Mining contributed 13% to Namibia’s GDP in 1999, of which diamond mining activities represented 9%. Mining products produce up to 50% of Namibia’s annual export earnings. Although the mining industry plays a vital role in Namibia’s economy, the mining sector has experienced a decline in growth over the past few years. This has mainly been as a result of several mining ventures closing down due to diminishing ore reserves and low commodity prices. Namibia’s main mining products include diamonds, uranium, gold, zinc, copper and lead.
Minerals Legislation Overview
In Namibia, all mineral rights are vested in the state. The Minerals (Prospecting and Mining ) Act of 1992 regulates the mining industry in the country. Policy has been designed to faciliate and encourages the private sector to evaluate and develop mineral resources. The Mining Rights and Mineral resources division in the Directorate of Mining is usually the first contact for investors, as it handles all applications for and allocation of mineral rights in Namibia. Several types of mining and prospecting licenses exist, outlined briefly below:
· Non Exclusive Prospecting Licenses (NEPL)
Valid for 12 months, these licenses permit prospecting non-exclusively in any open ground not restricted by other mineral rights. Prospectors must furnish the Mining Commissioner on details on all samples removed from the NEPL area.
· Reconnaissance Licenses (RL)
These licenses allow regional remote sensing techniques, and are valid for 6 months (renewable under special circumstances) and can be made exclusive in some instances. A geological evaluation and work plan needs to be submitted to the Mining Commissioner.
· Exclusive Prospecting License (EPL)
Individual EPL’s can cover areas not exceeding 1000 km2 and are valid for three years, with two renewals of two years each. Two or more EPL’s can be issued for more than one mineral in the same area. A geological evaluation and work plan (including estimated expenditure commitments) are a pre requisite prior to issuing of the licenses.
· Mineral Deposit Retention Licenses (MDRL)
These allow successful prospectors to retain rights to mineral deposits which are uneconomical to exploit immediately. MDRL’s are valid up to five years and can be renewed subject to limited work and expenditure obligations.
· Mining Licenses
Can be awarded to Namibian citizens and companies registered in Namibia. They are valid for the life of mine or an initial 25 years, renewable up to 15 years at a time. Applicants must have the financial and technical resources to mine effectively and safely.
Prior to licenses (bar the NEPL and RL ) being issued, all applicants are required to complete an environmental contract with the Department of Environment and Tourism. Environmental impact assessments must be made with respect to air pollution, dust generation, water supply, drainage/waste water disposal, land disturbance and protection of fauna and flora.
Fiscal and Legal Regime
The minimum tax rate on a mining company is 25%. Most mining companies pay between 25 – 40%, with diamond mines taxed at 55%. Corporate tax of 40% applies to profits from non mining activities. Allowable tax deductions for mining companies are as follows:
- All pre production exploration expenditure is fully deductible in the first year of production.
- Subsequent exploration expenditure is not ring fenced and is fully deductible in the year it occurs, so that profits from existing operations can be used to fund exploration in any part of the country.
- Initial and subsequent development costs (including start up capital and loan finance) are fully deductible in equal installments over three years.
- Contributions to a fund for restoring the environment are fully deductible.
Royalties to the State Revenue Fund are payable on exports of certain rough or semi processed minerals:
- 10% on rough and uncut precious stones
- 5% on rough or unprocessed dimension stone
- 5% on any other mineral which can be economically processed in Namibia