Lucara invests P540 m in Karowe underground mine project
Lucara Diamond Corporation, a Canadian multi listed miner has approved a budget of up to $53 million (over P540 million) for early works related to a proposed underground mine at its wholly owned top gem producer Karowe Diamond Mine located in the Boteti region, Botswana .
The Vancouver headquartered high carats producer reported this week through a statement which states that the investment decision is subject to receipt of all required authorizations and the arrangement of financing, all which are expected to be complete in the second half of 2020. The Botswana Stock Exchange (BSE) listed miner says positive results of a feasibility study announced on November 4, 2019, based on the Company’s ability to fund these initial capital expenditures from operating cash flow, a program of early works, including detailed engineering and design work has been approved to mitigate key risks related to schedule
Positive Results from Feasibility Study
Lucara reported last month that underground Feasibility Study to expand the mine was showing positive results. Karowe is one of the world’s most prolific producers of large, high value type IIA diamonds and the only diamond mine in recorded history to have produced two +1000 carat diamonds. A statement from Lucara indicates that the underground expansion would double the mine life, and generate significant revenue and cash flow out to 2040, extending benefits to the Company, its employees, shareholders, communities surrounding the mine, and Botswana.
The Underground mining operation combined with the current open pit mining is expected to yield production figures of upto 7.8 million carats out to 2040 and $5.25 billion in Gross Revenue at pre-production capital costs of $514 million for the underground project. Lucara further revealed that After-tax undiscounted net cash flow of $1,220 million is projected to be gathered from this operation assuming no real diamond price escalation.
Karowe Mine has produced 2.5 million carats since 2012 and generated $1.5 billion in revenue. According to findings from the study Long hole shrinkage underground bulk mining method selected will provide early access to higher value ore and allows for a short payback period of 2.8 years and low operating costs of $28.43 per tonne processed. On the basis of a construction start in mid-2020, ore from underground mining will seamlessly integrate into current operations providing mill feed starting in 2023 with a ramp up to 2.7Mtpa to the processing plant by 2026, and the opportunity to increase throughput.
The Underground is designed to access the South lobe kimberlite resource below the current planned bottom of the open pit which is expected to be at approximately 700 meters above sea level (“masl”)), to a depth of 310 masl. Access to the South Lobe underground will be via two vertical shafts being production and ventilation of approximately 765 and 715 meters deep respectively.
The statement further revealed that Identified key focus areas of hydrogeology, geotechnical constraints of the kimberlite and host rocks have been addressed through an intensive set of work programs and data collection that commenced during the Preliminary Economic Assessment completed in November 2017 and were substantially updated and augmented by the FS study. Commenting on the findings Lucara Chief Financial Officer, Zara Boldt, said the company was weathering the current downturn in the diamond market better than most of its peers.
“Karowe’s high value deposit and unique production profile has allowed us to generate enough cash to operate our business, develop the Clara sales platform and to have been a steady dividend payer,” he said. Based on the strong economics outlined in the feasibility study, Zara noted that Lucara was confident that external financing requirement will be modest and that attractive financing options are available to supplement the expected contribution of the company cash flow from operations to fund the underground project.
“We are optimistic about diamond prices recovering in the short to medium term as global supply decreases next year and we have also identified a number of optimization opportunities for the underground that could add additional value to the project in the near term,” he said.
Eira Thomas, Lucara President and CEO noted that her company is highly encouraged by the results of the Karowe Underground feasibility study which has outlined a much larger economic opportunity than first envisaged in the 2017 PEA and represents an exciting. “This is a world class growth project for our Company,” she said.
Thomas explained that a significant portion of the cost to expand Karowe Mines into an underground operation will be funded from cash flow, and the investment is expected to be paid back in less than 3 years. “The underground allows us to exploit the highest value part of the ore body first and generate more than $5.25 billion in gross revenue.
What’s more, margins remain healthy despite the application of conservative diamond pricing models that reflect the current, difficult market environment’’ she said. The CEO further said that they believe the market is now stabilizing with a view that the fundamentals are expected to strengthen in line with supply shortfalls from mature, depleting mines in Australia and Canada.
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Botswana ranks most attractive for investment in mining
The Canadian research entity, Fraser Institute has ranked Botswana as the most attractive country for investment in mining in Africa.
In a new survey the entity assessed mineral endowments and mining related policies for 62 mining jurisdictions including Botswana.
The entity noted that in addition to mineral potential for mining jurisdictions, policy factors examined during the survey include uncertainty concerning the administration of current regulations, environmental regulations, regulatory duplication, the legal system & taxation regime, uncertainty concerning protected areas, disputed land claims, infrastructure, socio-economic & community development conditions, trade barriers, political stability, labor regulations, quality of the geological database, security, as well as labor & skills availability.
