The BIHL Group has not escaped the repercussions of subdued economies and regional distress compounded by the recent Credit Rating downgrade of South Africa’s sovereign rating to sub-investment grade could potentially undermine growth by constraining private investment and household consumption – but the Group beat the odds and posted exceptional performances with most of its subsidiaries.
To demonstrate the domestic and external pressure, although the BIHL Group returned laudable profits under challenging circumstances with Operating Profit After Tax (OPAT) of P475 million, this is a decline of 19% compared to the previous year. The Group rightly attributes the decline in profitability can be attributed mainly to reduced investment returns resulting from subdued performance in world markets and a decline in single premium profits for the life company.
According to the company’s 2016 annual report, the weak commodities cycle continued, as did the volatility of investment markets. It notes that at home, GDP was 4.3% – a long way from the double digits of the past; and unemployment rates continued to rise – a situation exacerbated by the liquidation of two large mining companies, BCL and Tati Nickel.
The Group chairman notes that this had a significant impact on our society at large, and directly affected Botswana Life and the Botswana Insurance Company (BIC). In addition, she observes the high levels of indebtedness among ordinary Batswana as placing the affordability of insurance under pressure.
“There are many factors that affect the performance of any organisation both positively and negatively. Many of these are external factors, over which we, as an organisation, have no control. We have to ensure that we do whatever we can to mitigate the negative. Unfortunately, in 2016, negative external factors far outweighed the positive,” observed Mrs Batsho Dambe-Groth.
The challenges captured Mrs Dambe-Groth had a direct impact on Botswana Life’s net premium income which declined some 15% year-on-year to P2.07 billion. However, recurring premium income grew by an impressive 7% to P1.085 billion thanks to a significant upswing in retail recurring premium income. According to Dambe-Groth, the launch of the Affluent Division as well as the launch of three trailblazing products in the first half of 2016 also started to yield results towards the end of the year.
“Meanwhile our asset management business, Bifm, turned in excellent results, a truly remarkable achievement in the face of what was a turbulent and challenging year. Assets Under Management for the year grew an impressive 24% to P25.9 billion. Legal Guard, however, experienced a decline in new business and this was compounded by rising operating costs. Nevertheless, we are encouraged by the progress that is being made with the implementation of its new strategy, and by the fact that the business remains profitable,” she writes.
The BIHL Group is also very active outside Botswana borders, inflationary pressure in Zambia and Malawi affected the returns delivered by BIHL investments in those countries. During the review period, the Group advanced its diversification strategy by using the Group’s shareholder investment portfolio to make some significant investments. According to the annual report these included acquiring a 50% stake in Teledimo Pty, which owns Botswana Insurance Company, the leading and oldest short term insurance company in Botswana. BIHL also increased its shareholding of Letshego Holdings Limited from 23.17% to 26.28%.
“Although experiencing their own challenges in the region’s economic climate, our expansion of associated investments resulted in an increase in equity accounted earnings from P186,7 million to P224,7 million. It is also important to understand that a long-term view for new investments must be adopted. We are also investing in our future profitability by utilising technology to boost our operational efficiencies as well as to introduce innovative products. This includes, for example, Botswana Life’s LifeRewards card and Bifm’s Unit Trusts,” observes Dambe-Groth.
It is clear therefore that as a business, BIHL Group is doing well. We have the resilience and the agility needed to ensure that we continue to provide the products and services required by our markets as well as to deliver sound returns to our clients and shareholders. Dambe-Groth praises the partnership with Sanlam as “excellent, mutually beneficial partnership with that enables us to draw on their technical expertise where necessary and maximise synergies between our organisations. Sanlam recognises that BIHL is their largest contributor to their emerging markets business and is therefore keen to assist wherever possible to ensure our ongoing success.”
BIFM TURNAROUND, SLUGGISH ECONOMY
Following a difficult year at BIFM, Mrs. Catherine Lesetedi-Letegele, the Group Chief Executive Officer reserved special recognition for BIFM noting that: “while 2016 was a challenging year, there were numerous positives, the most pleasing and energising of which was the excellent bifm turnaround. The previous year had been extremely difficult for bifm. Following the loss of a portion of the Botswana Public Officers Pension Fund (BPOPF) mandate, the entire organisation was restructured, and the staff complement rationalised to ensure employees were “fit-for purpose.”
She observes in her report that this was a traumatic process, yet the Bifm team adopted an aggressive recovery strategy, performed well and, ultimately, was able to regain some of the assets we had lost as well as new mandates. She writes that this put Bifm on the road to a solid recovery and well positioned for a strong start at the beginning of 2017.
