KBL profits on free fall, Alcohol Levy continues to hurt
Business
Premier beer maker, Kgalagadi Breweries continues to suffer because of the controversial Alcohol Levy. The company’s profit after taxation continued to hit a downward trajectory as the 2018 half financial results mirrored a 14.2 percent contraction compared to the 2017 first half performance.
This information is communicated by the company’s unaudited financial results for the six month ended June 2018 released this week. Kgalagadi Breweries Limited is the sole investment of Botswana Stock Exchange listed Sechaba Holdings Limited. Despite an increase of 9.8 percent in profit before tax against the prior half year ended June 2017 driven by increase in volume and efficiencies in the operations of the business, profits after tax shrunk primarily due to increased alcohol levy.
According to the report, the decline in profits after taxation can also be attributed to additional deferred tax which was caused by timing difference of the accounting and tax base of property, plant and equipment. During the period under review total volume performance increased by 8.2 percent compared to the six months corresponding period in 2017. Volume performance increase was realized in all categories except the Traditional beer segment.
The Traditional beer segment volumes which are predominantly the famous Chibuku beverage has been on a decline since the implementation of the tough beer trading regulations restricting homestead trading hours of Chibuku. In the entire 2017 financial year the division registered 7.6 % decline. Sechaba Holdings has continuously outlined for the past 2 years that the Alcohol Levy significantly hurts company financials.
The Alcohol Levy Regulation was amended effective 1st of April in 2018. The levy rate for alcohol content of 5% and less reduced to 50% and for alcohol content of above 5% remained at 55%. Additionally the calculation for the levy on locally produced alcoholic beverages was revised to include excise duty payable in terms of customs and excise Duty Act.
Last year during the 12 month period ended December 2017, KBL Profits contracted by 12.2 %. This decline was driven by poor performance in the company’s major beverages categories being Traditional Alcoholic Beverages which registered a decline of 7.6 percent ; Non Alcoholic brands which realized a 7.0 percent contraction while Clear Beer category posted a decline of 2.7%. Beer in both Traditional and clear beer had a tough start to the year on the backdrop of a slow economic activity in the last quarter of 2016 which spilled into the 2017 trading year.
Sechaba Brewery Holdings Limited is an investment company listed on the Botswana Stock Exchange. Currently Sechaba holds a 60% shareholding in its sole investment, Kgalagadi Breweries (Pty) Ltd (KBL), whilst AnheuserBusch InBev (AB InBev) holds 40%. AB InBev holds a further direct stake of 16.84% in Sechaba. AB InBev is the largest brewer in the world, with more than 500 beer brands sold in more than 150 countries and some 200,000 employees in over 50 countries, following a merger with SABMiller Plc in October, 2016.
AB InBev has management control over KBL, offering insight and experience with regard to management, technical, brand building and distribution expertise. KBL operates four traditional beer breweries, a clear beer brewery, a sparkling soft drinks production plant and four sales and distribution depots around the country.
Botswana Development Corporation, wholly government owned investment entity owns 25.59 % stake in Sechaba Holdings Limited while Botswana’s largest Pension fund, BPOPF holds a significant stake of over 20 % through its different assert managers. For this half year period Sechaba declared an interim dividend of 22 thebe per share for its shareholders.
Following an agreement between AnheuserBusch InBev (AB InBev) and The Coca Cola Company (TCCC)for the latter to acquire the non –alcoholic ready –to –drink business segment of Kgalagadi Breweries early this year, on the 3rd of July 2018 the two companies entered into a Master Purchase Agreement in terms of which the Sellers have agreed to dispose of their interests in KBL’s business of preparing, packaging, distributing, promoting and selling of non –alcoholic ready –to –drink beverages with exception to Mageu. Sechaba reports that KBL is currently going through a restructuring exercise in order to re-organize the shareholding of the KBL and the new company as well as to separate the business from KBL‘s business promotion.
ALCOHOL LEVY REVIEW
Meanwhile the liquor and breweries industry hopes to leverage from the new trading hours which took effect beginning of this month as well as a recovering macro economy. The 2003 Liquor Act was amended by the just ended winter session of the 11th parliament. The motion was tabled by Minister of Investment, Trade & Industry Bogolo Kenewendo. The previous trading hours restriction was one of the many changes that were championed by former President Lt Gen Dr Seretse Khama Ian Khama during his presidency.
The review of the Liquor Act was viewed by many as the brain child of current President, Mokgweetsi Masisi who observers note he is on a quest to undo many of Khama’s restrictive regulations. Currently the Ministry of Health & Wellness is also engaged in public consultations with a view to review the Alcohol Levy which companies in the beverages and liquor industry continue to report as an impediment to business. Since inception the Alcohol levy has collected over 2.6 billion pula.
