De Beers Group a 15 % Botswana Government owned leading diamond miner on Thursday 16th May announced the approval of a multimillion dollar new investment by its Namibia sea coast diamond mining operation.
According to the De Beers Parent company Anglo American, secondary listed on Botswana Stock Exchange, the investment forms a total capital cost of $468 million equivalent to almost P5 billion for the construction of a new custom built diamond recovery vessel at De Beers ‘s marine diamond recovery outfit Debmarine Namibia. The latter is a 50:50 joint venture between De Beers Group and Government of the Republic of Namibia.
The new vessel will become the seventh in the Debmarine Namibia fleet and the world ‘s first ever built custom-built diamond recovery vessel and is expected to begin production in 2022 with capacity to add 500,000 carats of annual production, boosting Debmarine Namibia figures up by 35% from its current levels. The highly ancitciapated move, approved by Debmarine Namibia Board of Directors will represents the largest ever single investment in the marine diamond industry with $234 million (over P2.4 billion) attributable to Anglo American through De Beers.
In a statement released on Thursday, Mark Cutifani, Chief Executive Officer of Anglo American, De Beers parent company says the addition of this custom-built vessel for the Debmarine Namibia joint venture will bring numerous benefits in terms of De Beers’ production profile by value and volume, the technologies that can be deployed from the outset to deliver greater efficiency and productivity, and sustained economic benefits for Namibia.
“This highly attractive investment offers a three-year payback, a more than 25% IRR and an EBITDA margin of more than 60% typical of the high quality of our brownfield growth options. We will continue allocating appropriate levels of capital in a disciplined manner across Anglo American’s wider organic pipeline of near and medium term growth opportunities, including the world class Quellaveco copper development in Peru, that we expect to contribute towards our 20-25% production growth by 2023.” He said
In a separate statement released by De Beers on the same day, the Group revealed that following an extensive global tendering process, leading marine mining experts Damen Shipyards were selected to build the ship base on their strong track record for delivering quality vessels and their advanced technological capabilities. De Beers says the new vessel will incorporate the latest marine technologies that will drive improved safety performance while optimizing efficiency and utilization rates.
Chief Executive Officer of De Beers Group Bruce Cleaver shared that some of the highest quality diamonds in the world are found at sea off the Namibian coast. “With this investment we will be able to optimise new technology to find and recover diamonds more efficiently and meet growing consumer demand across the globe.” He said
Captured in the De Beers statement Tom Alweendo, Namibia Government Minister of Mines and Energy commented that the investment further positions Debmarine Namibia as a key player in the sea coast diamond mining industry. “It is through investments like this we can continue to develop Namibia’s economy. As the Government we will continue to do what we can to promote and encourage investment in the mining sector.” He said. The new vessel is expected to create more than 160 new jobs alongside Debmarine Namibia’s current workforce of 975 employees.
Debmarine Namibia conducts marine-based diamond recovery around 120 to 140m below sea level in the Atlantic Ocean of the Namibian coast. Operating a fleet of six motor vessels (mv), capable of retrieving, and exploring for diamond-bearing materials from the seabed and processing them to a diamond-rich concentrate. They are mv Debmar Atlantic, mv Debmar Pacific, mv! Gariep, mv Grand Banks and mv Mafuta.
The sixth fleet preceding this newly announced one is currently the world’s most highly advanced diamond exploration and sampling vessel, bearing the nomenclature mv SS Nujoma, named after Namibia's founding president Dr Sam Shafiishuna Nujoma ,Mv SS Nujoma has been built at a cost of N$2.3 billion (US$157 million) and started full operations in June 2017.
The 12,000 tonne diesel-electric vessel, which has led to the creation of 140 jobs, the vast majority filled by Namibians, is 113m long and can accommodate a crew of 80. In addition, two chartered vessels, mv Coral Sea and mv Explorer, are used by Debmarine Namibia for exploration and sampling with rehabilitation of the seabed and the marine environment occurring naturally over time.
Namibia has the richest known marine diamond deposits in the world, estimated at more than 80 million carats. They represent around 65 per cent of Namdeb Holdings' total diamond production and 90 per cent of its diamond resources. Marine diamond recovery now produces more in annual volumes than the country’s land-based diamond mining. Investment into new custom-built diamond recovery vessel is expected to further position Namibia marine diamond industry as one the most prolific and leading in the world.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”