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ALL EYES ON BOTSWANA- DE BEER NEGOTIATIONS

This week Botswana celebrated her 53 years of independence, a sterling economic marathon and democratic transition that began over 5 decades ago, anchored and pivoted on dedicated civil service and selfless leadership across the political divide.

Much credit goes to stalwarts in nation building, right from the immerse contribution of tribal leaders, politicians to early post-independence civil servants who started building the landlocked country’s economy from absolutely nothing. Fundamental to Botswana‘s rapid economic transformation is the discovery of what would later become one of the world’s key rough diamonds mining operation ,bolstering infrastructural development  and  birthing an upper middle income country widely celebrated across the globe today.

Immediately after independence was declared in 1966,British administration slowly  removed its aid and financial assistance, Botswana now , though still assisted on setting up was left by in large to fend for itself, however sooner than later a complete turnaround would emerge.
Three years post-independence, after over 10 years of immerse geological prospecting, Botswana‘s first diamond mine was found in Boteti District.  A team of De Beers’ geologists discovered what today is the largest diamond mine by area and one of the most important industrial diamonds mining operation in the world, the bold and magnificent Orapa mine, loosely translated to mean a resting place of lions in Sesarwa language.

This birthed what would later become the world’s leading rough diamond producer and a globally celebrated Private-Public Partnership, between Mining giants De Beers Group and Government of Botswana, De Beers Botswana Diamond Mining Company was formed in 1969. In 1971 Orapa Mine was officially commissioned, four years later a small gem pipeline discovered few kilometers from Orapa, Letlhakane Mine popularly known today as DK1 was commissioned. But behold a sparkling upswing came into light in 1972 when a  rare gem pipe was found beneath a 40 metre layer of sand and calcrete in the Naledi River Valley birthing Jwaneng Mine, the prince of mines , what is today believed to be the richest diamond mine by value.

FAST FORWARD TO 2019…

These two partners, Government of Botswana and De Beers Group are meeting to review and renew their vows, circumstances have changed, the global diamond industry has evolved, and various factors are at play.  Key to negotiations which are reported to be ongoing in discrete places at London and in Gaborone is the Sales Agreement. The Botswana-De Beers diamond sales deal was last renewed into a 10 year union in 2010 and it lapses next year September 2020.

Recently reports have been rife that Botswana is being ripped off along the way as the stones leave Debswana operations crossing borders to diamond trading centers across the globe. However De Beers Group has constantly denied these reports. Government is yet to clearly comment on the reports.

To date on the overall, the De Beers-Botswana marriage has birthed Debswana Diamond Mining Company, the partnership’s flagship entity. This year the company celebrated 50 years of existence. Debswana is Botswana‘s largest private sector employer, only government employs more people than Debswana. The company is directly owned by Botswana Government and De Beers on 50-50 shareholding.

Another offspring of the partnership is Diamond Trading Company Botswana (DTCB), also a 50 -50 venture between the two parties .DTCB sorts and values diamond from Debswana mines. If there are to be changes from these multibillion dollar serious negations it’s likely to be from DTCB going up the pipeline.

DTCB avails 85 % of their sorted and valued diamonds to De Beers Global Sight holder Sales (DBGSS) and 15 % to Okavango Diamond Company (ODC) which is wholly owned by Botswana Government .This was birthed by 2011 agreement with ODC established in 2012. Another key change in 2011 was the relocation of DBGSS from London to Gaborone, transferring De Beers’ operations consolidated rough diamond sales into Gaborone, bringing alongside professionals, skills, and the world’s biggest rough diamond transactions to Africa.

ANTICIPATED INCREASE IN ODC UPTAKE

One of the highly earmarked outcomes to possible emerge from the negotiations is increase in percentage volume of ODC‘s uptake from DTCB. The argument has always been that Botswana as one of the largest diamond producers in the world has the capacity and ability to develop its own price book through its own independent window outside De Beers’ channels. Before ODC was establishment in 2012 all diamond recovered from Debswana mines were made available to De Beers for dispatch into the sight holder market.

Currently ODC rakes in sales in the region of $500 Million annually (approximately P5 billion). This according to Minister of Mineral Resources Eric Molale demonstrates beyond reasonable doubt that Botswana has independent capacity and ability to be a major player in the sight holder space outside De Beers’ bracket.

