PULA basket weights unchanged
Business
Pula Basket weights have been retained at 45 percent South African Rand (ZAR) and 55 percent International Monetary Fund (IMF) Special Drawing Rights (SDR), Ministry of Finance and Economic Development has announced.
Botswana’s current exchange rate arrangement is that the Pula (BWP) is pegged to a currency basket comprising the South African rand and the IMF’s SDR, in a forward-looking crawling band mechanism. On a regular basis the Pula Exchange Rate Policy Framework is reviewed with a view to maintain a stable and competitive real effective exchange rate of the country’s currency.
This is provided for by Section 21 of the Bank of Botswana Act which submits that the framework for determining the external value of the Pula shall be determined by His Excellency the President on the recommendation of the Minister of Finance and Economic Development, after consultation with Bank of Botswana, the country ‘s central bank.
In December 2019 the Ministry of Finance and Bank of Botswana reviewed the exchange rate mechanism, following their recommendation His Excellency the President then approved to maintain the Pula basket weights at 45 percent South African rand and 55 percent SDR coupled with a recommendation to implement an upward rate of crawl of 1.51 percent per annum effective 1st January, 2020.
Explaining the recommended rate of crawl, Permanent Secretary in the Ministry of Finance & Economic Development, Dr Wilfred Mandlebe said this reflects the difference between the Bank’s medium-term inflation objective and the forecast inflation for trading partner countries. “The overall objective of the Country’s exchange rate policy is to achieve and maintain the competitiveness of domestic products and services in the domestic and international markets,” he said.
The basket weights are in line with the country’s estimated trade pattern, while the adopted rate of crawl mirrors the inflation differential between Botswana and its trading partners. Pula Basket weights were adjusted in 2017 from 50-50 ZAR –IMF SDR to the current stance. This was the first time that the weight of the rand in the BWP basket was reduced below 50 percent.
The announcement by the country’s treasury last month means the ZAR will now go into the fourth year trailing behind the IMF Special Drawing Right as far as weight on the pula basket is concerned. The Special Drawing Rights is an international reserve asset, created by the International Monetary Fund in 1969 to supplement its member countries’ official reserves.
So far SDR 204.2 billion which is equivalent to about US$291 billion have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. The value of the SDR is based on a basket of five currencies the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.
The SDR was created as a supplementary international reserve asset in the context of the Bretton Woods fixed exchange rate system. The collapse of Bretton Woods’s system in 1973 and the shift of major currencies to floating exchange rate regimes lessened the reliance on the SDR as a global reserve asset. SDR allocations can play a role in providing liquidity and supplementing member countries’ official reserves, as was the case with the 2009 allocations totaling SDR 182.6 billion to IMF members amid the global financial crisis.
The SDR serves as the unit of account of the IMF and some other international organizations. The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies. In general a currency basket is a selected group of currencies in which the weighted average is used as a measure of the value or the amount of an obligation.
A currency basket functions as a benchmark for regional currency movements – its composition and weighting depend on its purpose. Colloquially, a currency basket is often referred to as a currency cocktail. Commonly used in contracts as a way of avoiding or minimizing the risk of currency fluctuations. The European currency unit which was replaced by the euro and the Asian currency unit are examples of currency baskets. However, the most well-known currency basket is the U.S. dollar index: USDX.
The U.S. dollar index started in 1973, and today is a basket of six currencies; the euro, Japanese yen, Canadian dollar, British pound, Swedish krona and Swiss franc. The euro is by far the biggest weighting making up 58 percent of the basket. During the 21st century the index has reached a high of 121 during the tech boom and a low of 71 just prior to the Great Recession.
For a developing country that Botswana is which is still very much on a course of traversing the world for global investors, maintaining a competitive real effective exchange rate of the Pula strikes as an imperative as other investment wooing tools. Equity investors who have exposure to different countries will use a currency basket to smoothen risks. Because their core investment strategies are in the equity markets, they do not want to report any substantial losses in a market they are not experts in. The same can be said for bondholders.
On the other hand, currency traders who have a broad-based view of a single currency will choose to own that currency against a variety of different currencies. For example, traders that are bullish, the U.S. dollar could use the USDX to express this trade. Traders and investors can build their own currency baskets with different weightings depending on their strategy.
The last part of 2015 and most of 2016 was dominated by divergent policy setting where Botswana’s trading partners like South Africa and US were increasing policy rates, whereas other markets like Britain, Europe, China and Japan were on an easing stance. Observers note this divergent policy settings created some instability for Botswana in a real effective rate perspective as the pula weakened against the SDR basket, primarily the USD – and also inflation was on aggregate lower than the trading partners in the pula basket.
These developments in policy rate and price movements thus related in disruptions to the real effective exchange rate, prompting the adjustment to the administration of the pula basket in 2017. A stable real effective exchange rate for an upcoming economy is observed by experts and economist as one that should benefit a country such as Botswana in the area of trade accounts and balance of payments.
