Namibia's Uranium - Today a Boom, Tomorrow What?

UNCLAS SECTION 01 OF 05 WINDHOEK 000202 SIPDIS SENSITIVE STATE PLEASE PASS USAID STATE PLEASE PASS USGS DEPT FOR AF/S, EEB/ESC AND CBA DOE FOR SPERL AND PERSON DOC FOR ITA/DIEMOND E.O. 12958: N/A TAGS: EMIN ENRG EPET EINV ETRD KNNP SENV WA SUBJECT: Namibia's Uranium - Today a Boom, Tomorrow What? Ref: WINDHOEK 200 Not for Distribution on the Internet -------------- Summary -------------- ¶1. (SBU) The Erongo region of Namibia hosts numerous economically viable uranium deposits. There are two mines in production, an additional one that will enter production by 2010, and some 19 prospects in various stages of evaluation. Currently the fourth largest uranium producer in the world, Namibia could advance to third when current expansion projects and near-mines start to come on-line. Declining output from other mineral commodity mines makes uranium a major driver of Namibia's near-term economic growth. Water scarcity, health and environmental concerns, and the availability of skilled labor pose challenges for the industry. End Summary. -------------- Namibia's Future Lies with Uranium -------------- ¶2. (SBU) Namibia's Erongo region hosts a large number of easily-accessible, near surface, primary alaskite- and secondary calcrete-hosted uranium deposits. These deposits are mostly low-grade, but economically mineable at prices above $60 per pound projected. Uranium should surpass diamonds as the country's most valuable mineral export by 2010, according to the Chamber of Mines of Namibia. Namibia ranked fourth amongst the world's largest uranium oxide producers in 2008, behind Canada, Australia and Kazakhstan. In 2008, Namibia's total production reached 5,150 tons. Rio Tinto's Rossing Uranium mine produced 4,070 tons (reftel), while Paladin Resources' Langer Heinrich mine produced 1,080 tons. Planned expansions could increase the country's output to 13,000 tons of U3O8 (yellow-cake) per year by 2015. Uranium exports in 2008 amounted to $629 million, up 11 percent from 2007, and accounted for 37 percent of total raw mineral exports and 22 percent of Namibia's total exports. -------------- - Government Policy - Somewhat Business Friendly -------------- - ¶3. (SBU) The Namibian government (GRN) encourages foreign investment in the mining industry, especially the uranium sector. Namibia currently has no legislated minimum local equity requirement, but the five-year national development plan (2007/08 to 2011/12) calls for an 11 percent black economic empowerment (BEE) shareholding in all mining operations. The government announced in April 2009 that companies applying for new exclusive prospecting licenses or renewals will be required to show proof of local equity participation and a plan to address poverty in areas where they are active. A moratorium introduced in February 2007 on the issue of new uranium prospecting licenses (excluding those in the pipeline) is expected to be lifted later this year. ¶4. (SBU) Most mining companies face a three percent royalty on gross sales. Rossing Uranium, however, pays an exceptional royalty rate of six percent. This stems from Rossing's challenge to the previous minerals law that charged mineral fees to companies that failed to provide "value-addition" to their finished mineral products. Rossing argued that only enrichment could add value to its yellow-cake. As Namibia is not permitted to conduct uranium enrichment, Rossing argued that it was not obligated to pay the value-added royalty under the old minerals law. The GRN changed the minerals law in late 2008 to give the Minister of Mines and Energy the discretion to charge companies mining the same mineral different royalty rates. Using his discretion, the Minister has decided to charge Rossing a temporarily higher (six percent) royalty to recover the monies the government did not collect under the old law. WINDHOEK 00000202 002 OF 005 -------------- Producing Uranium Mines -------------- ¶5. (SBU) Australia's Paladin Energy holds a 100 percent share of Langer Heinrich Uranium Mine (LHU),which began production in 2007. Paladin expects to complete its stage-two mine expansion project during the second quarter of 2009. This will boost annual capacity by 40 percent, from the current 1,179 tons of U3O8 to 1,678 tons. LHU's major economic mineral is carnotite, a secondary uranium-vanadium mineral leached from source rocks and deposited in recent calcreted alluvial sediments. Carnotite is deposited in thin films on mineral grains or in small cracks in the deposit. Only uranium is recovered currently, but the company is developing a process to also recover the vanadium (an element used in rust-resistant alloys for machine tools, nuclear reactors, and superconductive magnets). ¶6. (SBU) LHU is the first new uranium mine in Namibia in over two decades. The mine, which is in a dry riverbed, is a 20-100-meter deep open-pit. The deposit depth ranges from 50-100 meters and is generally covered by some eight meters of river sediments. A study is