Business
New Khoemacau owners commit to mine’s multibillion Pula expansion
The future of Botswana’s largest copper and silver operation, Khoemacau Copper Mining, looks promising as the new owners, MMG Group, commit to the mine’s expansion plans. MMG, an Australian headquartered company owned by China, has expressed its dedication to doubling Khoemacau’s production and transforming it into one of the most significant high-grade copper operations in Africa.
Nan Wang, the Executive General Manager for Australia and Africa at MMG, stated that while the immediate focus is on maintaining a consistent production level of 60ktpa, there are solid plans to increase Khoemacau’s production capacity. The company aims to double its production from 3.65Mtpa to 8.15Mtpa, resulting in an increase in payable copper from approximately 60ktpa to around 130ktpa.
To achieve this expansion, Khoemacau has completed a pre-feasibility study on the project and a solar power initiative. The next step is to conduct a feasibility study, which will pave the way for increased production capacity. Additionally, Khoemacau has identified extensive exploration opportunities across its license area, positioning the company for an exciting new phase of development.
The current Khoemacau operation reached full production and nameplate capacity in December 2022, following over a decade of investment totaling over P10 billion. This significant investment allowed for an intense exploration program, resulting in the development of the most automated underground mining operation in Botswana. The first concentrate was produced in June 2021, and the product entered the export market in July of the same year. Throughout 2022, the company has been working on the pre-feasibility study for the expansion project, with the feasibility study scheduled for the following year.
The expansion plans will involve the construction of a new world-class process plant in Zone 5, where the current mining of ore takes place. This new plant will be larger than the existing one in Boseto, which currently receives ore from Zone 5. The expansion will also involve the development of new underground mines, including Mango, Zone 5 North, and Zeta North East. These additional mines will bring the total number of underground shafts at Khoemacau to six. The ramp-up of production from the expansion is expected to occur in 2026.
Khoemacau, which acquired assets in the Kalahari Copper Belt after the liquidation of Discovery Metals in 2015, currently employs over 1500 people, with the majority being Batswana. The Khoemacau Mine is located in north-west Botswana, in the emerging Kalahari Copperbelt. It boasts the 10th largest African Copper Mineral Resource by total contained copper metal and is one of the largest copper sedimentary systems in the world outside of the Central African Copperbelt.
The mine utilizes underground long hole stoping as its mining method and conventional sulphide flotation for processing. Resource drilling results have shown the existing resources to have continuity at depth, and there are several exploration targets within the tenement package that have the potential to extend the mine’s life or increase productivity.
The Zone 5 mine has already ramped up production, and further expansion in the next five years will be supported by the deposits in the Zone 5 Group. The estimated mine life is a minimum of 20 years, with the potential to extend beyond 30 years by tapping into other deposits within the tenement package.
In conclusion, the commitment of MMG Group to Khoemacau’s expansion plans signifies a bright future for Botswana’s largest copper and silver operation. With the completion of pre-feasibility and feasibility studies, as well as significant investments, Khoemacau is poised to become one of Africa’s most important high-grade copper operations. The expansion project will not only increase production capacity but also create new job opportunities and contribute to the economic growth of Botswana.
Business
Khoemacau Copper Mining to be acquired by MMG Limited
Khoemacau Copper Mining, a leading copper mining company, has recently announced its acquisition by MMG Limited, a global resources company based in Australia. This acquisition marks a significant milestone for both companies and demonstrates their commitment to continued investment, growth, and sustainability in the mining industry.
MMG Limited is a renowned mining company that operates copper and other base metals projects across four continents. With its headquarters in Melbourne, Australia, MMG has a strong track record in mining and exploration. The company currently operates several successful mines, including the Dugald River zinc mine and the Rosebery polymetallic mine in Australia, the Kinsevere copper mine in the Democratic Republic of Congo, and the Las Bambas Mine in Peru. MMG’s extensive experience and expertise in mining operations make it an ideal partner for Khoemacau.
MMG’s commitment to sustainability aligns perfectly with Khoemacau’s values and priorities. Khoemacau has always placed a strong emphasis on safety, health, community, and the environment. MMG shares this commitment and applies the principles of good corporate governance as set out in the Corporate Governance Code of the Hong Kong Listing Rules. As a member of the International Council on Mining and Metals (ICMM), MMG adheres to sustainable mining principles, ensuring responsible and ethical practices in all its operations.
Over the past 12 years, Khoemacau’s current shareholders have made significant investments in the development of the company. With approximately US$1 billion deployed in the project, Khoemacau has successfully transformed from an exploration and discovery phase to a fully-fledged operating copper mine. The completion of the ramp-up of the Zone 5/Boseto operations has set the stage for the next phase of expansion.