 “The Marcus Te Haar led company was a great accomplishment for us a country, it ended a perception that we cannot sell our diamonds, and its sound performance since establishment will have direct impact in the current negotiation with a view to   potentially increase its uptake form 15 % to a larger percentage” he said last year at a mining conference in Gaborone

DTCB TO SORT AND VALUE DIAMONDS FROM NON DE BEERS OPERATIONS

In 2006 the then sales agreement before the 2011 deal, saw the setting up of the world largest and most sophisticated sorting and valuing operation in Gaborone, the Diamond Trading Company Botswana. DTC Botswana was birthed from Botswana Diamond Sorting & Valuing Company, an entity that operated for many years at the famous Orapa house. DTCB is now located in a magnificent high rise cube in the Diamond Hub along the Gaborone airport road, a state of the art infrastructure clinched between Debswana Corporate Centre & DBGSS Buildings .

In 2017 DTCB commissioned a new facility of unparallel global standards, a laboratory of sophisticated chemical processes of quantum physics operations and complex scientific techniques for cleansing and sorting the diamonds. In February last year then Managing Director of DTCB Tobake Kobedi said DTCB with this set up intends to be the world‘s number 1 by 2020. He said by 2020 when a new sales agreement is penned down, DTCB intends to have improved its efficiencies and effectiveness as a rough diamond sorting and valuing operation and thus desires not to only be limited to receiving Debswana rough diamonds.

“Currently our shareholder agreement dictates that we sort diamonds from De Beers mines in Botswana only, but we want to say let more from elsewhere come because we have the capacity” said Tobake when addressing members of the media last year. The DTCB plant has sorting and valuing full capacity of over 45 million carats of per annum but currently only receives around 22 million carats from Debswana mines annually.

“Why can’t we take rough diamonds from other mines locally and in the region?” Kobedi posed these questions explaining the intention of DTCB strategy 2020 and its vision towards ensuring that Botswana remains a Diamond Hub beyond depletion of the stones. Later in 2018 during Zimbabwean President, Emmerson Mnangagwa’s state visit to Botswana it was noted that talks would begin for Zimbabwe to process, sorts and value its diamonds in Botswana.

GOVERNMENT WANTS DEBSWANA TO RIGOROUSLY INVEST IN OTHER SECTORS

Sources close to the echelons of power have revealed to this publication that one of the issues to be posed at the negotiation table by Botswana is that Debswana; the country’s largest company should start investing in other sectors outside its core business of mining diamonds.
The argument suggested by this information is that Debswana has the necessary capital, technical capacity and shrewd corporate governance to do that “There are discussions that Debswana should lead economic diversification by investing in solar energy, plant and equipment assembly and machinery equipment amongst others” shared a source from the highest corridors of government enclave.

Debswana has over the years of its existence invested in other establishments outside diamond mining. Morupule Coal Mine was a wholly owned Debswana operation before it was disposed to government owned Mineral Development Company in 2017. 
Botswana Accountancy College, the country’s premier business academic institution was established as a joint venture between Debswana, Ministry of Finance and Economic Planning and the Botswana Institute of Accountants in 1996.Within its fold Debswana also wholly owns Sesiro Insurance Company, a bespoke insurance services outfit for its employees.

“ This is  clear evidence that Debswana should do more , it has done it before , so Government wants the shareholders being itself and De Beers to permit  Debswana to rigorously invest in more commercial viable sectors that this country desperately needs for employment creation and economic diversification like ICT , modern and innovative Agriculture amongst others” shared a source.

INFLUENCING FACTORS: BOTSWANA GENERAL ELECTIONS OUTCOME, GLOBAL ROUGH DIAMOND MARKET DOWNTURN, DE BEERS SYNTHETIC DIAMONDS

The negotiations usually comprise a team of 5 from the two parties. From Botswana side common picks are Attorney General, Bank of Botswana Governor, and Minister of Minerals amongst others. These highly anticipated negotiations will however have more influencing factors, experts observe that the global rough diamond market downturn will have an impact, in the main, it is said that the recent De Beers lab grown diamonds announcement will have a play. The Mining giant invested $100 million (Over a billion pula) in a manmade diamonds facility in the United States early this year.

After assuming power in April this year President Masisi noted that he would be eyeing more participation of Botswana in the diamond business, sentiment constantly reiterated his Minister of Minerals Eric Molale.  “We have had a wonderful relationship with De Beers and we expect that relationship to be even more cemented, there is a way of actually achieving a win-win for both, we want to participate more on cutting, polishing and retail,” Masisi said when talking to Bloomberg in May 2018.

