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BSE delivers a successful ASEA Conference


Botswana Stock Exchange (BSE) recently delivered one of the most prolific and high profile conferences this country has ever hosted, proving beyond reasonable doubt Botswana’s ability to host major events. 

Headlined by President Dr Mokgweetsi Masisi, the 23rd African Securities Exchange Association (ASEA) Conference brought together leading minds, cutting edge entrepreneurs, Heads of African elites stock markets, policy makers, investors, wealth and asset managers  , captains of industries across the financial services , banking and investment sectors , to discuss issues affecting African capital markets.

Hosted at the magnificent tourist town of Kasane, the conference was held under the theme “Building Resilient African Capital Markets”. Leading finance and investment markets experts deliberated on both challenges and opportunities in the horizon for African capital markets as key players in African’s transformation agenda. When officially opening the two day event on Monday, President Masisi said the event theme “Building Resilient African Capital Markets”, was relevant and appropriate, because the importance of capital markets to the African and the global economic landscape cannot be over emphasized.  

President Masisi underscored that African markets do not yet perform the key functions of providing an alternative to bank funds for debt and equity finance to the private sector which would offer a meaningful secondary market in ownership of securities.  “I therefore challenge you as industry players, to note the serious shortcomings and apply yourselves to turn this around,” he said.

The President further highlighted that it is important to assess capitalisation and liquidity ratios in equity markets noting that where these remain low in the face of significant advances in macroeconomic stability, the key reasons stated are; lack of consistent development of effective regulation and institutions, inadequate financial disclosure as well as insufficient transparency in trading.

“We must discuss the main problems and policy challenges in advancing securities market development. Secondly, we should shed more light on the possibilities and options available to promote the development of efficient and transparent markets through the identification of different policy approaches chosen by individual countries on the continent and in our peer markets globally,” he said.

Mr Karim Hajji President of African Securities Exchanges Association explained that ASEA  is the premier association of twenty-five (25) securities exchanges in Africa, five (5) associate members and two (2) observer members that have come together with the aim of developing member exchanges and providing opportunities for knowledge-sharing and collaboration.

Established in 1993 and headquartered in Kenya, ASEA works with African Member Exchanges to unlock potential of the African Capital Markets by, enhancing the visibility of ASEA members at an international level, with a view to attract capital inflows to African Capital Markets, Providing an authoritative information portal on African public markets and aggregated statistics on African Exchanges and Promoting market development among Member Exchanges amongst others

Karim Hajji noted that over the last two and a half decades ASEA has been resolute in its mission of being an enabler of African Securities Exchanges to become key economic and societal transformation drivers of the continent. “Undeniably for most of our African markets, the issue of liquidity and stimulating local investor participation still remain critical components that need to be addressed, we must remember that carefully cultivated liquidity allows investors to transfer risk to professional market makers via stable and reliable markets” he said
In addition, Karim noted that more widespread adoption of electronic trading could further enhance liquidity and reduce transaction costs for market participants by providing additional platforms to match buyers and sellers.

“Such platforms will, in some cases, help reduce the time required to locate buyers and sellers and improve the process of price discovery, the upgrade of trading, clearing and settlement systems is extremely pertinent in boosting the liquidity of our capital markets as it allows investors to realize the value of their investments more freely,” he said. Furthermore, it was underscored that robust and efficient market infrastructure with fair and open access boost liquidity by making it safer and cheaper to trade, hold and value capital market securities.

Deliberations at the conference highlighted that although these platforms can assist, African markets can benefit immeasurably from the presence of professional liquidity providers willing to buy and sell and accept a transfer of risk from investors. Experts underscored important drivers of market development which are more closely linked to capital market-specific functions as  firstly, the importance of focusing on global sustainability issues has  which has been prompted by growth in innovative sustainability-themed capital market products, such as renewable energy investments, green bonds, social-impact bonds, and sustainable funds.