“In the review period, Assets Under Management increased by 54% to P1.5 billion ending with a small profit of P1.2 million. The turnaround of Bifm and Bifm Unit Trusts business is a testament to the people we have at the company, their focus and determination, and their efforts in creating and maintaining meaningful and mutually beneficial relationships with clients.”
Meanwhile Lesetedi-Letegele notes that Botswana Life as a business dependent on discretionary income, its performance was negatively affected by the sluggish economy, which was characterised by retrenchments, mine closures and high unemployment. The harsh economic conditions resulted in underperformance of some of the company’s business lines. According to the 2016 BIHL annual report the net premium income for the Life Company shrunk by 15% year on year at P2.07 billion during 2016 compared to P2.44 billion achieved in prior year.
“This was primarily due to the non-recurring one-off schemes that were signed in 2015 on single premiums. Recurring premium income grew by an impressive 7% from P1 billion in December 2015 to P1.085 billion for the full year to December 2016 spurred by a 9% growth in retail recurring premium income. Despite the challenging economic environment, the quality of new business written saw the Value of New Business, which represents the present value of future profits from new business premiums written remain stable at 99% of prior year.”
The report further indicate that operating profit was 9% lower than prior year showing resilience despite the significant dip in single premiums. “Given the pressure on sales volumes, management focused on containing expenditure and the 2016 administration expenses were 2% (P4 million) below prior year; this was so despite funding the introduction of new segments that are expected to deliver revenue growth in the near future.”
As COVID-19 and its variants continue to cast a shadow over the world’s health systems and economies, the level of uncertainty and strength of the economic recovery will vary across countries. The real GDP in all G-20 countries is expected to grow compared to the previous year, but some countries will take longer than others to return to full capacity.
According to Mooody’s Global Macro Outlook 2021-22 report released this week, precautionary behavior and official restrictions are still hampering interpersonal interactions. The resulting toll on global economic activity has been staggering, even as the economy has also shown a remarkable degree of resilience.
Overall economic outcomes in 2020 exceeded Moody’s forecasts in most countries because of stronger-than-expected rebounds in the second half of the year. Aided by technology, many people and businesses quickly adapted so that they could carry on with daily activity with reduced in-person interactions.
However, Moody’s says the recovery remains unbalanced, with the pandemic affecting individual businesses, sectors and regions very differently. According to the group, goods demand has almost fully recovered because goods can be produced and consumed with limited in-person interactions, while the recovery in service continue to lag.
Within services, businesses that were able to effectively deliver their products at arms-length have stabilized, if not prospered. Large businesses with access to cheap funding have performed better than small and mid-sized firms. According to the report, the transportation, hospitality and leisure and arts sectors continue to languish, but the information technology, consumer goods, pharmaceuticals and financial sectors have thrived.
According to the report, many individuals around the world (including Botswana), have lost their jobs and continue to face employment uncertainty, but on the flip side, the forced decline in household consumption and the rise in asses prices have buttressed household financial balances at an aggregate level. Moody’s reported that all G-20 countries will post growth rates in 2021 and 2022, but the pace of recovery will vary significantly.
“The COVID-19 shock has exposed differences between countries in terms of political leadership, community health management, fiscal and monetary policy response, economic structures and inherent economic dynamism. Public health considerations drove the economic shock of the pandemic. In that sense, the steep declines in GDP in 2020 across advanced and emerging market countries were less a reflection of underlying weaknesses in the economy, and more a function of the combined effects of the spread of the virus and the stringency of lockdown measures,” says Moody’s.
Economic outcomes will remain closely tied to the pandemic, Moody’s said. “The quicker countries can curb the spread of the virus, the faster their economic activity will recover. Otherwise the costs of keeping parts of the economy shut, in terms of lost income and revenue, will keep adding up. The longer the crisis lasts, the more difficult it will be for governments to compensate the private sector for its continuing losses.”
Without adequate government support, Moody’s predict that large-scale deterioration in asset quality will ensue. Such detrimental effects, it says, could eventually transmit the shock through financial channels to other parts of the economy.
“We have cut or estimate of the 2020 contraction for the G-20 countries. We now expect a collective contraction of 3.3%, compared with our previous estimate of 3.8%, because of a better-than-expected recovery across a wide range of advanced and emerging market economies in the second half of the year. We expect the G-20 countries to grow by 5.3% in 2021 and 4.5% in 2022, up from our prior forecasts of 4.9% and 3.8% respectively.”
US ECONOMY TO LEAD THE GLOBAL SERVICES DEMAND RECOVERY
The US economy advanced at a 4.0% annualized rate in the fourth quarter 2020, but the headline figure masks the fact that the economy has lost momentum since November, when COVID-19 cases began to rise. Moody’s says it expects this current moderation in economic growth to be temporary. Economic momentum will likely puck up pace over the course of 2021 and 2022, supported by: enhanced pandemic control, significant additional fiscal support to the economy and a more predictable policy environment.