According to the survey Botswana is the highest ranked jurisdiction in Africa and the second-highest in the world for investment in mining, as a result of its favorable mining policy when compared to other jurisdictions. The survey report noted that Botswana increased its score in policy perception index and added that the score reflects decreased concerns over uncertainty concerning protected areas infrastructure, political stability, labor regulations & employment agreements. “Botswana is also the most attractive jurisdiction in Africa and top 10 in the world when considering policy and mineral potential. With the exception of Botswana, policy scores decreased in all African jurisdictions featured in the survey report.
The survey shows that Morocco is the second most attractive jurisdiction in Africa both for investment and when only policies are considered. However, Morocco’s policy perception index score decreased by almost 18 points and globally the country ranks 17th out of 62 mining jurisdictions this year, dropping out of the top 10 jurisdictions after ranking 2nd out of 84 jurisdictions in 2021 in terms of policy. The survey report noted that investors recently expressed increased concerns over the uncertainty of administration and enforcement of existing regulations, labor regulations & employment agreements, uncertainty concerning disputed land claims, socio economic agreements, community development conditions and trade barriers in the country.
The top jurisdiction in the world for investment in mining is Nevada, which moved up from 3rd place in 2021. At 100, Nevada has the highest policy perception index score this year, displacing the Republic of Ireland as the most attractive jurisdiction in terms of policy. Botswana ranked 31st last year, climbed 29 spots and now ranks 2nd. South Australia ranks 3rd, entering the top 10 jurisdictions in terms of policy after ranking 16th in 2021. Along with Nevada, Botswana, and South Australia, the top 10 ranked jurisdictions based on policy perception index scores are Utah, Newfoundland & Labrador, Alberta, Arizona, New Brunswick, Colorado, and Western Australia. “Nevada ranked first this year with the highest PPI score of 100. Botswana took the second spot held by Morocco. The top 10 ranked jurisdictions are Nevada, Botswana, South Australia, Utah, Newfoundland & Labrador, Alberta, Arizona, New Brunswick, Colorado, and Western Australia. The United States is the region with the greatest number of jurisdictions (4) in the top 10 followed by Canada (3), Australia (2), and Africa (1).”
In the survey report Fraser Institute noted that this year, Angola, Ivory Coast, Mozambique, South Sudan, and Zambia received enough responses to be included in the report. Eight African jurisdictions are ranked in the global bottom 10. Out of 62 mining jurisdictions, Zimbabwe ranks (62nd), Mozambique (61st), South Sudan (60th), Angola (59th), Zambia (58th), South Africa (57th), Democratic Republic of Congo (55th), and Tanzania (53rd). Zimbabwe has consistently ranked amongst the bottom 10 and has held that position for the previous nine years, according to the institute.
The institute noted that considering both policy and mineral potential Zimbabwe ranks the least attractive jurisdiction in the world for investment. “This year, Mozambique, South Sudan, Angola, and Zambia joined Zimbabwe as among the least attractive jurisdictions. Also in the bottom 10 are South Africa, China, Democratic Republic of Congo (DRC), Papua New Guinea, and Tanzania. Zimbabwe, China, Democratic Republic of Congo, and South Africa were all in the bottom 10 jurisdictions last year. The 10 least attractive jurisdictions for investment based on policy perception index rankings are; (starting with the worst) Zimbabwe, Guinea (Conakry), Mozambique, China, Angola, Papua New Guinea, Democratic Republic of Congo (DRC), Nunavut, Mongolia, and South Africa.”
The Fraser Institute on annual basis conducts an annual survey of mining and exploration companies to assess how mineral endowments and public policy factors affect exploration investment.
Over half of the respondents who participated in the recent survey (57 percent) are either the company President or vice-president, and 25 percent are either managers or senior managers. The companies that participated in the survey reported exploration spending of US$1.9 billion in 2022, according to the institute. The institute indicated that as part of the survey, questionnaires were sent to managers and executives around the world in companies involved in mining exploration, development, and other related activities, to assess their perceptions about various public policies that might affect mining investment.
The institute noted that the purpose of the survey is to create a report card that governments can use to improve their mining-related public policy in order to attract investment in their mining sector to better their economic productivity and employment.
The institute noted that while geologic and economic evaluations are always requirements for exploration, in today’s globally competitive economy where mining companies may be examining properties located on different continents, a region’s policy climate has taken on increased importance in attracting and winning investment. “The Policy Perception Index or PPI provides a comprehensive assessment of the attractiveness of mining policies in a jurisdiction, and can serve as a report card to governments on how attractive their policies are from the point of view of an exploration manager.”