ASEA President who is also Chief Executive Officer of  Morocco ‘s Casablanca Stock Exchange said this  has been fueled by investors increasingly demonstrating a desire to align with major global frameworks particularly the United Nations (UN) Sustainable Development Goals (SDGs) and Sustainable Stock Exchanges Initiative (SSE). “Secondly, high quality and timely information is the lifeblood of effective and viable capital markets thus the provision of high-quality information at low cost through well-developed disclosure regimes gives investors the means to value securities,” he said.

He further explained that a broad and diversified investor base provides a source of stable demand that supports liquidity, depth and stability, therefore greater bi-directional openness to international investors and issuers expands the pool of savings and investment products as well as promoting implementation of international best practices and standards. Giving key note address World Bank Group Country Representative and Special Envoy to SADC Mr. Xavier Furtado said economic development requires healthy growth of a nation’s financial sector.

He shared that initially nations tended to channel their savings and investment primarily, if not almost exclusively, through banks noting that  over time, savers in search of higher returns and firms seeking capital provide the foundation for the development of capital markets.
Commending the increasing trend of issuance and trading of bills and bonds of national governments, followed by the issuance and trading of bonds and equities of publicly held corporations; Xavier however said capital markets cannot function effectively unless a number of elements are in place.

“Exchanges and clearing and settlement systems must exist to enable trading, and money market arrangements are needed to facilitate settlements,” he said. The SADC World Bank Boss further explained that a legal system must exist to enforce contracts, adding that information about the financial soundness and future prospects of companies must be made available on a timely basis to give investors’ confidence to purchase corporate instruments, both debt and equity.

Chief Executive Officer of Botswana Stock Exchange Thapelo Tsheole said it was his company and Botswana‘s great honor to have hosted the historic event. “An event like this cannot happen overnight, the wheels started rolling a year ago when the BSE won the bid to host this year’s conference which required rigorous planning and a bird’s eye view for detail.

The Conference was sponsored by Botswana Tourism Organization, BIHL Group amongst others. “We have been fortunate enough to be backed by a slew of generous sponsors and a team of highly motivated and dedicated colleagues at the Botswana Stock Exchange and the ASEA Secretariat who played their roles exceptionally well,” said Tsheole.

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Business

Lucara jumps back to positive figures as revenue surges by 56%

12th May 2021
LUCARA

Lucara Diamond Corporation, 100% owners of Karowe Diamond mine, has released its results for the first quarter of 2021 ending March 31, 2021.

Figures contained in the report depict strong financial and operational performance for the quarter. Revenue for the three months period jumped by 56% to $53.1 million (approximately P540 million) or $579 per carat sold in Q1 2021.

This includes diamonds sold through a combination of regular tenders, Clara, and through HB Antwerp (HB) under the supply agreement announced in July 2020.

This 56% increase in revenue comes after a slow Q1 2020 which was characterized by intensifying COVID pandemic. Lucara then announced it would hold on and suspend sale of its large stones until the market normalizes.

During the quarter total operating cash costs of $29.24 per tonne processed was incurred, this was 7% lower than Q1 2020. Adjusted EBITDA closed the quarter at $22.2 million, marking a return to higher levels of operating margin.

The company recorded net income of $3.4 million during Q1 2021 (earnings per share of $0.01), as compared to a net loss of $3.2 million for Q1 2020 (loss per share of $0.01).

The value of the rough diamonds transacted through the Clara platform in Q1 2021 was $6.0 million over six sales, double the $3.0 million transacted on the platform in Q1 2020.

Strong price increases have been observed in each of the sales conducted since the beginning of the year.

As at March 31st 2021, the company had cash and cash equivalents of $27.9 million, an increase of $23.0 million from December 31st 2020 and a net debt of $22.2 million.

Following the quarter-end on May 5th 2021, the Company’s $50 million working capital facility was extended with Rand Merchant Bank, a division of FirstRand Bank Limited, London Branch.

In January 2021, Lucara announced the recoveries of two, top white gem quality diamonds (341 carats and 378 carats) from ore sourced from the M/PK(s) unit within the South Lobe. Both stones were recovered unbroken.