With infection rates now starting to fall, economic momentum should naturally pick up in the second quarter and into the summer as individual states progressively ease up social distancing restrictions, Moody’s reports. “We believe that a stronger pandemic management response from the Biden administration, will increase public confidence and allow for a relation of restrictions over this year and next.”
COVID-19 SHOCK EXACERBATES EXISTING STRUCTURAL CHALLENGES IN SOUH AFRICA
South Africa’s economy is expected to growth by 4.5% in 2021 and by 11% in the following year, following an estimated 7.0% contraction last year. According to Moody’s, this will make South Africa’s recovery one of the weakest among emerging market countries. The economy has struggled to build momentum for many years, and as a result suffers from chronically high unemployment. The COVID-19 shock has made the economic situation all the more challenging, says Moody’s.
Reconnaissance Africa, a Canadian exploration company has started piercing the natural resource-rich lands of Kavango basin in Namibia, the company in searching for oil and gas.
The prospective area stretches into North West district of Botswana, the company through its local subsidiary Recon Africa Botswana has been given the nod by Ministry of Mineral Resources, Green Technology & Energy Security to explore petroleum mineral for four (4) years.
Amid all the negative reports around the company’s drilling activities in the Kavango basin, which covers ecosystem components feeding into the mighty Okavango Delta, the bottom line is that there are prospects of billions of dollars beneath the area in form of oil and gas-and Recon Africa is out to unearth the treasures.
Member of Parliament for Selibe Phikwe Dithapelo Keorapetse says Botswana should strive to participate in the exploration and development of these potential oil and gas deposits in the North West district. Contributing to the 2021/22 budget speech on Monday Keorapetse cautioned government against watching from afar while a potential multi-billion pula industry unfolds in the Okavango area.
He implored Botswana Oil Limited(BOL) and Mineral Development Corporation Botswana (MDCB) both state owned enterprises, to take up equity stakes in the exploration activities as early as now to “ rather than being spectators and waking up late when the foreigners are enjoying the billions”.
ReconAfrica through its subsidiary Recon Botswana was issued an exploration license under the Petroleum Act to explore for petroleum minerals in the North West District of Botswana, on 1 June 2020, for a period of four years.
“Botswana Oil as the country ‘s petroleum investment company together with MDC-a state owned mineral interest holding company must come together and acquire a stake in the ongoing exploration activities ,not to wait until Recon is making money and you say you want shares”. Keorapetse made reference to Karowe mine which Botswana’s diamond mining partner De Beers Group sold to Lucara over a decade ago while still at exploration stage.
Lucara bid on the site, and its internal partner Lundin provided a bank guarantee to De Beers for fifty million dollars, capturing some seventy per cent of the stake.Soon afterward, Lucara bought the remaining stake by acquiring De Beers’s London-based junior venture partner, African Diamonds. Lucara now owns AK6 (now Karowe Mine), having spent a little more than seventy million dollars.
The mine has since developed into a prolific rare gem producer celebrated worldwide, having unearthed some the world’s largest diamond ever in history , such as the over 1000 carats Lesedi La Rona, Sewelo and the magnificent 813 carats Constellation.
“We are now mulling acquisition of shares in Lucara but when transactions were happening in 2009 we were just spectators, we could have acquired shares back then when they were affordable now it is expensive to buy into Karowe mine, we must not make the same mistake with this oil and gas projects” said Keorapetse urging Government to be pro-active and move quickly to approach Recon Africa for a stake in Recon Africa Botswana.
ReconAfrica is a junior oil and gas company engaged in the exploration and development of oil and gas in North East of Namibia and North West of Botswana—the Kavango Basin. The company officially launched the oil and gas exploration project in Namibia in early January 2021. The exploration activities are taking place in the Kawe area, Kavango East Region, Namibia.
ReconAfrica holds a 90% interest in a petroleum exploration license in Namibia which covers the entire Kavango sedimentary basin in Namibia, the remaining 10% is owned by Government of Namibia. The exploration licence covers an area of 25,341.33 km2 (6.3 million acres), and based on commercial success, it entitles ReconAfrica to obtain a 25-year production license.
Further, ReconAfrica holds a 100% interest in petroleum exploration rights in Botswana over the entire Kavango sedimentary basin in the country. This covers an area of 8,990 km2 (2.2 million acres) and entitles ReconAfrica to a 25-year production license over any commercial discovery. The company acquired a high-resolution geomagnetic survey of the license area and conducted a detailed analysis of the resulting data and other available data, including reprocessing and reinterpretation of all existing geological and geophysical data.
The survey and analysis confirm that the Kavango Basin reaches depths of up to 9,000 m (30,000 feet) under optimal conditions to preserve a thick interval of organic rich marine source rock, and is anticipated to hold an active petroleum system.
