Namibia Mining 2011
Putting the record straight
[This article was first published in 2011, and there have been numerous developments since]
Following a Cabinet decision, in late April 2011, the Honourable Minister of Mines and Energy, declared uranium, gold, copper, coal, diamonds and rare earth metals as strategic minerals.
The decision was motivated by a Government belief that although the mining sector is a significant contributor to the Namibian economy, the sector’s share to government revenue is disproportionate to its share of the gross domestic product. The belief is that Namibia mainly benefits from its natural resources through royalty payments.
As a broad outline, the declaration aims to create a public-private partnership that will:
- Make the Namibian Government and the people of Namibia meaningful participants in the mining sector. This will be achieved by granting a State owned company (Epangelo Mining Company (Pty) Ltd) the right to own all new licences issued for the exploration and mining of strategic minerals;
- Ensure that the Namibian Government is informed when private investors sell Namibian mining interests;
- Create conditions allowing individual Namibians to participate in the Namibian mining sector;
- Share in the growth and risks in the mining sector.
It is important to emphasise that the Minister of Mines and Energy on a number of occasions said that this declaration is not intended to herald the nationalisation of minerals or mines in Namibia.
The decision was motivated by a Government belief that although the mining sector is a significant contributor to the Namibian economy, the sector’s share to government revenue is disproportionate to its share of the gross domestic product.
The declaration raises a number of questions, including what happens on the renewal of existing licences, with licences in the pipeline, mining licences that arise from existing exploration licences, future expansions to adjacent existing exploration licence areas, etc. Similar concerns were raised by the Namibian Chamber of Mines and were answered by the Minister of Mines and Energy as follows:
- Renewal of existing exploration and mining licences will not be affected. However, where mining licences were issued but no development has taken place for a “long time”, joint development arrangements may have to be considered;
- Future expansion of mining operations by conversion of adjacent exploration licences into mining licences will not be affected. However, where a licence holder cannot demonstrate its development capacity, a joint development could be an option for the Namibian Government;
- Licences (exploration and mining) in the pipeline – certain conditions
that will grant the first right of refusal of shareholding to the Namibian Government may be attached to licences that are in the process of being issued;
- Future expansion of existing exploration licences by addition in size or addition in commodity – these applications will be treated as new applications and will only be issued to Epangelo. After approval of such licences, Epangelo may enter into joint ventures with interested parties for exploration and/ or development.
There remains speculation on how Epangelo will exploit its new licences. The company, through its Managing Director, indicated that each venture will be treated on its own merits and that, amongst others, Epangelo’s share in new mining operations will depend on the capital required for each project.
At this stage, it is not yet clear how Epangelo intends to structure its joint venture arrangements or how it will approach sensitive issues such as capital contribution ratios, profit sharing arrangements or the repatriation of profits.
For these changes to take effect amendments need to be made to the Minerals (Prospecting and Mining) Act of 1992.
Apart from these significant changes, the Honourable Minister of Finance announced in March 2011 during her 2011/2012 budget speech, that certain tax changes will be effected during the course of 2011, mainly to broaden the Namibian tax base. There were strong indications at that point that these changes would include the mining sector. This was supported by the Honourable Minister of Mines and Energy’s announcement on 17 May 2011 that Government is considering a windfall tax that will allow extra revenue to Government in good times.The Minister called on the Namibian Chamber of Mines to come forward with suggestions as to an appropriate tax system to achieve this objective.
In conclusion, a great deal of clarification needs to be provided by Government on both the Government Joint Venture and the tax issues.
Our hope is that both the Ministers of Mines and Energy and Finance will keep communicating with the industry through the Namibian Chamber of Mines and with tax professionals on these matters.
We also hope that the Minister of Mines and Energy’s promises that Namibia will remain an investor friendly country and that the proposed changes are not intended to nationalise the mining sector will keep true when the changes are implemented into legislation and practice.