Business
New Khoemacau owners commit to mine’s multibillion Pula expansion
The future of Botswana’s largest copper and silver operation, Khoemacau Copper Mining, looks promising as the new owners, MMG Group, commit to the mine’s expansion plans. MMG, an Australian headquartered company owned by China, has expressed its dedication to doubling Khoemacau’s production and transforming it into one of the most significant high-grade copper operations in Africa.
Nan Wang, the Executive General Manager for Australia and Africa at MMG, stated that while the immediate focus is on maintaining a consistent production level of 60ktpa, there are solid plans to increase Khoemacau’s production capacity. The company aims to double its production from 3.65Mtpa to 8.15Mtpa, resulting in an increase in payable copper from approximately 60ktpa to around 130ktpa.
To achieve this expansion, Khoemacau has completed a pre-feasibility study on the project and a solar power initiative. The next step is to conduct a feasibility study, which will pave the way for increased production capacity. Additionally, Khoemacau has identified extensive exploration opportunities across its license area, positioning the company for an exciting new phase of development.
The current Khoemacau operation reached full production and nameplate capacity in December 2022, following over a decade of investment totaling over P10 billion. This significant investment allowed for an intense exploration program, resulting in the development of the most automated underground mining operation in Botswana. The first concentrate was produced in June 2021, and the product entered the export market in July of the same year. Throughout 2022, the company has been working on the pre-feasibility study for the expansion project, with the feasibility study scheduled for the following year.
The expansion plans will involve the construction of a new world-class process plant in Zone 5, where the current mining of ore takes place. This new plant will be larger than the existing one in Boseto, which currently receives ore from Zone 5. The expansion will also involve the development of new underground mines, including Mango, Zone 5 North, and Zeta North East. These additional mines will bring the total number of underground shafts at Khoemacau to six. The ramp-up of production from the expansion is expected to occur in 2026.
Khoemacau, which acquired assets in the Kalahari Copper Belt after the liquidation of Discovery Metals in 2015, currently employs over 1500 people, with the majority being Batswana. The Khoemacau Mine is located in north-west Botswana, in the emerging Kalahari Copperbelt. It boasts the 10th largest African Copper Mineral Resource by total contained copper metal and is one of the largest copper sedimentary systems in the world outside of the Central African Copperbelt.
The mine utilizes underground long hole stoping as its mining method and conventional sulphide flotation for processing. Resource drilling results have shown the existing resources to have continuity at depth, and there are several exploration targets within the tenement package that have the potential to extend the mine’s life or increase productivity.
The Zone 5 mine has already ramped up production, and further expansion in the next five years will be supported by the deposits in the Zone 5 Group. The estimated mine life is a minimum of 20 years, with the potential to extend beyond 30 years by tapping into other deposits within the tenement package.
In conclusion, the commitment of MMG Group to Khoemacau’s expansion plans signifies a bright future for Botswana’s largest copper and silver operation. With the completion of pre-feasibility and feasibility studies, as well as significant investments, Khoemacau is poised to become one of Africa’s most important high-grade copper operations. The expansion project will not only increase production capacity but also create new job opportunities and contribute to the economic growth of Botswana.
Business
Khoemacau Copper Mining to be acquired by MMG Limited
Khoemacau Copper Mining, a leading copper mining company, has recently announced its acquisition by MMG Limited, a global resources company based in Australia. This acquisition marks a significant milestone for both companies and demonstrates their commitment to continued investment, growth, and sustainability in the mining industry.
MMG Limited is a renowned mining company that operates copper and other base metals projects across four continents. With its headquarters in Melbourne, Australia, MMG has a strong track record in mining and exploration. The company currently operates several successful mines, including the Dugald River zinc mine and the Rosebery polymetallic mine in Australia, the Kinsevere copper mine in the Democratic Republic of Congo, and the Las Bambas Mine in Peru. MMG’s extensive experience and expertise in mining operations make it an ideal partner for Khoemacau.
MMG’s commitment to sustainability aligns perfectly with Khoemacau’s values and priorities. Khoemacau has always placed a strong emphasis on safety, health, community, and the environment. MMG shares this commitment and applies the principles of good corporate governance as set out in the Corporate Governance Code of the Hong Kong Listing Rules. As a member of the International Council on Mining and Metals (ICMM), MMG adheres to sustainable mining principles, ensuring responsible and ethical practices in all its operations.
Over the past 12 years, Khoemacau’s current shareholders have made significant investments in the development of the company. With approximately US$1 billion deployed in the project, Khoemacau has successfully transformed from an exploration and discovery phase to a fully-fledged operating copper mine. The completion of the ramp-up of the Zone 5/Boseto operations has set the stage for the next phase of expansion.