In April 2021, Lucara announced the 24-month extension of its novel supply agreement with HB in respect of all diamonds produced in excess of 10.8 carats in size from the Karowe mine to be sold as polished.

In May 2021, Lucara received credit approved commitments from a syndicate of five international lenders for a senior secured project financing debt package of up to $220 million (over P2.3 billion) to fund an underground expansion at the Karowe Mine in Botswana.

Eira Thomas, President & CEO commented: “Lucara has bounced back in the first quarter of the year, demonstrating its resiliency at a time of continued uncertainty in respect of the ongoing COVID-19 pandemic. Our solid performance in the first quarter reflects a stronger business environment, Lucara’s continued focus on operational discipline and our innovative approach to sales.

We also made significant progress towards the completion of a supplemental debt financing package with credit approved commitments received from five international lenders, in support of our plans for underground expansion.

Our outlook for the diamond market remains strong, and with close to 20 years of future mining now ahead of us at Karowe, Lucara is highly levered to an improving diamond price environment, particularly in respect of large, high value gem diamonds, the hallmark of Karowe’s production profile.”

KAROWE PERFORMANCE

Ore and waste mined of 1.1 million tonnes and 0.8 million tonnes, respectively.0.67 million tonnes of ore processed resulting in 80,014 carats recovered, achieving a recovered grade of 11.9 carats per hundred tonnes.

188 Specials (+10.8 carats) were recovered from direct milling during the first quarter, representing 6.8% weight percentage of total direct milling recovered carats, in line with resource expectations.

2 diamonds were recovered greater than 300 carats in weight and 2 diamonds were recovered greater than 200 carats in weight.

DIAMOND SALES

Diamond sales in Q1 2021 were held through a combination of regular tenders, and the Clara platform, for diamonds less than 10.8 carats, and through HB under the supply agreement for those diamonds greater than 10.8 carats.

The Company recognized revenue of $53.1 million or $579 per carat from the sale of 91,760 carats. Price recovery was observed in most size and quality classes.

Included in this amount is variable consideration of $9.1 million which relates to “top-up” payments which arise from polished diamond sales in excess of the initial planned value paid to Lucara.

Beginning in Q2 2020, all +10.8 carat diamonds mined from Karowe were sold to HB pursuant to the terms of the diamond supply agreement described below.

Karowe’s large, high value diamonds have historically accounted for approximately 60% to 70% of Lucara’s annual revenues.

Though the mine remained fully operational following the declaration of COVID-19 as a global pandemic, Lucara made a decision not to tender any of its +10.8 carat production after early March 2020 amidst the uncertainty caused by the global crisis and the significant weakness observed in the rough diamond market.

LUCARA- HB SALES AGREEMENT

The polished diamond market performed better through this period and subsequently, in July 2020, Lucara announced a ground breaking partnership agreement with HB, entering into a definitive supply agreement for the remainder of 2020, for all diamonds produced in excess of +10.8 carats from their 100% owned Karowe Diamond mine in Botswana.

This agreement was subsequently extended for a 24 month period, from January 1, 2021 to December 31, 2022.

Under the supply agreement with HB, Lucara’s +10.8 carat production is being sold at prices based on the estimated polished outcome of each diamond, determined through state of the art scanning and planning technology, with a true up amount payable to Lucara on actual achieved polished sales in excess of the initial estimated polished price, less a fee and the cost of manufacturing.

This unique pricing mechanism delivers regular cash flow for this important segment of our production profile.

Revenue from stones delivered to HB in 2020 will continue to be recognised in 2021 as polished diamonds are sold and “top-up” payments are realised.

CLARA SALES PLATFORM

With global restrictions impeding travel for many diamond manufacturers, interest in Clara- Lucara’s proprietary, secure, web-based digital sales platform- grew significantly in 2020 and that positive momentum continued through Q1 2021.

Six sales were held in the first quarter with total sales volume transacted of $6.0 million, more than double the volume from the comparable period in 2020.

Encouragingly, Clara also observed consistent price increase at each subsequent sale throughout the period.

The number of buyers on the platform increased to 80 and the company is maintaining a waiting list to manage supply and demand. Discussions continue with third party sellers to build supply.