Inflation drops to 7.9 percent in April
Botswana’s inflation rate dropped to 7.9 percent in April 2023, a 2.0 percentage drop 9.9 percent in March 2023, Statistics Botswana’s consumer price index reported on Monday.
The main contributors to the annual inflation rate in April 2023 were Transport (2.7 percent), Food & Non-Alcoholic Beverages (2.2 percent), and Miscellaneous Goods & Services (0.9 percent).
The inflation rates for regions between March 2023 and April 2023 indicated a decline of 2.3 percentage points for Cities & Towns’, from 9.9 percent in March to 7.6 percent in April.
The Urban Villages’ inflation rate registered a drop of 1.8 percentage points, from 9.7 percent in March to 7.9 percent in April, whereas the Rural Villages’ inflation rate was 8.6 percent in April 2023, recording a decrease of 1.8 percentage points from the March rate of 10.4 percent.
The national Consumer Price Index realised a rise of 1.1 percent, from 128.2 in March 2023 to 129.7 in April 2023. The Cities & Towns index was 129.7 in April 2023, recording a growth of 1.2 percent from 128.2 in March.
The Urban Villages index registered an increase of 1.2 percent from 128.4 to 130.0 during the period under review, whilst the Rural Villages index rose by 0.9 percent from 127.9 in March to 129.0 in April 2023.
Four (4) group indices recorded changes of at least 1.0 percent between March and April 2023, specially; Miscellaneous Goods & Services (5.5 percent), Alcoholic Beverages & Tobacco (1.8 percent), Food & Non-Alcoholic Beverage (1.2 percent), and Recreation & Culture (1.2 percent).
The Miscellaneous Goods & Services group index registered an Increase of 5.5 percent, from 125.5 in March to 132.5 in April 2023. The rise was largely due to a growth in the constituent section indices of Insurance (11.2 percent) and Personal Care (2.1 percent).
The Alcoholic Beverages & Tobacco group index rose by 1.8 percent, from 126.5 in March 2023 to 128.7 in April 2023. The increase was owing to the rise in the constituent section indices of Alcoholic Beverages (1.9 percent) and Tobacco (1.1 percent).
The Food & Non-Alcoholic Beverages group index increased by 1.2 percent, from 136.6 in March to 138.2 in April 2023. The rise in the Food group index was attributed to the increases of; Vegetables (3.9 percent), Fish (Fresh, Chilled & Frozen) (1.7 percent), Coffee, Tea & Cocoa (1.5 percent), Milk, Cheese & Milk Products (1.5 percent) Fruits (1.4 percent) Meat (Fresh, Chilled & Frozen) (1.1 percent), Mineral Waters, Soft Drinks, Fruits & Vegetables Juices (1.1 percent) and Food Not Elsewhere Classified (1.0 percent).
The Recreation & Culture group index registered a growth of 1.2 percent, from 108.9 in March to 110.2 in April 2023. The rise was owed to the general increase in the constituent section indices, particularly; Recreational & Cultural Services (8.2 percent).
The All-Tradeables index recorded an increase of 0.9 percent in April 2023, from 134.2 in March 2023 to 135.4. The Non-Tradeables Index went up by 1.5 percent, from 120.1 in March to 121.8 in April 2023. The Domestic Tradeables Index moved from 131.8 in March to 133.3 in April 2023, registering a rise of 1.1 percent.
The Imported Tradeables Index realised a growth of 0.8 percent over the two periods, from 135.0 in March to 136.2 in April 2023. The All-Tradeables inflation rate was 10.3 percent in April 2023, registering a drop of 2.4 percentage points from the March 2023 rate of 12.7 percent.
The Imported Tradeables inflation rate went down by 3.1 percentage points from 12.4 percent in March to 9.3 percent in April 2023. The Non-Tradeables inflation was 4.6 percent in April 2023, a decline of 1.4 percentage points from the March 2023 rate of 6.0 percent. The Domestic Tradeables inflation rate registered a drop of 0.3 of a percentage point, from 13.4 percent in March to 13.1 percent in April 2023.
The Trimmed Mean Core inflation rate went down by 2.1 percentage points, from 9.2 percent in March 2023 to 7.1 percent in April 2023. The Core Inflation rate (excluding administered prices) was 8.3 percent in April 2023, a decrease of 0.6 of a percentage point from the March 2023 rate of 8.9 percent.
IMF warns of GDP decline in Sub Saharan Africa
A new report by International Monetary Fund (IMF) has warned that countries in Sub Saharan Africa including Botswana could record significant losses in Gross Domestic Product (GDP) as a result rising geo-political tensions among major economies in global trade.
Recent trends show that there is a deepening fragmentation in global economy, following US-led NATO war against Russia in Ukraine and trade war between US and China.