In the bottom line government has reiterated that De Beers will remain its partner “As partners in this industry, it would shock the world if we were to part; the diamond industry would never be the same again,” Masisi said. Botswana is however going into one of the closely contested general elections in history of its democracy.  Since independence one party has ruled the country, It remains unclear what would happen to this partnership should government change. Government of Botswana is a direct Shareholder in De Beers Group, owning 15 % with the larger balance owned by Mining conglomerate Anglo American.

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Business

MD, Board in BBS battle for supremacy

12th April 2021

Botswana Stock Exchange (BSE) moved swiftly this week to suspend BBS Limited from trading its securities following a brawl between Board of Directors and Managing Director, Pius Molefe, which led to corporate governance crisis at the organisation.

In an interesting series of events that unfolded this week, incumbent board Chairperson, Pelani Siwawa-Ndai moved to expel Molefe together with board Secretary, Sipho Showa, who also doubles up as Head of Marketing and Communications.  It is reported that Siwawa-Ndai in her capacity as the board Chairperson wrote letters of dismissals to Molefe and Showa.

Following receipt of letters, the duo sought and was furnished with legal opinion from Armstrong Attorneys advising them that their dismissals were unlawful hence they were told to continue to report to work and carry out their duties.

Documents seen by BusinessPost articulate that in the meeting which was held on the 1st of April, the five outgoing board members, unlawfully took resolutions to extend their contracts by a further 90 days after April 30 2021 as they face tough competition from five other candidates who had expressed interest to run for the elections.

Moreover, at the said meeting, management explained that neither management nor the board have the authority to decline nominations submitted by shareholders or the interested parties which is in line with Companies Act and also BBS Limited constitution.

Molefe also revealed that as management they cautioned the board that it was conflicted and it would be improper for it to influence the election process as it seems they intended to do so.
“Nonetheless, in a totally unprecedented move in the history of BBSL, the board then collectively passed the unlawful resolutions below. Leading to the illegitimate decisions, the board had brazenly directed that its discussions on the Board elections should not be recorded totally violating sound corporate governance,” reads the statement released by management this week.

When giving their legal advice, Armstrong Attorneys noted that notice for the AGM should state individuals proposed to be elected to the board and directors have no legal authority to prevent the process.

Armstrong Attorneys also noted that, “due process” cited by board members are simply to ensure that the five retiring Directors avoid competition from interested candidates to be appointed to the BBS Limited board.  The law firm further opined that the resolution of the 90 day extension of term of the five directors pending re-election or election was unlawful.

Molefe expressed with regret that BBS has been suspended from trading by BSE until the current matter has been resolved. “I am concerned by this development and other potentially harmful actions on the business. As management, we are engaging with stakeholders to mitigate any negative impact on BBS Limited,” expressed a distressed Molefe.

He assured shareholders and the rest of Management that they are working very hard to ensure that the issues are being dealt with in a mature manner.  BBS which hopes to become the first indigenous commercial bank has seen its shares halted barely four months after BSE lifted the trading suspension of shares for BBS following submission of their published 2019 audited financial statements.

According to Chief Executive Officer (CEO) of the local bourse, Thapelo Tsheole said the halting of shares of BBSL is to maintain fair, efficient and orderly securities trading environment. “The securities have been suspended to allow BBS to provide clarity to the market concerning the recent allegations which have been brought to the attention of the BSE relating to the company’s Board of Directors and senior management,” said Tsheole.

Meanwhile in their audited financial statements for the year ended 31 December 2020, BBS recorded a loss of P14.6 million as at 31 December 2020 compared to the loss of P35.7 million for the comparative year ended 31 December 2019. According to Molefe the year under review was the most challenging for the bank, its shareholders and customers endured the difficult economic environment and the negative impact of the coronavirus.

He revealed that as the bank, they were forced to put in place several measures to ensure that the business withstands the impact of coronavirus and also to cushion mortgage customers from the effects of the pandemic. “Since April 2020 up to the end of December 2020, BBS assisted 555 mortgage customers with a payment holiday,’’ he said.

This is the bank whose total balance sheet declined by 12 percent from P4, 626 billion for the year ended. 31 December 2019 to P4, 088 billion as at 31 December 2020. As if things were not bad enough, total savings and deposits at the bank declined by 14 percent from a balance of P2, 885 billion as at 31 December 2019 to P2, 494 billion as at 31 December 2020.

On a much brighter side, BBSL mortgage loans and advances improved from P3, 401 billion to P3.408 billion with impairment allowance significantly improving to P78, 648 million from P102, 532 million for the year under review, representing a positive variance of 23 percent. BBS maintained a strong capital base with capital adequacy ratios of 26.32% for the year ended 31 December 2020.