KAROWE MINE UNDERGROUND PROJECT

During Q1 2021, Lucara spent $9.9 million (over P100 million) on project execution activities for the Karowe underground expansion, including shaft and geotechnical engineering, surface infrastructure, dewatering and power line engineering and procurement.

Site construction work commenced early in the quarter and in March the production and ventilation shaft box cuts were drilled and blasted to bulk excavation elevations.

A significant amount of time and effort was also spent on due diligence related to technical, environment and social matters as part of ongoing project financing efforts.

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Business

Inflation to accelerate further in 2021

12th May 2021
Inflation

The first quarter of 2021 continued with unprecedented challenges emanating from the 2020 outbreak of the COVID-19. In Botswana, the economy continues to reel from the effect and impact of the pandemic.

The FABI generated a negative quarterly return, with the index declining by 0.3% for the quarter. Government bonds were the main reason for the decline, registering a return of -0.4% for the quarter under review.

According to Kgori Capital Domestic Fixed Income and Macro Commentary Q1 2021, corporate bonds generated positive returns of 0.9% for the quarter.

Kgosi Capital Portfolio Manager, Kwabena Antwi, says government bonds have continued to come under pressure due to increased supply as government looks for funding for its Economic Recovery and Transformation Plan (ERTP). He says there were three auctions held during the quarter where P8.6 billion of bonds and T-Bills were offered.

“There was decent demand with P10.8 billion of bids received, however, in a similar manner to Q4 2020’s auctions, all auctions were under-allotted with an allotment ratio (allotment divided by securities on offer) of 59.0%. The low allotment was likely due to bids received considered too rich. The key question is how the government plans to fund its projected deficits. Even with the possibility of securing bilateral funding, there is an increase likelihood that projects under its ERTP may be delayed.”

Antwi indicated that inflation breached the lower bound of the Bank of Botswana’s objective range, ending the quarter at 3.2% in March 2021. He says, the main driver of inflation was transport inflation which moved out of deflation territory as a result of the 6.9% increase in pump prices effected in March 2021.

“We expect inflation to accelerate further and briefly touch the 6% upper bound of the Bank of Botswana’s objective range in late Q2 2021/Q3 2021 before accelerating. Our expectation is premised on continued supply-push inflation and base effects arising from the Transport basket,” he said.

GROSS DOMETIC PRODUCT

Kgori Capital highlighted that their GDP growth estimate for 2021 has increased following the release of better-than-expected Q4 2021 economic data which indicated that the economy contracted by 7.9% versus their expectation of an 8.5% contraction.

“We have revised our 2021 growth expectation upwards to 7.2% from 6.3% previously with risks balanced. Whilst there have been no hard lockdowns yet in 2021, curfews have been implemented since January 2021 and alcohol sales were banned between January 2021 and February 2021. Current restrictions are less constricting than the lockdown imposed in 2020 but they will nonetheless constrain business activity in 2021. Forecasts will remain fluid as we get more information on the status of the local and global vaccine rollout as well as the implementation of government’s ERTP.”

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Business

Debswana keeps keen eye on growing Lab-grown diamonds  

12th May 2021
diamonds

Debswana — the world’s leading rough diamonds producer by value says it is “watching” the developments around lab grown diamonds closely as events unfold.

The world‘s largest jewellery maker Pandora, this week announced that it will completely abandon mined diamonds and shift totally to lesser expensive stones manufactured in laboratories citing “environmental reasons.”

Pandora is by far one of the most important jewellery makers in the world.

The company which started as a family-run jewellery shop in Copenhagen, Denmark, is now globally known for its customizable charm bracelets, designer rings, necklaces and watches, crafting them from the world’s finest mined diamonds.

In an announcement that sent shock waves across the diamond industry corridors on Monday, the world’s biggest jewellery maker told global media outlets that it will no longer sell mined diamonds and will switch to exclusively laboratory-made diamonds.

Pandora Executives cited concerns about the environment and working practices in the mining industry saying this has led to growing demand for “alternative products”.

