Focus mining beneficiation upstream
According to Rowland Brown government has since independence placed focus on value addition but without much success; when it comes to beneficiation Namibia is missing key factors.
Elvira Hattingh - If government wants to develop successful downstream mineral beneficiation industries in Namibia, a sufficient infrastructure, an investment climate and a regulatory framework that incentivise investment in smelting, refining and manufacturing are needed.
At the launch of the Institute for Public Policy Research’s (IPPR) paper on beneficiation in mining on Thursday economist Rowland Brown said the popular quote that Namibia consumes what it does not produce and produce what it does not consume, is somewhat misleading.
During the launch of the paper, Beneficiation in Namibia: Impacts, Constraints and Options, he said it is a common perception that Namibia should be able to take anything produced locally through to a final consumption product.
“The problem with this is that it misses a very basic economic principle, namely that of specialisation.
“Most people did not build the car they drive with, but have decided to specialise in a different area and buy a car from the experts who do specialise in building cars. The same applies when it comes to value addition,” Brown said.
MINERS DO NOT MANUFACTURE
He said currently we try to force miners to manufacture, in other words, to use the products they produce and take them further down the value chain.
“You would, for example, not force a farmer to turn the meat he is producing on the farm to a pre-cooked meal on a shop shelf.
“When it comes to mining, we try to force miners to manufacture goods – an area where they do not have any expertise in.
“When it comes to Namibia and certain minerals, opportunities for value addition exist, but there are a number of challenges why we struggle to be competitive among other countries in the world, even if we have the inputs.”
According to the paper, Namibia has identified beneficiation opportunities for the mining industry, which include steelmaking and gold refining. However, even though there is potential for these operations, the commercial viability and sustainability of each prospective beneficiation activity needs to be examined within this context to determine whether it should be pursued.
Some opportunities, such as chlor-alkali production, can be implemented successfully to meet some local demand, but are unlikely to succeed at export level.
CHALLENGES TO BENIFICATION
According to Brown government has since independence placed focus on value addition but without much success.
He said when it comes to beneficiation Namibia is missing key factors.
“There are three main challenges for value addition – which is also true for other parts of the economy.
“The first is an unfriendly policy environment for both mining and manufacturing. These take large capital investment upfront and then it takes time to see returns on the investment. Thus investors need a great deal of policy certainty.”
He showed that in the Fraser’s Institute survey of mining companies, Namibia has in the last two years gone from the second most attractive investment jurisdiction for mining on the continent to the ninth place.
“This, coupled with many disincentives for mining such as punitive measures if you export a raw product instead of taking it through to a final product ready for consumption, is what damages our ability to add value in this country.”
“We also have a number of challenges when it comes to infrastructure. Take for example electricity. We have not, for a very long time, added to our generation capacity of electricity.
“Currently the vast majority of our energy comes from imports. We import nearly N$3 billion worth of power every year. We try to force miners to add value to a product while our own energy company can import electricity at a great cost.”
He said the local production of electricity is an opportunity for massive savings and huge value, apart from the fact that we would have more control over the price and availability of electricity. This, in turn, will enable manufacturers to do better at value addition.
“Also, when it comes to water, mines are the second largest users of water. However, the capacity of dams has not been increased over an extended period of time. New mines opening often struggle to get the water they need – Husab mine is a good example.
“Coupled with supply shortages, costs are being driven up. This makes it difficult for the mines to compete internationally.
“Also, more than 90% of the railway lines we have today were already built by 1952, which means we have aged infrastructure.
“The third major challenge is that much of the infrastructure needed for value addition is incredibly expensive.
“Take uranium as an example. A few years ago it was estimated that building an enricher as well as a nuclear power plant would cost more than what the total GDP of Namibians is.
“It does not make sense if you build this infrastructure, then only add about 3% value to the product and also only employ a few highly trained and skilled experts from other countries, as Namibia doesn’t have the required skills.”
Brown said the same applies to diamonds and gold when it comes to value addition. “One step down the value chain will cost a huge amount of money and does not add much additional value. This type of manufacturing rarely leads to addressing unemployment.
“In many instances, taking the product one step down the line you may actually be destroying value - if you can’t do it efficiently. This is what we see with local diamond manufacturing. The cutting and polishing is actually destroying value rather than adding, due to our own inefficiencies in the system.”
OPPORTUNITIES
Brown said there are positives when it comes to mining beneficiation.
“There are enormous opportunities upstream. Many local mines use similar inputs such as safety wear, production chemicals and machinery parts – these are economies of scale we can capture.
“In 2016 mines in Namibia procured goods and services to the value of N$12 billion from Namibian-registered firms, compared to just N$6,5 billion on external or international procurement.”
