Windhoek
Despite a continued downward trend of global commodity prices since last year, the Chamber of Mines of Namibia remains positive regarding the overall outlook and economic contribution for the mining sector in 2016. The representative body for mining companies in the country says the local mining sector finds itself in a favourable position in which prior investments are currently being realised and where the overall output by three new mines is expected to offset any negative spin-offs.
An economist at the Chamber, Lauren Davidson, notes that the ramping up of B2Gold’s Otjikoto gold mine and Weatherly’s Tschudi copper mine, as well as the planned start-up of the Swakop Uranium’s Husab mine will contribute significantly to the mining sector’s overall output, export and government revenue. “It is on the back of such developments that we expect to see any negative impacts of the depressed global climate and commodity markets to be largely eliminated,” said Davidson.
However, Davidson noted that in response to depressed commodity prices, numerous mining operations had to scale back on production in 2015, particularly diamond and uranium mining operations, and said the Chamber expects the same in 2016.
Globally, industrial metals have traded in negative territory through much of 2015, partly due to falling demand from China. Demand for metals further weakened when the United States Federal Reserve hiked its interest rates. Other traded commodities such as gold declined 11 percent in dollar terms in 2015.
While the months leading to the Fed’s rate hike saw higher bond yields strengthen the US dollar, putting more pressure on gold, the World Gold Council, in a recent report, said it expects gold demand to improve, led by India and China and buying from global central banks.
“Low commodity prices will ultimately affect the revenues generated by mining companies and thereby corporate taxes and royalties received by Government. As commodity prices drop, so do the prices at which the minerals are sold, thus having a negative impact on their revenues and culminates in lower export earnings for the country. Furthermore, a drop in mining sector revenue also leads to a reduction in government earnings in the form of taxes and royalties,” Davidson explained.
Meanwhile, Davidson added that the drop in the value of the rand, and thereby the Namibian dollar, is another factor partially offsetting external shocks created by the global economy. This is because mineral sales are received in foreign currency, and a weaker local currency translates into higher local currency for mining exports.
“However, there is an indirect inflationary risk, which exists as a result of the continued weakening of the South African Rand. As the SA Rand depreciates, so does the Namibian dollar making imports considerably more expensive. The high costs of imports could translate into a higher inflation rate, raising the general cost of goods and services incurred by mining companies. Furthermore, mining companies import most of their productive goods and capital equipment and the weakening rand could have a direct impact on the cost of investment,” Davidson warned.
Low global copper prices already took their toll on employment in the mining sector when Weatherly Mining Namibia suspended its central mining operations (the Matchless and Otjihase mines) in September last year. The two mines were placed on project development status and 222 workers were retrenched as a result of the low copper price.
In 2014, the industry suffered 737 retrenchments, primarily due to depressed commodity prices and escalating costs. However, many of the affected workers were re-employed at new mines, largely offsetting any negative spin-offs. “It is hard to say how employment will be affected by current commodity prices and the global climate. Retrenchment processes are not unique to mining companies in Namibia and are pursued by all companies across the globe as a last resort to reduce costs during tough times,” Davidson added.