Support mining and exploration

ROY MILLER, EX-DIRECTOR OF THE GEOLOGICAL SURVEY OF NAMIBIA WRITES:

There is a major misconception among some members of the public regarding government’s earnings from mining.

I would like to add to Cees Dekker’s letter in the Namibian of 10th May. Every company from the smallest SME to the biggest giant is allowed to deduct expenses incurred in the process of earning income from revenue. Only the profit thereafter is taxable.

No company escapes tax or gets a tax holiday. But it has to make a profit to become subject to profits tax.

However, there are other payments made to government. Mining companies pay royalties and levies on revenue and exports, even when they are not making a profit. PAYE deducted from salaries goes to government as does VAT on local purchases even when no profits are made.

Mineral exploration spends money but has no revenue. It also pays PAYE and VAT.

Share ownership by government generates dividends. Dividends leaving the country are subject to Non-Resident Shareholders Tax (NRST).

Thus, government earnings from mining and exploration include profits tax, royalties, levies, PAYE, VAT, dividends and NRST.

According to Robin Sherbourne’s 2011 analysis “Mining and the Namibian Economy” mining contributed the following:

Dividends (shareholders) N$ 319.94 million

Dividens (GRN) N$ 213.94 million

NRST N$ 61.44 million

Corporate tax N$ 816.23 million

PAYE N$ 397.15 million

Royalties N$ 822.89 million

These figures was from a 2010 survey by the Ministry of Finance of the seven largest mining companies which showed that by far the greatest financial beneficiary from mining was government. Additionally, the 2018 Annual Report of the Chamber of Mines of Namibia showed that the mining industry bought N$ 11.8 billion of supplies and services from local Namibian sources which was 1/3 of total turnover, i.e. a massive support to the Namibian economy.

Further consideration needs to be taken of Namibia’s mineral potential and the financial risks of exploration. We compete with the rest of the world in trying to attract investment in mineral exploration. Although Namibia has potential for the discovery of new mineable mineral deposits, this potential is not as high as that of the DRC or Zambia or Chile with their giant copper deposits.

Several international studies have shown that on a world-wide basis, for every 1 000 mineral deposits that are drilled, only one becomes a mine. The money spent on the other 999 is money out the window.

The exploration money spent on all those deposits that never reach the drilling stage is also money out the window. For example, a company recently collected 35 000 soil samples in Kaokoland. These were all analysed for 61 elements. No drillable target was found.

Exploration can take decades. Anglo American was exploring here for 27 years before it found its first mineable metal deposit – Navachab. A Canadian company spent about 40 years exploring in Namibia without finding anything.

This demonstrates that exploration is extremely high risk but we need to find new mineable deposits to replace those that have or are about to close down. Because of the high risk, investors are extremely sensitive to negative and uninformed comments by the public or the press and can turn off the investment tap overnight.

Mining is one of the main pillars of the Namibian economy and we need to be thoroughly aware of the difficulty of finding new mineable mineral deposits which are becoming ever harder to find. We need to support those whose expertise is in mineral exploration, who are fully aware of the financial risks they take and are prepared to take them as long as the investment climate in Namibia encourages them to do so.