He added that the conversion of sulphuric acid at the Tsumeb smelter, which is then made available to other local mines, demonstrates a successful upstream beneficiation link.
At the launch of the Institute for Public Policy Research’s (IPPR) paper on beneficiation in mining on Thursday economist Rowland Brown said the popular quote that Namibia consumes what it does not produce and produce what it does not consume, is somewhat misleading.
During the launch of the paper, Beneficiation in Namibia: Impacts, Constraints and Options, he said it is a common perception that Namibia should be able to take anything produced locally through to a final consumption product.
“The problem with this is that it misses a very basic economic principle, namely that of specialisation.
“Most people did not build the car they drive with, but have decided to specialise in a different area and buy a car from the experts who do specialise in building cars. The same applies when it comes to value addition,” Brown said.
MINERS DO NOT MANUFACTURE
He said currently we try to force miners to manufacture, in other words, to use the products they produce and take them further down the value chain.
“You would, for example, not force a farmer to turn the meat he is producing on the farm to a pre-cooked meal on a shop shelf.
“When it comes to mining, we try to force miners to manufacture goods – an area where they do not have any expertise in.
“When it comes to Namibia and certain minerals, opportunities for value addition exist, but there are a number of challenges why we struggle to be competitive among other countries in the world, even if we have the inputs.”
According to the paper, Namibia has identified beneficiation opportunities for the mining industry, which include steelmaking and gold refining. However, even though there is potential for these operations, the commercial viability and sustainability of each prospective beneficiation activity needs to be examined within this context to determine whether it should be pursued.
Some opportunities, such as chlor-alkali production, can be implemented successfully to meet some local demand, but are unlikely to succeed at export level.
CHALLENGES TO BENIFICATION
According to Brown government has since independence placed focus on value addition but without much success.
He said when it comes to beneficiation Namibia is missing key factors.
“There are three main challenges for value addition – which is also true for other parts of the economy.
“The first is an unfriendly policy environment for both mining and manufacturing. These take large capital investment upfront and then it takes time to see returns on the investment. Thus investors need a great deal of policy certainty.”
He showed that in the Fraser’s Institute survey of mining companies, Namibia has in the last two years gone from the second most attractive investment jurisdiction for mining on the continent to the ninth place.
“This, coupled with many disincentives for mining such as punitive measures if you export a raw product instead of taking it through to a final product ready for consumption, is what damages our ability to add value in this country.”
“We also have a number of challenges when it comes to infrastructure. Take for example electricity. We have not, for a very long time, added to our generation capacity of electricity.
“Currently the vast majority of our energy comes from imports. We import nearly N$3 billion worth of power every year. We try to force miners to add value to a product while our own energy company can import electricity at a great cost.”
He said the local production of electricity is an opportunity for massive savings and huge value, apart from the fact that we would have more control over the price and availability of electricity. This, in turn, will enable manufacturers to do better at value addition.
“Also, when it comes to water, mines are the second largest users of water. However, the capacity of dams has not been increased over an extended period of time. New mines opening often struggle to get the water they need – Husab mine is a good example.
“Coupled with supply shortages, costs are being driven up. This makes it difficult for the mines to compete internationally.
“Also, more than 90% of the railway lines we have today were already built by 1952, which means we have aged infrastructure.
“The third major challenge is that much of the infrastructure needed for value addition is incredibly expensive.
“Take uranium as an example. A few years ago it was estimated that building an enricher as well as a nuclear power plant would cost more than what the total GDP of Namibians is.
“It does not make sense if you build this infrastructure, then only add about 3% value to the product and also only employ a few highly trained and skilled experts from other countries, as Namibia doesn’t have the required skills.”
Brown said the same applies to diamonds and gold when it comes to value addition. “One step down the value chain will cost a huge amount of money and does not add much additional value. This type of manufacturing rarely leads to addressing unemployment.
“In many instances, taking the product one step down the line you may actually be destroying value - if you can’t do it efficiently. This is what we see with local diamond manufacturing. The cutting and polishing is actually destroying value rather than adding, due to our own inefficiencies in the system.”
OPPORTUNITIES
Brown said there are positives when it comes to mining beneficiation.
“There are enormous opportunities upstream. Many local mines use similar inputs such as safety wear, production chemicals and machinery parts – these are economies of scale we can capture.
“In 2016 mines in Namibia procured goods and services to the value of N$12 billion from Namibian-registered firms, compared to just N$6,5 billion on external or international procurement.”
He added that the conversion of sulphuric acid at the Tsumeb smelter, which is then made available to other local mines, demonstrates a successful upstream beneficiation link.
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