Namibia: Diamonds Bounce Back

Namibia, with its vast areas of desert, is highly dependent on mining, particularly of diamonds and also, more recently, on uranium. While the demand for uranium has fallen following the accident at the Fukushima nuclear facility, diamonds bounced back strongly after a year in the doldrums, and investor interest in Namibia is robust.

Namibia’s vast desert shelters some of the world’s biggest mines. The country, with a population of 2.1m, is the world’s number-six diamond exporter by value and ranked fourth for uranium, but its boom is only starting. Uranium production is forecast to grow three times with new mines and expansions and up to eight oil exploration wells are to be spudded into the seabed by mid-2013 in search of bonanzas like those off Angola and Brazil.

Mining success can also bring volatility. The first phase of the global financial crisis slammed Namibia’s economic performance in 2009. There was a 45% decline after inflation in mining and quarrying, led by a 51% crash in diamonds and cuts in copper and zinc concentrate production contributing to a 0.4% fall in the gross domestic product (GDP). In 2010, diamond mining bounced back 35% after inflation, boosting the sector to 25% growth and contributing to real GDP growth of 6.6%. At current prices, diamond mining made up N$4bn ($490m) of the sector’s N$7bn ($834m) contribution to GDP in 2010.

Diamonds have been key to Namibia’s economy since the diamond rush at the start of the 20th century when ‘shining stones’ were plucked from the desert by moonlight and boom town Kolmanskop emerged: it was later returned to eerie desert. Over the century, the miners pursued the stones right into the sea, first with gigantic earth-moving operations to push back the waves and mine new beaches, and then offshore. Namibia’s estimated 80m carats is the world’s richest marine diamond deposit.

Mining operations now include ships, each effectively a mine. Initially, drill heads up to 7m in diameter cut up the seabed for large hoses to pump it onboard. Hi-tech advances produced vessels such as MV Kovambo, with pilots on deck using monitors and joysticks to drive a 160-tonne seabed crawler to cut overburden and pump gravel up a flexible slurry hose for sorting. The $30m mining system recovered 16,721 carats in one day in 1999.

In November 2011, a 165-tonne drilling platform was jacked up, ‘walked’ 335 metres into the sea: it drilled 24 holes in 24 hours. It was developed by Namdeb (a 50-50 joint venture between global diamond giant De Beers and the government) and has eight legs, each 18 metres long. It can withstand 144km/h winds combined with a five-metre swell and can operate in up to seven metres depth in calm seas and drill through more than 30 metres of sediment.

In 2008, diamond mining accounted for 8% of Namibia’s GDP and 2.1m carats were produced. As global demand fell in 2009, De Beers slashed production at mines worldwide to protect high prices and avoid oversupply, and Namibia’s production fell 56% to 929,000 carats. By early 2011, world prices were higher than ever, boosted by demand in China and India, and production bounced back 58% to nearly 1.5m carats in 2010. Diamond exports were worth $238m in the second quarter of 2011, forming 19% of total merchandise exports.

Uranium marks time

Other mining activities surpassed diamonds for the first time in 2008. Uranium could glow more brightly in future as production is set to go past 15,000 tonnes of uranium oxide in the next few years. However, the nuclear disaster at Fukushima in Japan in March 2011 dampened short-term prospects for nuclear power generation worldwide and hit the both the spot price of uranium oxide and share prices of mining houses. In December 2011, a $1bn Namibian mine was put on hold until 2016.

However, long-term prospects for uranium remain strong as global demand for energy soars alongside tighter targets to cut greenhouse gases. Most of the other projects remain on track, maintaining the momentum which began in 2007 when 36 exploration licences were granted to look for nuclear fuels in the central Namib desert.

The biggest existing mine on land is Rössing, which has been operating since 1976 and is majority owned and operated by the Rio Tinto Group. It is the world’s third-largest mine and produces over 5% of the world’s primary uranium supply. Weekly blasts carve out new walls of uranium-bearing hard-rock ore from a vast open-pit mine. The company hauls up to 55m tonnes of rock a year in giant trucks and processes it into uranium oxide in a plant capable of milling up to 50,000 tonnes a day.

Lower grades caused production to fall from 4,150 tonnes of uranium oxide in 2009 to 3,628 tonnes (8m pounds) in 2010; industrial action and heavy rains slowed the recovery in 2011. The 2012 production target is only 3,200 tonnes. More stripping of waste overburden will extend the life of the mine to 2023 and pit expansion will bring capacity to 4,500 tonnes by 2015.

Paladin Energy’s Langer Heinrich mine opened in 2007, finished stage two of its expansion in 2009 and continued to stage three in 2011. Production rose from 1,304 tonnes in 2009 to 1,673 tonnes in 2010 and 2,500 tonnes to June 2011, with potential for further developments (Phase 4) to go past 4,500 tonnes. Canada’s Forsys Metals Corp is building Valencia mine, which is to start producing 1,300 tonnes a year in 2012, with potential to reach 1,500 tonnes.

