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Namibia Mining Report Q1 2013

Namibia mining market to reach value of $4.4 billion by 2017

We are downgrading our industry forecast to account for the current economic environment and the sharp crash in uranium prices that was experienced this year. The decline in prices has led to the postponement of several major uranium projects in the country and as a result, has pushed back investments. We expect Namibias mining industry to reach US$4.4bn by 2017, an annual average growth of 12.5% from 2011 levels.

Diamond Prospects For Namdeb And Co.

In May 2012, Diamond Fields International (DFI) confirmed the renewal of its mining licence for the ML32 Concession offshore diamond deposit for a further 10 years to 2022. The deposit is situated north of Luderitz and covers an area of more than 17,600 hectares along the Namibian coastline to the Galdovia Reef. The deposit, which produces about 88,000 carats a year, has a potential inferred mineralised resource of 42mn cubic metres, making it the largest deposit in DFIs portfolio.

News of DFIs licence renewal promises some competition in a diamond sector otherwise almost exclusively under the control of market leader Namdeb. The company controls the largest alluvial and diamond mining operations in Namibia and accounted for virtually all of Namibias diamond output in 2011, producing 1.34mct. Namdeb plans to increase production from its flagship Elizabeth Bay mine, from 250kct (thousand carats) to 400kct by 2014, an increase that will be partly offset by the closure of Namdebs Bogenfels mine, which produced 53kct in 2010.

We do not believe that the strong growth experience so far in Namibia is sustainable given the current diamond demand environment. We expect production to reach 2.2mct (million carats) by 2017, an average annual growth rate of 9.1% from 2011 numbers.

Regulatory Developments

H112 saw increased speculation regarding the possible introduction of a super tax on mining activity in Namibia, leading to the possibility of further friction between the Namibian government and the independent Chamber of Mines. In February, President Mark Dawe told Reuters that the chamber was in negotiations with the government regarding the implementation of the super tax, which would likely be introduced in 2012. According to Dawe, miners are in favour of a common super tax on all operations across the mining sector in lieu of a suggested government surcharge on the profits of some companies during periods of economic growth. The super tax is expected to place less of an administrative burden on companies operating in Namibia. The news follows strong lobbying by the Chamber of Mines in 2011, which resulted in the government aborting plans to raise the corporate income tax rate for the nondiamond mining sector from 37.5% to 44%. Despite the outcome, the Chamber believes controversy surrounding the tax has had a negative impact on foreign mining activity in the country, with Dawe indicating that a number of investors had been scared away from the sector.

Key Players

The bulk of exploration and mining in Namibia focuses on diamonds, uranium and base metals such as copper, lead and zinc. A number of major players, including Rio Tinto and De Beers, have exploited the great potential for the exploration and mining of mineral resources. Diamond Fields International is a Canada-based mining firm involved in the exploration and mining of diamonds, nickel and gold in Liberia, Madagascar, Namibia and Zambia. Namdeb is a JV between De Beers (50%) and the Namibian government (50%), and is the nations leading diamond producer. Vedanta Resources is a major Indiabased resources player with global reach. The company recently entered the Namibian market via the acquisition of the countrys largest zinc mine, Skorpion Mine, through its subsidiary Sterlite Industries.

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