Molefe was optimistic and anticipated a positive outcome during the implementation of the new BBS corporate strategy, whose main drive is commercialization of operations, which is in full force.
“It will be spurred on by the positive results we have achieved for the year ended 31 December 2020, and our planned submission of our banking license application to Bank of Botswana which we anticipate to operate as a commercial bank in the third quarter of 2021,” he alluded.

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Mphathi promises people centred, environmentally sensitive new BCL

12th April 2021
CEO of Premium Nickel Resources Botswana: Montwedi Mphathi

Chief Executive Officer (CEO) of Premium Nickel Resources Botswana (PNRB), Montwedi Mphathi, has said his company will resuscitate the formerly owned BCL assets and deliver a new, sustainable and cutting edge mining operation.

The new mine which will leverage on modern and next generation technology, will be environmentally sensitive and cognisant of the needs of its people and that of the communities around the area of influence.

In a statement last week, Premium Nickel Resources Botswana and its parent company, the Canadian headquartered Premium Nickel Resources announced that they have now completed the Exclusivity Memorandum of Understanding (MOU) with the Liquidator.

The MOU will govern a six-month exclusivity period to complete its due diligence and related purchase agreements on the Botswana nickel-copper-cobalt (Ni-Cu-Co) assets formerly operated by BCL Limited (BCL), that are currently in liquidation.

On February 10, 2021, Lefoko Moagi, the Minister of Mineral Resources, Green Technology and Energy Security of Botswana, affirmed in Parliament a press release by the Liquidator for the BCL Group of Companies, stating that PNR was selected as the preferred bidder to acquire assets formerly owned by BCL.

“This is encouraging for the company and for Botswana. Our ambition in this new project dubbed “Tsholofelo” is to redevelop the former BCL assets into a modern, environmentally sensitive, efficient NI-Cu-Co-water producer where sustainability and the people are at the forefront of the decisions we make,” said Mphathi in a statement last Thursday.

“We also understand that no matter how successful we are at building the “New BCL” , our success will only be measured at our ability to create local wealth , skills and support the continued transition of local economy to a longer term sustainable base.”

The next step during the exclusivity period will be the completion of the definitive agreement. Simultaneous to this the PNRB will be conducting additional investigative work on site to further its understanding of the potential of these assets.

Specifically the company will complete an environmental assessment, a metallurgical study, a review of legal and social responsibilities, a review of the mine closure and rehabilitation plans and an on-site inspection of the legacy mining infrastructure and equipment that has been under care and maintenance.

Mphathi said they continue to monitor the global Covid-19 developments noting that they are committed to working with health and safety authorities as a priority and in full respect of all government and local Covid-19 protocol requirements. PNRB has developed Covid-19 travel, living and working protocols in anticipation of moving forward to on site due diligence.

“We will integrate these protocols with the currently applicable protocols of Ministry of Health & Wellness as well as District Health Management Team ( DHMT) and surrounding communities,” reads a statement released by the Gaborone based Premium Nickel Resources team.

PNRB is looking to become a catalyst in participating and building a strong economy for Botswana, with a purpose where respect and trust are core to every single step that will be taken. “Our success will mean following international best-in-class practices for the protection of Botswana’s environment and the focus on its people, building partnerships and earning respect, through cooperation and collaboration,” explains PNRB on its website.

“We are committed to Governance through transparent accountability and open communication within our team and with all our stakeholders.” Mphathi, a former BCL Executive, is widely celebrated for achieving unprecedented profitability at the mine during his tenure as General Manager.

The Serowe-born mining guru obtained a Diploma in Mining Technology from Haileybury School of Mines in Canada. He later obtained a B.Eng. Mining degree from the Technical University of Nova Scotia. Mphathi went on to City University in London, UK and obtained a M.Sc. in Industrial and Administrative Sciences.

Before ascending to the top country managerial role of Premium Nickel Resources. Mphathi was General Manager of Botswana Ash (Botash), Southern Africa’s leading salt and soda ash producer.
He was at some point linked to Debswana top post, which is still to date not substantively filled following the death of Managing Director, Albert Milton, in August 2019.

With Mphathi out of the race and now leading the rebuilding of his former employer, the top post at De Beers- Botswana joint venture is likely to be filled by current acting Managing Director Lynette Armstrong, a seasoned finance executive with unparalleled experience in the extractive industry.

“We are happy to hear that former General Manager of BCL, Mr Montwedi Mphathi, has a relationship with the new Company that intends to resuscitate the mine, he is an experienced Mining Executive who knows BCL better, we want the mine to be brought back to life so that our people can be employed ” said Dithapelo Keorapetse Member of Parliament for Selibe Phikwe West recently in Parliament.