With the acquisition by MMG, Khoemacau is poised for an exciting new chapter in its development. The completion of a pre-feasibility study on the Khoemacau expansion and a solar power project has paved the way for increased production capacity. The feasibility study will be the next step in doubling the production capacity from 3.65 million tonnes per annum (Mtpa) to 8.15 Mtpa, resulting in a significant increase in payable copper from approximately 60,000 tonnes per annum (ktpa) to 130,000 ktpa. Additionally, Khoemacau has extensive exploration opportunities across its license area, further enhancing its growth potential.
The CEO of Khoemacau, Johan Ferreira, expressed his gratitude to the current owners for their stewardship of the company and their successful transformation of Khoemacau into a fully operational copper mine. He also highlighted the company’s focus on the expansion study and its vision for the future with MMG. Ferreira emphasized that the partnership with MMG will ensure Khoemacau’s long-term success, delivering employment, community benefits, and economic development in Botswana.
MMG Chairman, Jiqing Xu, echoed Ferreira’s sentiments, stating that the acquisition of Khoemacau aligns with MMG’s growth strategy and vision. Xu emphasized MMG’s commitment to creating opportunities for all stakeholders, including shareholders, employees, and communities. He expressed confidence in Khoemacau’s expansion potential and the company’s ability to realize its full potential with the support of MMG.
The sale of Khoemacau to MMG is subject to certain conditions precedent and approvals, with the expected closing date in the first half of 2024. This acquisition represents a significant step forward for both companies and reinforces their commitment to sustainable mining practices, responsible resource development, and long-term growth in the mining industry.
In conclusion, the acquisition of Khoemacau Copper Mining by MMG Limited signifies a new era of investment, growth, and sustainability in the mining industry. With MMG’s extensive experience and commitment to responsible mining practices, Khoemacau is well-positioned for future success. The partnership between the two companies will not only drive economic development but also ensure the safety and well-being of employees, benefit local communities, and contribute to the overall growth of Botswana’s mining sector.
Business
BPC Signs PPA with Sekaname Energy
The Botswana Power Corporation (BPC) has taken a significant step towards diversifying its energy mix by signing a power purchase agreement with Sekaname Energy for the production of power from coal bed methane in Mmashoro village. This agreement marks a major milestone for the energy sector in Botswana as the country transitions from a coal-fired power generation system to a new energy mix comprising coal, gas, solar, and wind.
The CEO of BPC, David Kgoboko, explained that the Power Purchase Agreement is for a 6MW coal bed methane proof of concept project to be developed around Mmashoro village. This project aligns with BPC’s strategic initiatives to increase the proportion of low-carbon power generation sources and renewable energy in the energy mix. The use of coal bed methane for power generation is an exciting development as it provides a hybrid solution with non-dispatchable sources of generation like solar PV. Without flexible base-load generation, the deployment of non-dispatchable solar PV generation would be limited.
Kgoboko emphasized that BPC is committed to enabling the development of a gas supply industry in Botswana. Sekaname Energy, along with other players in the coal bed methane exploration business, is a key and strategic partner for BPC. The successful development of a gas supply industry will enable the realization of a secure and sustainable energy mix for the country.
The Minister of Minerals & Energy, Lefoko Moagi, expressed his support for the initiative by the private sector to develop a gas industry in Botswana. The country has abundant coal reserves, and the government fully supports the commercial extraction of coal bed methane gas for power generation. The government guarantees that BPC will purchase the generated electricity at reasonable tariffs, providing cash flow to the developers and enabling them to raise equity and debt funding for gas extraction development.
Moagi highlighted the benefits of developing a gas supply industry, including diversified primary energy sources, economic diversification, import substitution, and employment creation. He commended Sekaname Energy for undertaking a pilot project to prove the commercial viability of extracting coal bed methane for power generation. If successful, this initiative would unlock the potential of a gas production industry in Botswana.
Sekaname Energy CEO, Peter Mmusi, emphasized the multiple uses of natural gas and its potential to uplift Botswana’s economy. In addition to power generation, natural gas can be used for gas-to-liquids, compressed natural gas, and fertilizer production. Mmusi revealed that Sekaname has already invested $57 million in exploration and infrastructure throughout its resource area. The company plans to spend another $10-15 million for the initial 6MW project and aims to invest over $500 million in the future for a 90MW power plant. Sekaname’s goal is to assist BPC in becoming a net exporter of power within the region and to contribute to Botswana’s transition to cleaner energy production.
In conclusion, the power purchase agreement between BPC and Sekaname Energy for the production of power from coal bed methane in Mmashoro village is a significant step towards diversifying Botswana’s energy mix. This project aligns with BPC’s strategic initiatives to increase the proportion of low-carbon power generation sources and renewable energy. The government’s support for the development of a gas supply industry and the commercial extraction of coal bed methane will bring numerous benefits to the country, including economic diversification, import substitution, and employment creation. With the potential to become a net exporter of power and a cleaner energy producer, Botswana is poised to make significant strides in its energy sector.