According to some local trade analysts the fragmentation of global economy leading to competing (US/EU bloc and China bloc could result with Sub Saharan Africa losing markets for some of its export commodities. The trade analysts noted that US & China are failing to implement an agreement, intended to stop the trade war and address some of the US fundamental concerns that instigated the war. USD34 billion worth of Chinese goods intended for the US market reportedly expired in July 2022 while US President Joe Biden administration was still reviewing import tariffs while another USD16 billion worth of goods expired in August, and a third batch of goods worth approximately USD100 billion expired in September. The analysts indicated that as a result of the trade war, the manufacturing sector at the US and China could lower production of goods, resulting with subdued demand for exports of raw materials and other commodities such as minerals from Botswana and other Sub Saharan countries.
In its April 2023 regional economic outlook report titled, “Geo-economic Fragmentation: Sub-Saharan Africa Caught between the Fault Lines” IMF indicated that recent data shows that rising geo-political tensions among major economies is intensifying economic and financial fragmentation in the global economy. The IMF cautioned that countries in Sub Saharan Africa could lose the most as a result of fragmented world.
The IMF stated that while countries in Sub-Saharan region benefited from increased global integration during the last two decades, the emergence of geo-economic fragmentation has exposed potential downsides. “Sub-Saharan Africa has benefited from the expansion of economic ties over the past two decades. The region has formed new economic ties with non-traditional partners in the past two decades. Riding on the tailwinds of China’s globalization since the early 2000s, the value of exports from Sub-Saharan Africa to China increased tenfold over this period, largely driven by oil exports, according IMF adding that China has also emerged as an important source of external financing. The US and EU still supply most of the region’s foreign direct investment (FDI) stock, with China accounting for only 6 percent of it as of end-2020, according to IMF.
IMF stated that overall, the expansion and diversification of economic linkages with the major global economies benefited the region. “The region’s trade openness measured as imports plus exports as share of GDP doubled from 20 percent of GDP before 2000 to about 40 percent. This doubling, together with buoyant commodity prices, among other factors, contributed to the growth take-off during this period, boosting living standards and development.”
IMF noted that overall, sub-Saharan Africa is now almost equally connected with traditionally dominant (US and EU) and newly emerging (China, India, among others) partners and warned that the downside of increased economic integration is that sub-Saharan Africa has become more susceptible to global shocks. “Sub-Saharan Africa stands to lose the most in a severely fragmented world compared to other regions. In the severe scenario of a world fully split into two isolated trading blocs, sub-Saharan Africa would be hit especially hard because it would lose access to a large share of current trade partners. About half of the region’s value of current international trade would be affected in a scenario in which the world is split into two trading blocs: one centered on the US and the EU (US/EU bloc) and the other centered on China.”
IMF indicated that under a severe “geo-economic fragmentation” scenario, trade flows would adjust over time. “But as the region loses access to key export markets and experiences higher import prices, the median sub-Saharan African country would be expected to experience a permanent decline of 4 percent of real GDP after 10 years. Estimated losses are smaller than the losses during the COVID-19 pandemic but larger than those during the global financial crisis.”
IMF warned that disruptions to capital flows and technology transfer could bring additional losses. “Separately from the trade simulation results, in a world where countries were to cut off their capital flow ties with either bloc consistent with the preceding severe scenario, the region could lose about $10 billion of Foreign Direct Investment (FDI) and official development assistance inflows, equivalent to about half a percent of GDP a year, based on an average 2017–19 estimate. In the long run, trade restrictions and a reduction in FDI could also hinder much needed export-led growth and technology transfers.”
IMF meanwhile said not all is bleak as some milder scenarios of shifting geopolitics may create new trade partnerships for the region. “In a scenario in which ties are cut only between Russia and the US/EU while sub-Saharan African countries continue to trade freely (referred to as “strategic decoupling”), trade flows would be diverted partly towards the rest of the world and intra-regional trade in sub-Saharan Africa may increase.”
IMF recommended that countries in Sub Saharan Africa should build resilience that requires strengthening regional integration and expanding the pool of domestic resources to counter potential external shocks: According to IMF trade experts strengthening the ongoing regional trade integration under the African Continental Free Trade Area could help build resilience amid external shocks. Greater integration will require reducing tariff and non-tariff trade barriers, strengthening efficiency in customs, leveraging digitalization, and closing the infrastructure gaps, according to the experts.
The experts also recommended that countries in the region should deepen domestic financial markets as that can broaden the sources of financing and lower the volatility associated with excessive reliance on foreign inflows. “By upgrading domestic financial market infrastructure including through digitalization, transparency and regulation, and expanding financial product diversity, sub-Saharan African countries can expand financial inclusion, build a broader domestic investor base. Improving domestic revenue mobilization is critical to reducing the share of commodity-linked fiscal revenues.”