BCL was liquidated in October 2016 following a series of losses and government bailout occasioned by low Copper prices and allegedly poor Investment decisions and maladministration. Recently PNR CEO, Keith Morrison said his team of seasoned experts both from Canada and Botswana are committed to resuscitate the BCL assets and deliver a high performance mining operation.

“The World, Botswana and the mining industry have changed dramatically since mining first started at the former BCL assets in the early 1970s. The nickel-copper-cobalt resources remaining at these mines are now critical metals, required for the continued development of a decarbonized and electrified global economy,” he said.

Morrison added: “As we move forward, it is our goal to demonstrate the potential economics of re-developing a combination of the former BCL assets to produce Ni-Cu-Co and water in a manner that is inclusive of modern environmental, social and corporate governance responsibilities.”

He explained that to attain this, extensive upgrades to infrastructure will be required with an emphasis on safety, sustainability and the application of new technologies to minimize the environmental impact and total carbon footprint for the new operations.

“Our team remains committed to working with the local communities and all of the stakeholders throughout this period and we encourage anyone with questions or feedback to reach out to us directly,” he noted.

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Business

Lucara extends sales deal with Belgian diamond cutter

12th April 2021
Lucara extends HB Antwerp’s contract Signum technologies

Lucara Diamond Corporation, the Canadian 100% owners of iconic Karowe mine, this week announced the extension of its supply deal with Belgian diamond midstream giant HB Antwerp.

The definitive supply agreement is in respect of all diamonds produced in excess. of 10.8 carats in size from its rare gem producing Karowe diamond mine located in the Boteti district of Botswana.
Large, high value diamonds in excess of 10.8 carats in size account for approximately 70% of Lucara’s annual revenue.

Though the Karowe mine has remained fully operational throughout the COVID-19 pandemic, Lucara made a deliberate decision not to tender any of its +10.8 carat inventory after early March 2020 amidst the uncertainty caused by the global crisis.

Under the terms of this novel supply agreement with HB, extended to December 2022, the purchase price paid for each +10.8 carat rough diamond is based on the estimated polished outcome, determined through state of the art scanning and planning technology, with a true up paid on actual achieved polished sales thereafter, less a fee and the cost of manufacturing.

“Lucara is beginning to see the benefits of this strategy in accessing a broader marketplace and delivering regular cash flow based on final polished sales,” said Lucara CEO, Eira Thomas on Wednesday.

“We believe these early results warrant an extension of the arrangement for at least 24 months to determine if superior pricing and market stability for our large, high-value diamonds can be sustained longer term.”

The Canadian junior miner initiated a supply agreement with HB for large stones from its Botswana Karowe mine in July 2020, after pausing its tenders shortly after the Covid-19 pandemic began.
The deal enables Lucara to sell the rough diamonds to HB at a price based on an estimate of the polished outcome, which the companies determine using diamond scanning and planning technology.
Once HB sells the goods, it adjusts the price that Lucara receives based on the actual selling price of the polished, minus a fee and manufacturing costs.

The extended supply deal will follow the same payment terms as the initial agreement, and will be in effect through to December 2022. Lucara said in a statement this week that the agreement also provides increased tax revenue and beneficiation opportunities for the government of Botswana, and creates a streamlined supply chain for Karowe’s rough.

“More than a supply agreement, this collaboration structurally embeds a new transparent and sustainable way of working in the diamond-value chain,” said HB CEO, Oded Mansori.
“For the first time, different partners of the value chain are fully aligned, sharing data and information throughout the process from mine to consumer.”

Mansori added: “We are truly proud with this innovative and straightforward collaboration that has proven itself through the volatile and uncertain reality of 2020. We are confident to achieve even better results during the term of this new contract and demonstrate the power of a true partnership.”

Lucara, which early this year secured extension of Karowe mining license to 2040, announced over P2.4 billion funding for Karowe underground mining expansion project a fortnight ago. The Vancouver headquartered top large diamond producer says this supply agreement deal extension with HB will bring about regular cash flow for Lucara using polished pricing mechanism. Furthermore, the company says the deal has potential revenue upside, particularly suited for Lucara’s large, exceptional diamonds.

In the main, Botswana will benefit increased tax revenue and additional beneficiation opportunities for the Government and communities around Karowe mine. A streamlined supply chain that achieves alignment between Lucara and HB to maximize the value of each +10.8 carat diamond produced at Karowe.

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