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.”
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.
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.
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.