underway to further increase production to 2,700 tons. -------------- Mines in the Pipeline -------------- ¶7. (SBU) France's vertically integrated nuclear energy company Areva is on track to commission Namibia's third uranium mine, Trekkopje, in late 2009/early 2010 at a capital cost of approximately $750 million. Areva sold a 49 percent equity stake to China Guandong Nuclear Power Co (CGNPC) and Chinese sovereign wealth funds in October 2008, in order to facilitate financing of the project. CGNPC has "guaranteed access" to Trekkopje's production and will take 35 percent of the mine output for the next 14 years. Trekkopje is yet another shallow low-grade deposit. Areva will use heap-leaching to extract its yellowcake. Full production is planned for the first half of 2010 at 100,000 tons of ore per day to produce some 3,860 tons of U3O8. Trekkopje contains a current measured and indicated resource of 46,100 tons of U3O8 at a 0.013 percent average grade, sufficient for an 11-year mine life. ¶8. (SBU) Valencia Uranium, owned by Canada's Forsys Metals Corporation, could be Namibia's fourth uranium mine. The GRN issued Valencia a mining license in 2008. Forsys issued an upgraded resource estimate for Valencia in February 2009, which put measured and indicated resources at 27,700 tons of U3O8. Planned production is 1,400 tons per year of U3O8. Forsys plans to commission the mine by 2011, but the timetable is currently uncertain. Belgian-owned, Democratic Republic of Congo-based Forrest Group International has offered to take Forsys over. Forsys accepted Forrest's $474 million offer, but Forrest has been unable to secure the required finance to complete the deal. The estimated cost to bring the Valencia to production is $154 million. -------------- Projects in Feasibility Stage -------------- ¶9. (SBU) Two promising alaskite-hosted uranium prospects with near-term production potential are Extract Resources' Rossing South project and Bannerman's Etango project. Both projects are in the feasibility stage, and are on adjoining license areas to the south of the Rossing Uranium mine. Mine construction at both sites is planned to start during 2010, with production start-ups after 2011, provided the feasibility studies confirm the economic viability of mining operations. There are also 16 other projects in various stages of evaluation. ¶10. (SBU) Australian company Extract Resources announced in January 2009 that a new resource estimate incorporating all drilling results is expected to confirm Rossing South has a resource of 100,000 tons WINDHOEK 00000202 003 OF 005 of U3O8, with only three-fifths of the deposit drilled to date. The defined resource at Rossing South has already been estimated at 49,000 tons of U3O8, which is in excess of the size and grade at Rio Tinto's Rossing operation, currently one of the world's largest uranium mines. Extract Managing Director Peter McIntyre has stated that Rossing South was the largest and highest-grade uranium deposit yet discovered in Namibia and possibly one of the world's largest uranium deposits. (Note. Rossing Uranium holds a 21.5 percent direct and indirect share of Rossing South. End Note.) ¶11. (SBU) Australian-owned Bannerman Resources announced that Etango's has the potential to yield 40,500 tons of U3O8, as of February 2009. Less conclusive geoscientific studies lead Bannerman to infer that the mine could yield another 17,000 tons of U3O8,but further research is required. Bannerman aims to complete a prefeasibility study by mid-2009, and a bankable feasibility study by the year-end. -------------- -------------- Other Nations Show Interest in Namibia's Uranium -------------- -------------- ¶12. (SBU) Uranium projects at the advanced exploration stage include a cluster of calcrete-hosted deposits to the immediate south of Langer Heinrich, and the Marenica alaskite deposit northeast of Rossing. Exploration drilling at both projects was completed in 2008 by Australia companies Deep Yellow and West Australian Metals, respectively. Reports say that the Australian-based Russian mining entrepreneur Vladimir Nikolaenko has offered to buy a stake in Marenica. Additionally, Russia's Atomredmetzoloto, a subsidiary of the state nuclear power company Atomenergoprom, has announced that it plans to start uranium prospecting in the Klein Spitzkoppe area of Namibia. According to news reports, India's commerce minister, Jairam Ramesh, discussed the possibility of a uranium supply arrangement with Namibian Prime Minister Nahas Angula during Ramesh's visit to Namibia in March 2008. -------------- Uranium Mining Creates Jobs -------------- ¶13. (SBU) Namibia faces between 30 to 40 percent unemployment. Uranium mining is increasingly seen as an engine for job creation. On the assumption that most uranium projects would go ahead and using a 4:1 multiplier for dependents for each mining job, one could estimate the potential jobs in uranium mining as follows: Year Direct Jobs Dependents Supported -------------- --- 2007 2,200 9,000 2008 3,000 