Chamber, MPs clash over mining royalties

Whilelegislatorshave taken issue with a paltry 5% royalty rate that Namibia receives from domestic mining operations, the Chamber of Mines vehemently opposes any suggestions of an increase.

At the chamber’s annual general meeting this week, its president Zebra Kasete said an increase will only render local projects economically unfeasible.

“Regarding the royalty and tax proposals, Namibia’s mining industry currently has one of the highest effective tax rates globally. Research indicates that further tax increases could render projects and mines in Namibia economically unfeasible,” he lamented while delivering their 2022 report in Windhoek.

The report added that the mines ministry must ensure no mining rights are given without a 50% shareholding of the State.

However, these stipulations did not sit well with some, as Kasete believes the proposed mandatory government shareholding, if not properly handled, threatens to undermine the economic viability of existing mines and future projects.

“A government free carry will introduce an additional cost burden to mining companies, as they would have to finance government’s shareholding. The Chamber thus views this proposal as a cost matter,” he said.

Royalty is defined as a set fee imposed by the State on either the amount of minerals produced at a mine, or the revenue or profit generated by the minerals sold from a particular mine.

Royalties are seen as a means of compensating the State for the extraction of its non-renewable resources.

“The royalty rates are very low, and fail to promote value-addition because the commodities are exported in raw form.

Only about N$8 billion was collected from royalties for five years. This is very small, compared to the revenue from mines in the same period,” reads a joint report tabled in the National Assembly last week.

The Minerals Act, which is under review, governs the administration of Namibia’s royalties, which are mandatory payments for mining claims and mineral rights holders.

Aspects of draft legislation include proposals to raise the upper royalty rate limit from 5% to 10% for base and precious metals, nuclear fuel minerals, dimension stone and industrial minerals, the introduction of a windfall corporate tax, and the incorporation of mining charter provisions.

Shareholding

In addressing the issue, MP sf ur th er noted that State shareholding in major mining operations is an issue which needs to be urgently addressed, particularly as rapidly-evolving exploration methods confirm a resource-rich Namibian territory.

Presently, there is no explicit law for the State to acquire shares in mining companies – and as such, the State needs to make a strategic decision.

The joint report between the committees of natural resources and economics, as well as public administration, recommended that the mines ministry reviews existing legislation to make it mandatory for the State to own shares in every mining operation at zero cost.

The standing committees are mandated to monitor, enquire and make recommendations to the National Assembly on matters pertaining to the domestic economy.

“The State owns approximately 3.4%, 7.5% and 10% shares in various mining companies, which is of great concern. The Standing Committee desires to maximise Namibia’s benefit from her natural resources, while ensuring good governance and management of the natural resources,” the report reads.

Moreover, a few weeks ago, mines minister Tom Alweendo was questioned in the National Assembly why Namibia has minimal ownership of her natural resources.

“Will it do any harm if government increases her ownership in mining companies? Can the Assembly amend the Act to assist the ministry in this regard?” asked MP Jerry Ekandjo.

“We are reviewing the Act, and we are making a proposal to say that because the natural resources belong to the Namibian people, we should also have a provision where it’s not really by negotiation, but by establishing a minimum threshold through which the government can have ownership in her resources,” Alweendo responded.

Performance

The 2023 gross domestic product (GDP) figures highlight the growing importance of the mining industry relative to other sectors, which is increasing its contribution to the Namibian economy.

Specifically, the mining industry’s contribution to GDP increased to 14.4% in 2023 from 9% in 2021, and 11.9 % in 2022.

Once again, Namibia’s mining industry achieved remarkable growth in 2023 at some 18.9%.

The lower growth rate of 18.9% in 2023, compared to the previous year’s (2022) growth rate of 24%, is attributed to a slower increase in diamond mining production.

According to the chamber’s report, the expansion in mining was primarily driven by the increased production of gold, uranium and diamonds.

In 2023, Namibia achieved record gold and uranium production, reaching 9 800 kilogrammes and 8 283 tonnes, respectively.

This represents an annual growth of 31% for gold production, and 24.5% for total uranium production.

The mining sector’s financial performance demonstrated significant growth as evidenced by the total turnover recorded by Chamber members, reaching N$51.56 billion in 2023.

Moreover, the sector achieved an impressive improvement in overall profitability.

In 2023, it recorded a collective profit of N$2.731 billion, a stark contrast to the N$391 million loss reported in 2022.

“Chamber members significantly bolstered the government’s tax revenue in 2023, which grew by 55.9% from N$4.402 billion in 2022 to N$6.861 billion. This was primarily driven by the exceptionally high corporate taxes paid to the government, which amounted to N$3.967 billion, representing an increase of 98.5%,” Kasete stated.