Alexander Lacik, Chief Executive Officer of Pandora told UK based media group BBC, that “the change was part of a broader sustainability drive”. He explained that Pandora is taking that direction because, “it’s the right thing to do”.

“Synthetic diamonds are also cheaper, we can essentially create the same outcome as nature has created, but at a very, very different price,” he said.

The move by Pandora, according to Industry experts, reflects a reorientation of the jewellery market brought on by the pandemic and the sentiments of younger buyers, who are more likely to factor in environmental and human rights concerns when choosing products.

“For millennials in particular, the awareness of what a lab-created diamond is, is significantly higher than with the older generation, so it’s a matter of education as well,” Alexander Lacik told American media outlet Bloomberg on Monday.

He added: “These categories of buyers are more concerned about sustainability aspects.”

WE ARE WATCHING THIS SPACE VERY CLOSELY”— DEBSWANA

Two weeks ago, Debswana, a De Beers partly owned company, said the synthetic diamond space is being monitored closely.

In a statement following a virtual stakeholder engagement meeting on the 23rd of April, 2021 Debswana Corporate Affairs said the company is keeping an eye on the new developments.

“We do watch this space very closely and also do know that De Beers does the same, overall, research shows that the size of the lab grown diamond market continues to be very small in comparison to the size of the natural diamond market (a low to mid-single digit percentage of the size,” stated the company.

Debswana said one of the key advancements with regard to lab grown diamonds in 2020 was that new production sources continued to come online, including the new De Beers owned Lightbox facility in Oregon, United States.

The increase in supply, coupled with continued advancements in technology, have seen lab grown diamonds  continue their downward price trajectory throughout 2020, the company said- citing a report by Brain- that lab-grown diamonds are  now retailing at an average of around 35% of the value of an equivalent natural diamond, down from around 65% in 2017.

In addition Debswana cited a research conducted by its parent company De Beers and other industry players that “90% of consumers want gifts that hold their value over time, and natural diamonds are seen as the top gift of this nature, above other jewellery, designer clothing or electronics”.

“Diamonds hold a symbolism, meaning and value that lab-grown diamonds do not provide as a mass-produced product of technology.”

DE BEERS SYNTHETIC DIAMOND BUSINESS

De Beers entered the retail space of synthetic diamonds space in 2018, through its jewellery brand Lightbox.

The company committed an investment of US$94 million (around P1 billion) on an Element Six production facility near Portland, Oregon, US adding to Element Six’s existing UK-based facilities.

Through its wholly owned subsidiary Element Six De Beers Group has been making diamonds in laboratories for 50 years but solely for industrial purposes.

“Lightbox will transform the lab-grown diamond sector by offering consumers a lab-grown product they have told us they want but aren’t getting: affordable fashion jewellery that may not be forever, but is perfect for right now,” said Bruce Cleaver, CEO of De Beers Group in 2018.

Cleaver said his company was making this move informed by an extensive research that signals consumers regard lab-grown diamonds as a fun, pretty product that shouldn’t cost that much.

“We see an opportunity here that’s been missed by lab-grown diamond producers. Lab-grown diamonds are a product of technology, and as we’ve seen with synthetic sapphires, rubies and emeralds, as the technology advances, products become more affordable,” he said.

Initially De Beers has had a policy against synthetic diamonds however in 2018 the global diamond giant reported that after decades of investment into the extensive Research & Development the company could now offer consumers high quality gems with customer tailored cuts that suits fashion requisites better at affordable prices.

“While it will be a small business compared with our core diamond business, we think the Lightbox brand will resonate well with consumers at the same time provide a new, complementary commercial opportunity for De Beers Group,” observed the Group CEO.

De Beers Lightbox Jewellery brand is retailing in the market, with the product uptake by consumers satisfactory.

However, De Beers reiterated in many forums that it will remain a natural diamond business. In 2019 at the Diamond Conference held in Botswana, Bruce Clever said the over 100 year old mining giant will remain a primarily “natural” diamonds business because the mine stones are forever and offer something no any other product could offer.

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