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De Beers records profit as demand rises

De Beers Group of Companies preliminary financial results for the year ending 2017 show a positive trend. The underlying Earnings before interest, tax, depreciation and amortization (EBITDA) increased by 2% to $1, 435 million from $1, 406 million in 2016 despite lower revenue following the- off industry midstream restocking in 2016.

The performance was driven by improved margins, which benefited from lower unit costs, a strong contribution from Canada and Element Six. This was partially offset by unfavourable exchange rates, and an increasing proportion of waste mining costs being mining costs being expensed rather than capitalised at Venetia in South Africa.

Total revenue declined by 4% to $5. 8 billion compared to $6.1 billion recorded in 2016 as expected, given the benefit of strong midstream restocking in the first half of 2016. The average realised rough diamond price increased by 13% to $162 /carat compared to 187/carat recorded in 2016, partly offset by an 8% increase in consolidated sales volume to 32. 5 million carats compared to 30. 0 million carats recorded in 2016.

When presenting the results, De Beers Global Sightholder Sales Executive Vice President, Paul Rowley said this reflected stronger demand for lower value goods in Sight 1 of 2017, following recovery from the initial impact of India’s demonetization programme in late 2016, as well as the production ramp- up from lower value per carat but high margin operations, including Orapa and Gahcho Kué. The lower-value mix was compensated in part by a higher average rough price index, which was 3% above that of 2016.

The 2017 financial results shows that capital expenditure has reduced by 48% to $273 million, mainly owing to the completion of major projects, including Gahcho Kué; Debmarine Namibia’s new exploration and sampling vessel, the SS Nujoma; and planned lower waste capitalisation at Venetia. The SS Nujoma which was delivered three months ahead of schedule and under budget, was officially inaugurated in June 2017 and is fully operational.

Diamond producers’ primary stocks are estimated to have reduced during the first half of 2017, as sentiment in the midstream improved and rough and polished inventories normalized for businesses in this segment of the value chain. However as a result of US retailers tightly managing their inventories and the earlier timing of Diwali in India, there was a slight seasonal build- up of polished inventory in the midstream going into the fourth quarter. Overall, early indications are that additional consumer marketing undertaken during the main selling season had positive impact on overall polished inventories.

The operating performance in terms of mining and manufacturing shows that rough diamond production increased by 22% to 33. 5 million carats compared to 27. 3 million carats recorded in 2016, reflecting stronger underlying trading conditions as well as the contribution from the ramp- up of Gahcho Kue.

Botswana (Debswana) increased production by 11% to 22. 7 million carats compared to 20. 5 million cats recorded in 2016. Production at Orapa was 28% higher, mainly driven by planned increases in plant performance and the ramp- up of Plant 1, which was previously on partial care and maintenance in response to trading conditions in late 2015. In June 2017, Jwaneng processed its first ore from Cut- 8, which is expected to become the mine’s main source of ore during 2018.

In Namibia (Namdeb Holdings), production increased by 15% to 1.8 million carats (2016: 1.6 million carats), primarily owing to higher production from Debmarine Namibia’s Mafuta vessel, driven by higher mining rates following an extended scheduled in-port during 2016. At Namdeb’s land operations, production rose by 6%, despite challenging conditions, including grade variability owing to the nature of alluvial deposits, structural cost pressures, and some operations nearing the end of their lives.

In South Africa (DBCM), production increased by 23% to 5.2 million carats (2016: 4.2 million carats), primarily owing to Venetia, driven by higher grades as well as improved operational performance benefiting tonnes treated. Construction continues on the Venetia Underground mine, which is expected to become the mine’s principal source of production during 2023.

In Canada, production increased to 3.8 million carats (2016: 1.0 million carats) owing to the ramp-up of Gahcho Kué, which entered commercial production in March 2017. During the year, Gahcho Kué benefited from higher than expected grades, partly offset by a lower average value of production. Owing to the differences in lobe characteristics across different kimberlite pipes, the average grade and realised price will continue to vary and will be dependent on the area mined.

Production at Victor increased by 21% to 0.7 million carats as a result of higher grades. Victor, which has been operating successfully since 2008, is due to close in 2019, when the open pit is expected to have been depleted. The closure of Snap Lake, which is currently on care and maintenance, is progressing, with flooding having been completed, thereby minimising holding costs while preserving the long term viability of the orebody.

Rowley said improving global macro- economic conditions remains supportive of consumer demand growth for polished diamonds in 2018. The degree of global economic growth, however, will be dependent upon a number of factors, including the extent of the positive impact on growth in consumer spending from US tax cuts, the strength of the dollar on consumer demand in non- dollar- denominated countries, and how successfully China manages its adjustment to a more domestic consumer- driven economy.

For 2018, forecast diamond production (on a 100% basis except Gahcho Kue on an attributable 51% basis) is expected to be in the range of 34- 36 million carats, subject to trading conditions. Meanwhile improving global macro-economic conditions remain supportive of consumer demand growth for polished diamonds in 2018. The degree of global economic growth, however, will be dependent upon a number of factors, including the extent of the positive impact on growth in consumer spending from US tax cuts, the strength of the dollar on consumer demand in non-dollar-denominated countries, and how successfully China manages its adjustment to a more domestic consumer-driven economy.

During 2017, De Beers invested more than $140 million in marketing (19% more than in 2016) through a combination of proprietary and partnership activity centred on the US, China and India. De Beers also substantially increased its investment in the Diamond Producers Association, a producer-wide body that works to enhance consumer demand by promoting the appeal, integrity and reputation of diamonds.

De Beers also began the development of a new digital platform for the diamond industry, backed by highly secure blockchain technology, which will provide a single immutable record for every diamond that is registered. Currently in the pilot phase, this initiative is being designed to underpin confidence in diamonds and the diamond industry for all stakeholders, while streamlining existing manual processes and creating new efficiencies in the value chain.

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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

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.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

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.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

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.

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