12,000 2011 5,000 20,000 2015 6-9,000 24-36,000 Langer Heinrich has a non-union work force, while Rossing's force is unionized. Rossing has had few labor disputes but did suffer from a wildcat strike in early 2008. The issue was settled in arbitration largely in Rossing's favor, but the company did agree to raise salaries by 10 percent and increase housing allowances. While over 95 percent of jobs are filled by Namibians, finding skilled labor still poses a major challenge for the uranium mines. Both Rossing and Langer Heinrich have active skills development programs. As new mines come on-line, they will likely poach some skilled employees from existing mines. Rossing has already lost some employees to LHU and other mines. -------------- Desalination - Water is Scarce -------------- ¶14. (SBU) The uranium mining boom in the Erongo Region of Namibia has placed a heavy demand on the country's limited fresh water supplies. This has given rise to consideration of multiple efforts WINDHOEK 00000202 004 OF 005 to augment supply by desalination of seawater. Both the water utility NAMWater and the GRN have proposed projects, but these are on hold. Areva has forged ahead and is building its own (USD 175 million) desalination plant, planned for completion by 2010. The plant is designed to produce 45 million cubic meters of water per year, of which Areva's Trekkopje mine will take 17 million cubic meters and the rest will be sold to other mines and NAMWater. (Note. Estimates show that future uranium mines in Erongo, some of which will come on line between 2010 and 2013, will consume about 53 million cubic meters of water per year. This would place a significant stress on the water utility's annual national supply of 67 million cubic meters. End Note.) In addition to scarce water resources, access to reliable energy resources is also a challenge for uranium projects. -------------- Corporate Responsibility -------------- ¶15. (SBU) There is a general paucity of environmental regulation governing uranium mining in Namibia, according to LHU General Manager Wyatt Buck. LHU has adopted the same environmental standards used in Canada, but the GRN does not enforce these standards to provide an independent check on LHU's environmental practices. LHU has commissioned its own studies to establish baseline environmental information, which will be used as reference data for ongoing monitoring of the environment and worker health. ¶16. (SBU) Dr. Wotan Swiegers, who leads the Chamber of Mines' Uranium Stewardship Committee, echoed many of Buck's comments. The Committee was established to ensure that all uranium companies assume collective responsibility for the development of Namibia's uranium in accordance with international best practices. In the absence of comprehensive uranium mining and environmental regulations, the committee advises the GRN on these needs. It also offers advice on the way forward for developing a future nuclear energy industry, a program the GRN has expressed interest in pursuing. Swiegers notes that there is no overall radiological or environmental baseline data for the Erongo region and acknowledges that a set of standards and a unified environmental regulatory regime for uranium mining is essential. He argues that Namibia needs assistance to establish a baseline for cancer prevalence in the region to assess the industry's impact, if any. LHU and Rossing Uranium have contributed to the establishment of a urine radiation testing laboratory in Swakopmund and have provided $1.6 million to purchase U.S. equipment. -------------- Comment -------------- ¶17. (SBU) There is little doubt that uranium presents a tremendous growth opportunity for Namibia. At a time when diamonds sales, Namibia's main foreign exchange generator, have almost evaporated due to the economic downturn, uranium appears to provide economic salvation and much needed jobs. Nevertheless, there is a possibility that the vast array of new projects might lead to overdevelopment. Overproduction in Namibia and elsewhere could lead to suppressed prices for yellow-cake. This could leave some Namibian mines economically unviable. Today's boom could be sowing the seeds for tomorrow's bust. As LHU and the Uranium Stewardship Committee both have identified, the government has failed to put in place regulations to govern the health and environmental effects of uranium mining. Finally, if the supply of water and energy is not expanded in line with the rapid pace of the uranium boom, the mines and average Namibians may find themselves battling for the same scarce resources. End Comment. -------------- Embassy Team Visit to Namibia -------------- ¶18. (SBU) Officers and specialists from both Embassy Pretoria and WINDHOEK 00000202 005 OF 005 Embassy Windhoek visited mines, industry, and government offices in Namibia March 30-April 3 to investigate Namibia's rapidly growing uranium sector. Embassy Windhoek wishes to thank Embassy Pretoria's David Young and Paul White for their assistance with the visit. MATHIEU