After a mixed bag of events during the first quarter of 2018, including change in management, and the successful discovery of a 472 and 327 carat diamonds from the south ore lobe respectively, Lucara Diamond’s first quarter results declined when compared to the first quarter of the just ended year.
The Vancouver-based miner, which operates the Karowe mine in Botswana has reported achieved earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.4-million which when compared to the same period prior year has a made a 3.5 million loss. Although the company has made a substantial loss in comparison, they have noted that Revenue, EBITDA and earnings per share performance were as expected. They have highlighted that they reflect the overall timing of the Company’s sales tenders, with a single tender held during the first quarter.
Net loss for the three months ended 31st March 2018 has been reported at $7.0 million reflecting a loss of $0.02 per share as compared to a loss of $1.5 million ($0.00 per share) in the comparative quarter and is attributable to lower revenues, higher depletion and amortization costs, higher administrative and other expenses as compared to the same period in 2017.
The Company’s cash balance as at March 31 2018 is reported to have been $ 43.6 million, a decrease of $ 17.5 million from the December 31, 2017 cash balance of $ 61.1 million. The company has associated the decrease mainly due to the Company’s reduction in non-cash working capital by $ 5.8 million, capital expenditures of $4.0 million primarily for the sub-middles XRT project audit facility. This is reported to have had an effect on capitalized production stripping costs which amounted to $6.8 million with the $50 million credit facility undrawn.
In the reported period, Lucara’s Karowe mine has noted that Ore and waste mined during the three months ended March 31, 2018 amounted to 0.6 million tonnes and 4.0 million tonnes respectively. Tonnage processed was within forecast at 0.6 million tonnes, with a total of 75,698 carats recovered. Ore processed was predominantly from the South lobe. During Q1, a total of 218 specials (single diamonds larger than 10.8 carats) were recovered including four diamonds greater than 100 carats in weight. Recovered specials equated to 6.8% weight percentage of total recovered carats during the first quarter.
The Chief Executive Officer (CEO) Eira Thomas noted that Karowe delivered solid performance in the first quarter; she said this was underpinned by production from the South Lobe which yielded 218 specials diamonds greater than 10.8 carats in size. She noted that this was the third best quarterly tally ever, and included eight diamonds greater than 100 carats in size. The CEO further highlighted that large stone recoveries continued into April and included a 472 carat top light brown and a 327 carat white gem. Eira cited that the strong sales result achieved from their first Regular Stone Tender of the year is consistent with the improving sentiment of the broader diamond market, and positions Lucara well for its June sale, which will include both a Regular Stone Tender and an Exceptional Stone Tender.”
Lucara Diamonds, which has sold diamonds through both regular stone, tenders (RST’s) and exceptional stone tenders (EST’s) notes that they will continue using the method. The Diamonds that qualify for EST’s are rare, selected on a range of criteria including weight, quality, color, and, often achieve sales prices in excess of USD$ 1 million per diamond. On average, Lucara has held between 4 and 5 RST’s and 1 to 2 EST’s per annum. As they continue to Lucara continues to adjust its sales strategy to maximize client participation and achieve best possible revenue.
As a result, Lucara has decided to conduct an Exceptional Stone Tender (EST) during the regular tender scheduled for June 2018 and thereafter, will move to a blended tender process, whereby a greater number of exceptional stones will be sold as part of RST’s. This they note will decrease the inventory time for large, high value diamonds and will generate a smoother, more predictable revenue profile that better supports price guidance on a per sale basis. As part of this new approach, Lucara will retain the optionality of tendering truly unique and high value diamonds through special tenders, outside of the scheduled RST’s.
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”