Global Mining Giant Anglo American, a multinational company with significant interest in Botswana‘s most valuable economic resource Diamonds reported declined profits for the half year ended June 30 but realised an increase in Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA).
This is according to the company’s half year financial performance report released on Thursday 26th. The Botswana Stock Exchange (BSE) listed mining conglomerate underlying EBITDA increased by 11 percent to $4.6 billion (about P47.3 billion) compared to $4.1 billion (about P4.2 billion) registered in the half year ended June 2017.
Anglo reports that this was driven by strong pricing across the Group, particularly in copper and the platinum basket of metals, and continued productivity improvements and cost control across the portfolio, more than offsetting the impact of inflation across the Group and suspension of Minas-Rio operations
The Group Chief Executive Officer (CEO), Mark Cutifani noted that Anglo American has also made good progress against disciplined capital allocation objectives, strengthening the balance sheet with net debt down to $4 billion (about P41 billion), delivering an increase in the dividend commensurate with earnings, and continuing to invest prudently across the business. “This strong financial result derives from our consistent productivity improvements in the underlying operations and a stronger price environment for many of our products,” he said.
Cutifani further stated that his diversified Mining Group has realised significant productivity improvements delivering a further two percentage point improvement in the first six months of 2018. “A 6% increase in copper equivalent production volume helped deliver $0.4 billion (about P4.1 billion) of cost and volume improvements in the first half, out of the $0.8 billion (about P8.2 billion) targeted for the full year, against a backdrop of rising input cost inflation and the temporary suspension at Minas-Rio,” he said.
According to the CEO, Anglo American forecasts better profitability and continued growth in production going into the last lap of 2018. “We project enhanced returns from our diversified portfolio, with our business model and relentless focus on innovation and business improvement resetting our performance benchmarks,” he said. “As we now move forward to develop the world-class Quellaveco copper project in Peru, in conjunction with our partner Mitsubishi, we are excited about the opportunities we see across the business.”
Further financial figures mirrors that the group Increased volumes across its portfolio benefited underlying EBITDA by $0.2 billion (about P2 billion), driven by a robust performance at Metallurgical Coal’s longwall operations and higher grades and strong mine and plant performance at Copper, as well as Platinum drawing down refined inventory levels.
Lower export thermal coal production from South Africa partly offset these improvements. The Group’s cost improvements benefited underlying EBITDA by $0.2 billion, with cost reductions outweighing the effects of above-CPI inflationary pressure on the mining industry related to higher diesel and electricity prices.
The positive cost achievement reflected the improved operational performance at Metallurgical Coal’s Moranbah-Grosvenor complex and continued cost-saving initiatives at Platinum and Copper. However Profit for the financial period under review decreased by 7% to $1.6 billion compared to $1.8 billion in the corresponding period last year
Cutifani highlighted that his company continued to drive improvement in asset performance through the Operating Model, facilitated by an enhanced focus on the Group’s key assets as a result of work undertaken to upgrade the portfolio. Copper equivalent production increased by 6%, excluding the impact of the stoppage at Minas-Rio, primarily driven by a continued strong performance at Metallurgical Coal, Copper and De Beers, as well as improved production at Platinum, partly offset by geological challenges at Thermal Coal – South Africa.
Metallurgical coal production increased by 17 percent to 10.8 Mt driven by a sustained strong performance from Moranbah and the full ramp-up of Grosvenor. Copper production rose by 10 percent to 312,900 tonnes compared to 283,400 tonnes in 2017 half year, driven by productivity improvements at mine and plant and planned higher ore grades at both Los Bronces and Collahuasi. This more than offset the effect of a three-month planned maintenance at Collahuasi that was completed in July 2018.
De Beers’ rough diamond production increased by 8 percent to 17.5 million carats, in line with the expected continuation of strong demand. This was facilitated by the contribution from the ramp-up of Gahcho Kué in Canada and an incremental increase at Jwaneng, partly offset by the temporary suspension of production at Venetia following a fatality.
At Platinum, production of platinum increased by 4 percent to 1,233,400 ounces compared to 1,189,100 ounces in the previous period and palladium by 5 percent to 813,200 ounces compared to 774,900 ounces in 2017 half year. This was driven, in particular, by a robust performance at Mogalakwena. Refined metal production decreased by 3 percent for platinum, to 1,075,300 ounces against 1,105,600 ounces in 2017 and by 6 percent for palladium, to 686,500 ounces against 726,500 ounces half year 2017 as planned maintenance constrained processing capacity.
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”