In mid-December 2011, French nuclear giant Areva Resources announced it was putting the $1bn Trekkopje mine on hold until 2016, after slashing resource estimates by 42% to 26,000 tonnes of uranium. It was due to start production in 2013 with potential for over 3,000 tonnes a year but production costs would be high because of low grades. Areva acquired Trekkopje when it bought UraMin for $2.5bn in 2007, when world uranium prices were $135 a pound, compared to the current $50-55. By early 2011, a desalination plant run by UraMin with state-owned utility Namwater was producing water and the mine had produced its first ‘yellowcake’ (uranium oxide). Now Areva is writing off $2bn losses in UraMin, including projects in Central African Republic and South Africa, cutting jobs in Germany (which is phasing out all its nuclear reactors by 2022) and shelving a US project.

Australia’s Bannerman Resources Ltd is 80% owner of the low-grade Etango deposit and announced in October that it was looking for other partners, after waiting for a ‘highly conditional’ $147m acquisition proposal from the Sichuan Hanlong Group announced in July. Bannerman said Hanlong’s need for financing from China Development Bank and Chinese government approval would mean too much delay and uncertainty for Bannerman’s shareholders and other stakeholders. Bannerman says there is a total resource of 212m pounds of uranium oxide and Etango can produce 20m pounds (9,050 tonnes) per annum through open-pit mining.

Hanlong had also announced $5m of funding for feasibility studies for the Marenica project, which is reported to be able to deliver 1,340 tonnes of uranium oxide a year at $38 per pound operating cost. Reptile Uranium’s Omahola deposit, with potential to produce another 1,000 tonnes of oxide, is in pre-feasibility study by owner Deep Yellow of Australia.

On 1st December, the way was cleared for the country’s biggest new mine, when the Ministry of Mines and Energy announced that it had given Extract Resources Ltd, listed on the Australian, Toronto and Namibian stock exchanges, a 25-year mining licence for the Husab Uranium Project, the fourth-biggest uranium-only deposit in the world.

The news came just in time for a renewed bid as China Guangdong Nuclear Power Corp’s Uranium Resources Co Ltd (CGNPC) offered shareholders in Kalahari Minerals plc (listed in London and Namibia) 243.55 pence (sterling) per share in a $940m acquisition bid. Kalahari recommended in January 2012 that shareholders should accept. Kalahari owns 42.7% of Extract and CGNPC would have to make a ‘downstream’ offer to Extract shareholders if its bid succeeds.

Before the Fukushima disaster, CGNPC had offered 290 pence per share but then withdrew the offer. In November, Extract said the mine was expected to produce 6,800 tonnes of uranium oxide a year and is potentially the third-largest uranium mine in the world, with a life extended to over 20 years and a potential resource of 188,000 tonnes of oxide. The next task is to raise $1.7bn to develop the mine, but the company is ready to go ahead whether or not the Chinese bid succeeds and is talking with other potential financiers.

Uranium processing needs power, water, sulphuric acid and alkaline chemicals. In 2010, utility NamWater, already running a desalination plant with Areva, announced that it would work with other companies on a second $179m desalination plant. State-owned Nampower is to build a 22.5MW diesel-fired generation plant for $44.6m as a first step in plans to spend over $2.3bn over five years.

Gecko Namibia plans a $1.5m Vision Industrial Park to produce chemical reagents for the ore-leaching process and says this would save $691m a year in imports, create synergies with power generation and desalination, and add value to other local products such as marine phosphates, limestone and sea salt. It includes plans for a port for import and export of bulk commodities and eventually a coal-fired power station, a fuel tank farm and other provisions.

Phosphorous minerals mined on Namibia’s seabed could produce 3m tonnes of phosphate concentrate per year, of which Namibia could export 2.25m tonnes as world demand for fertiliser soars. The park could create 11,250 jobs in construction and 2,470 permanent jobs.

Other minerals

Anglo American made an important inverstment worth $454m in post-independence Namibia to develop the giant Skorpion zinc mine and refinery in the southern desert. It produces 150,000 metric tons of high-grade zinc a year. In December 2010, London-listed Vedanta Resources plc acquired it for $707m. At the end of 2011, global trader Glencore International was reportedly in talks with Exxaro Resources to buy the next-door Rosh Pinah zinc mine, which produces 70,000 tonnes of zinc and 28,000 tonnes of lead a year and had been valued at 56m.

Namibia had been a major exporter of copper but eventually mines were closed. London-listed Weatherly International restarted mining at Otjihase and Matchless using contract miners and expects to produce 7,000 tonnes a year of copper with production for the next seven years sold to Swiss metals trader Louis Dreyfus, which provided $7m in finance to reopen the mines.