“We believe that the Kavango Basin is another world class Permian basin, analogous to the Permian basin in Texas It is estimated that the oil generated in the basin could be billions of barrels. Recon Africa’s initial goal is to establish the presence of an active petroleum system with its fully funded 3-well drilling program starting early January 2021.
Canadian mining company, Lucara Diamond Corporation, well known globally for producing rare gems of unprecedented quality, has not been spared by the 2020 global market downturn caused by the COVID-19 pandemic.
In their financial results for the year ended 31st December 2020, released from Vancouver Canada late Monday, the junior minor reported a significant net loss of $26.3 million for the year (approximately P287 in Botswana currency).
This according to the financials is a loss of $0.07 loss per share, which is a significant decline when compared to net income of $12.7 million ($0.03 per share) in 2019. The company which wholly owns and runs Botswana’s Karowe mine registered total revenues of $125.3 million (over P1.3 billion), a 34 percent drop compared to $192.5 million (almost P2 billion) recorded in 2019 or $335 per carat from $468 per carat in 2019.
The decrease in revenue resulted in adjusted EBITDA of $18.4 million, a decline when compared to adjusted EBITDA for the same period in 2019 of $73.1 million. Lucara executives explained that total revenue decline was a result of challenging market conditions, a longer ramp-up for production and polished sales in the latter half of 2020 under the HB supply agreement.
“As a result, revenue from certain polished diamonds from Lucara’s highest value stones that would otherwise have been recorded as revenue in 2020, is now expected to be realized in 2021.” reads a commentary alongside the figures.
During the year ended December 31, 2020, Lucara sold 373,748 carats at an average price of $335 carat. Diamond sales for the fourth quarter of 2020 were held through a combination of regular tenders, Clara, for diamonds less than 10.8 carats, and through HB under the supply agreement for those diamonds greater than 10.8 carats.
The Company recognized revenue of $42.4 million or $402 per carat from the sale of 105,648 carats. Price recovery was observed in most size and quality classes. Of note, prices achieved for goods sold on Clara (under 10.8 carats in size) in January 2021 have now recovered to the level of pricing achieved early in 2020.
For the year ended December 31, 2020, Lucara registered revenue totaling $55.2 million from the two agreements with HB, including an accrual for variable consideration of $7.2 million related to “top-up” payments arising from polished diamond sales in excess of the initial purchase price paid to Lucara.
With global restrictions impeding travel for many diamantaires, Lucara says interest in Clara grew significantly in 2020 and the number of buyers on the platform increased from 27 to 75. During 2020, Clara began selling stones on behalf of third party sellers, which was a significant objective for the year.
“As Clara becomes the online marketplace of choice for rough buyers, discussions are underway with several producers to begin trials for the sale of their diamonds on Clara” the company said Amidst challenging circumstances for the diamond industry in 2020 Lucara forged ahead with the Karowe mine underground project.
During the year period under review $18.7 million (over P190 million ) was spent on project execution activities including the following: Site earthworks (consisting of laydown preparation and clearing of shaft and surface infrastructure locations), geotechnical test pitting and drilling, and completion of two pilot holes at the shaft locations, a 746 metre hole for the ventilation shaft and a 768 metre hole for the production shaft.
The Company was able to complete on-site earth works and geotechnical studies by using local contractors while a State of Emergency remained in effect in Botswana. Long lead time item orders were also placed for shaft muckers, and hoist and winder refurbishment was initiated. In addition, power line engineering and detailed shaft design and engineering (consistent with original targets for 2020) progressed.
In Q4 2020, the Government of Botswana approved the proposed powerline route and granted a 25-year extension to the Karowe Mine License to 2046, sufficient to cover the remaining open-pit life (to 2026) and the expected life of the proposed underground expansion, currently planned to 2040.
Lucara says it’s currently actively exploring opportunities to arrange debt financing for the underground expansion for those amounts which are expected to exceed the Company’s cash flow from operations during the construction period. The underground expansion program has an estimated capital cost of $514 million (over P5 billion) and a five year period of development.
President & Chief Executive Officer of Lucara Diamond Corporation, Eira Thomas said the measures that Lucara took early in the pandemic, including the decision not to sell rough diamonds in excess of +10.8 carats after Q1, helped protect and support prices for large, high value diamonds that account for more than 70% of the company’s revenues.
“These efforts in conjunction with our transformational supply agreement with HB Antwerp executed in July, resulted in strong price recoveries by Q4, a trend which has continued into 2021.” Thomas said the recent recovery of two, high value +300 carat stones “continue to highlight the extraordinary nature of the Karowe resource and underpin the rationale for underground expansion, extending our mine life out to at least 2040”.