Following my recent pieces on Namibia, several readers got in touch asking pretty much the same question: Fine. But how do you actually invest there?
Frontier markets are notoriously difficult to access. Interesting companies are privately owned, illiquid, unlisted or buried on obscure exchanges your broker has never heard of, or they carry their own small company risk that does not reflect the broader themes of the country.
To try and answer the question properly, I spoke to economist Rowland Brown, founder of Cirrus Capital, the country’s largest stockbroker, to discuss the best ways to invest in Namibia and where he sees the biggest opportunities.
The full interview follows, but here are 7 things that stood out to me.
1. Namibia’s growth could accelerate dramatically
Namibia has averaged around 4.5% annual growth since independence in 1990. But Brown thinks the next decade could look very different. The reason is oil.
Offshore discoveries by majors such as Shell plc and TotalEnergies could transform the country’s fiscal position. Brown estimates that production of 450,000 barrels per day by 2030 could increase government revenues by roughly 60%, which is quite frankly an astonishing number.
Namibia today has a population of roughly 3 million people. It is rich in uranium, diamonds, copper, gold and fisheries. Add large-scale oil production and the country starts to look strategically very important.
2. The banks are surprisingly attractive
One thing I had not appreciated before speaking to Brown was how profitable Namibian banks are. According to him, the major listed banks are producing returns on equity of roughly 20-30%, while trading on earnings multiples of only four to five times.
The problem is that these banks are listed only on the Namibian Stock Exchange, meaning overseas investors generally need a local broker to access them.
The main players include Standard Bank Namibia, First National Bank Namibia and Capricorn Group
Brown is particularly positive on Standard Bank Namibia because of its positioning for both the uranium and oil industries. Chinese involvement in Namibian uranium mining has also strengthened relationships and financing channels there.
3. But there is also a way to buy Namibian government debt
This was another thing I did not know. There is an exchange traded Namibian government bond index called STXNAM, tradable in Johannesburg.
Namibian government debt currently yields around 12%, while inflation is around 3%, according to Brown.
That obviously comes with frontier-market risk, but Namibia’s debt position is arguably stronger than many developed countries. Roughly 80% of the debt is domestically owned, largely by pension funds and banks.
Unlike other countries I could mention, Namibia has not yet completely financialised itself into oblivion. Ahem.
If you live in a third world country such as the UK, I urge you to own gold or silver. The pound will be further devalued, as will the euro and dollar. The bullion dealer I use and recommend is The Pure Gold Company. They deliver to the UK, the US, Canada and Europe. More here.
4. Uranium remains one of the biggest long-term themes
Namibia is already the world’s third-largest uranium producer - a lot of that uranium is at the margin. China has a role to play in this.
Chinese investors came into Namibian uranium aggressively after Fukushima , when uranium prices were deeply depressed and western capital had largely disappeared.
With uranium prices having recovered, those investments are working. We discussed various companies operating in Namibia including Paladin and Deep Yellow, the problem is that many of them are multi-jurisdictional, so you don’t get the pure country play. ASX-listed Bannerman Energy (ASX:BMN) is the closest to being a near-pure Namibia uranium play.
5. Oil exposure is harder than you think
As with uranium, the oil frustration is that the obvious opportunities are often buried inside giant conglomerates.
Brown mentioned Sintana Energy (SEI.V), Hosken Consolidated Investments (HCI), which holds a near-50% stake in London-based, privately owned Impact Oil & Gas, which owns significant exploration rights in the Venus discovery offshore Namibia, and Reconnaissance Energy Africa (RECO.V). ReconAfrica is a speculative onshore exploration story and Brown was careful to stress that it remains high risk.
6. Copper may ultimately become the biggest story
One company we discussed at length was Koryx Copper (KRY.V), which is now a development story rather than a speculative discovery punt.
The project benefits from simple geology and open-pit potential, good access to roads and ports, nearby power and water infrastructure and significant associated gold
Brown repeatedly emphasised on management quality, and I actually met the boss too while I was out there - Heye Dawn - an impressive man. Junior mining is littered with “lifestyle companies”. This is not one of those situations, though it remains speculative mining investment and is vulnerable to falling copper prices, being quite low grade. But I am quite bullish about copper, as you know.
7. The currency question is fascinating
Namibia’s currency is pegged to the South African rand. The rand is not exactly the Swiss franc.
But Brown made an interesting point: without the peg, Namibia’s currency would probably be wildly volatile because of the country’s dependence on commodity exports. So the peg may actually make Namibia more investable, not less.
Longer term, if oil revenues become large enough, Namibia could gain greater flexibility, perhaps moving towards some form of trade-weighted currency basket more heavily linked to the US dollar.
That is speculative for now, albeit interesting.
Anyway, enough from me.
The full interview with Rowland Brown follows. For those who want to go deeper into the weeds on Namibia, uranium, copper, oil, banks and frontier-market investing, I recommend you listen. Brown knows his onions. And you can contact Rowland via Cirrus Capital.
One thing becomes very clear very quickly. Namibia may still be a small frontier market, but it no longer feels peripheral.
Thank you for being a subscriber to The Flying Frisby.
Until next time,
Dominic
