All thanks to Botswana’s Karowe mine diamonds, the latest forecast by BSE-listed Lucara Diamond Corp. shows a sparkling like polished diamond progression for this year with increase of sales, diamonds recovered, a swell in processed ore mining and tonnes processed and the bottleneck of waste is expected to decrease.
In the latest released forecast, diamond sales are expected to be 300,000 carats to 320,000 carats for 2019 compared to 270 000 carats to 290 000 carats in 2018. Diamonds recovered this year are expected to be seen at 300,000 carats to 330,000 carats. While there are improvements in this year’s forecast, ore mining and tonnes processed are expected to match last year’s 2.5 million and 2.8 million tonnes. Diamond revenue for 2019 is expected to be at $170 million to $200 million (P1.7 billion to P2 billion) which also reflects last year’s prediction.
Dealing with waste stripping has always been a big bottleneck for Lucara’s Karowe mine and last year it was predicted that the mined waste would be between 13.0 to 16.0 tonnes. According to Lucara the Karowe mine did not enjoy an especially successful year in 2018 as costs overshot estimates and recoveries tended towards the lower end of the spectrum and this was owing to an increase in the amount of waste rock that had to be mined.
However on the positive, the waste decreased last year contrary to the predictions with waste mined during the three months ended in June 2018, which was the first quarter of 2018, totalled 4.4 million tonnes. The waste mined further shrunk during last year, going down to 4.4 million tonnes in the second quarter before falling to 3.9 million tonnes in the third quarter. This fall has influenced a positive forecast which predicts a fall of 6.0 million and 9.0 million tonnes, a far cry from the 2018 high waste levels.
“Our focus at Karowe in 2019 will be on driving operational efficiencies, increased productivity and cost control, and maximizing cash flow. The waste stripping bottleneck is now behind us and we expect stripping ratios to steadily improve towards the end of the calendar year, enabling improved access to high value, south lobe ore,” said Lucara President Eira Thomas when commenting on the fall in waste mining which is a positive development for production at the company’s mines.
For the 2019 outlook, the total operating cash costs per tonne processed (including (a) to (c) below): $32.00 to $37.00 (a) Cash cost per tonne mined (ore and waste) seen at $4.00 to $4.50 (b) Cash cost per tonne processed expected to be at $12.00 to $13.00 (c) Mine on-site departmental costs (security, technical services, mine planning safety and health, geology) per tonne processed to be at $5.00 to $6.00
Operating cash costs per tonne processed, excluding waste mined seen at $21.00 to $24.00. Botswana general & administrative expenses, including sales and marketing expenses, per tonne processed should be around $2.00 to $3.00 while the tax rate 22 percent to 29 percent. The average exchange rate in USD/Pula is expected to be at 10.5. It is further stated that based on 2019 revenue guidance of $170 million to $200 million and a budget of $14.8 million for the feasibility study as well as operating costs.
Furthermore, the expected tax rate is between 22 percent and 29 percent for 2019. According to Lucara a budget of $14.8 million (P148 million) has been approved to complete a feasibility study that was initiated in 2018, evaluating the potential for an underground mining operation at Karowe. The company says work undertaken in 2018 under a budget of approximately $29 million (P290 million) has significantly de-risked the project and in 2019, efforts will focus on follow up geotechnical and hydrogeological drilling and related studies. A comprehensive update on the underground project will be provided in early Q1, 2019, according to the company.
“Having stabilized and significantly improved our mining operations at Karowe in 2018, Lucara is now focused on optimizing the base business and pursuing a suite of high potential, organic growth opportunities.The completion of a feasibility study examining the potential for underground production and Life of Mine expansion at Karowe from 2026 until at least 2036, remains a top priority for 2019. In addition, we will continue to systematically ramp up diamond sales through Clara, our transformational, proprietary digital sales platform that successfully completed its first trial sale in December 2018,” said Thomas.
Lucara is a member of the Lundin Group of Companies and is listed on the TSX Exchange, Nasdaq Stockholm and the Botswana Stock Exchange under the symbol "LUC" and operates transparently, In its Karowe mine, Lucara is known to have discovered the world’s largest diamond, the 1,109-carat Lesedi La Rona, which was later sold to Graff Diamonds for P530 million ($53 million).
The Clara factor
Lucara’s sales are boosted by Clara Diamond Solutions, a digital sales platform that uses proprietary analytics together with cloud and blockchain technologies to modernize the existing diamond supply chain, driving efficiencies, unlocking value and ensuring diamond provenance from mine to finger.
The company says it has successfully completed its inaugural diamond sale through Clara Diamond Solutions. Clara which is 100 percent owned by Lucara was launched in December 2018 and it is said to be in plans of the mining company ramping up in diamond sales this year. According to Lucara, analysis of results is ongoing and further details about this initial sale, as well as next steps for the Clara platform will be reported in January 2019.
According to the company, Lucara will be reporting sales through Clara quarterly, along with additional guidance, once the platform has moved into continuous sales. Lucara will continue to optimize its sales strategy through a combination of Clara and its regular tender process, said the mining company.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.