards the introduction of Black Economic Empowerment legislation, which is scheduled approaching into effect in 2011. The move, which follows on from equivalent legislation introduced some years ago in neighbouring South Africa, will require a percentage of mineral and mining operations to be yielded to Namibia's black people.

Key Players

The bulk of exploration and mining in Namibia focuses on diamonds, uranium and base metals such as copper, lead and zinc. A number of major players, including Rio Tinto and De Beers, have exploited the great potential for the exploration and mining of mineral resources. Diamond Fields International is a Canada-based mining firm involved in exploration and mining of diamonds, nickel and gold in Liberia, Madagascar, Namibia and Zambia.

Namdeb is a joint venture between De Beers (50%) and the Namibian government (50%), and is the country's leading diamond producer. Vedanta Resources is a major Indianbased resources player with world reach. The company recently entered the Namibian market via the acquisition of the country's major zinc mine, Skorpion Mine, through its subsidiary Sterlite Industries