With the acquisition by MMG, Khoemacau is poised for an exciting new chapter in its development. The completion of a pre-feasibility study on the Khoemacau expansion and a solar power project has paved the way for increased production capacity. The feasibility study will be the next step in doubling the production capacity from 3.65 million tonnes per annum (Mtpa) to 8.15 Mtpa, resulting in a significant increase in payable copper from approximately 60,000 tonnes per annum (ktpa) to 130,000 ktpa. Additionally, Khoemacau has extensive exploration opportunities across its license area, further enhancing its growth potential.
The CEO of Khoemacau, Johan Ferreira, expressed his gratitude to the current owners for their stewardship of the company and their successful transformation of Khoemacau into a fully operational copper mine. He also highlighted the company’s focus on the expansion study and its vision for the future with MMG. Ferreira emphasized that the partnership with MMG will ensure Khoemacau’s long-term success, delivering employment, community benefits, and economic development in Botswana.
MMG Chairman, Jiqing Xu, echoed Ferreira’s sentiments, stating that the acquisition of Khoemacau aligns with MMG’s growth strategy and vision. Xu emphasized MMG’s commitment to creating opportunities for all stakeholders, including shareholders, employees, and communities. He expressed confidence in Khoemacau’s expansion potential and the company’s ability to realize its full potential with the support of MMG.
The sale of Khoemacau to MMG is subject to certain conditions precedent and approvals, with the expected closing date in the first half of 2024. This acquisition represents a significant step forward for both companies and reinforces their commitment to sustainable mining practices, responsible resource development, and long-term growth in the mining industry.
In conclusion, the acquisition of Khoemacau Copper Mining by MMG Limited signifies a new era of investment, growth, and sustainability in the mining industry. With MMG’s extensive experience and commitment to responsible mining practices, Khoemacau is well-positioned for future success. The partnership between the two companies will not only drive economic development but also ensure the safety and well-being of employees, benefit local communities, and contribute to the overall growth of Botswana’s mining sector.
Business
BPC Signs PPA with Sekaname Energy
The Botswana Power Corporation (BPC) has taken a significant step towards diversifying its energy mix by signing a power purchase agreement with Sekaname Energy for the production of power from coal bed methane in Mmashoro village. This agreement marks a major milestone for the energy sector in Botswana as the country transitions from a coal-fired power generation system to a new energy mix comprising coal, gas, solar, and wind.
The CEO of BPC, David Kgoboko, explained that the Power Purchase Agreement is for a 6MW coal bed methane proof of concept project to be developed around Mmashoro village. This project aligns with BPC’s strategic initiatives to increase the proportion of low-carbon power generation sources and renewable energy in the energy mix. The use of coal bed methane for power generation is an exciting development as it provides a hybrid solution with non-dispatchable sources of generation like solar PV. Without flexible base-load generation, the deployment of non-dispatchable solar PV generation would be limited.
Kgoboko emphasized that BPC is committed to enabling the development of a gas supply industry in Botswana. Sekaname Energy, along with other players in the coal bed methane exploration business, is a key and strategic partner for BPC. The successful development of a gas supply industry will enable the realization of a secure and sustainable energy mix for the country.
The Minister of Minerals & Energy, Lefoko Moagi, expressed his support for the initiative by the private sector to develop a gas industry in Botswana. The country has abundant coal reserves, and the government fully supports the commercial extraction of coal bed methane gas for power generation. The government guarantees that BPC will purchase the generated electricity at reasonable tariffs, providing cash flow to the developers and enabling them to raise equity and debt funding for gas extraction development.
Moagi highlighted the benefits of developing a gas supply industry, including diversified primary energy sources, economic diversification, import substitution, and employment creation. He commended Sekaname Energy for undertaking a pilot project to prove the commercial viability of extracting coal bed methane for power generation. If successful, this initiative would unlock the potential of a gas production industry in Botswana.
Sekaname Energy CEO, Peter Mmusi, emphasized the multiple uses of natural gas and its potential to uplift Botswana’s economy. In addition to power generation, natural gas can be used for gas-to-liquids, compressed natural gas, and fertilizer production. Mmusi revealed that Sekaname has already invested $57 million in exploration and infrastructure throughout its resource area. The company plans to spend another $10-15 million for the initial 6MW project and aims to invest over $500 million in the future for a 90MW power plant. Sekaname’s goal is to assist BPC in becoming a net exporter of power within the region and to contribute to Botswana’s transition to cleaner energy production.
In conclusion, the power purchase agreement between BPC and Sekaname Energy for the production of power from coal bed methane in Mmashoro village is a significant step towards diversifying Botswana’s energy mix. This project aligns with BPC’s strategic initiatives to increase the proportion of low-carbon power generation sources and renewable energy. The government’s support for the development of a gas supply industry and the commercial extraction of coal bed methane will bring numerous benefits to the country, including economic diversification, import substitution, and employment creation. With the potential to become a net exporter of power and a cleaner energy producer, Botswana is poised to make significant strides in its energy sector.