Anglo American has ramped up diamond production by 8 percent in the first quarter of the year, with the bulk of the production coming from Botswana based operations. The miner revealed this week that the increase in production was in response to improved trading conditions.
The production report shows that Anglo American’s subsidiary, De Beers, increased rough diamond production by 8 percent to 7.4 million carats. Anglo is the main shareholder in De Beers with an 85 percent stake while the Botswana Government owns 15 percent of De Beers. Furthermore, De Beers and Botswana own Debswana in a 50 percent joint venture.
The report shows that Debswana’s production decreased marginally to 5.2 million carats, a 3 percent reduction from 2016’s first quarter and also 4 percent lower than figures for the 2016 fourth quarter. Debswana operates the Jwaneng, Orapa, Letlhakane and Damtshaa diamond mines. Jwaneng, the leading mine by value and the second largest mine in the world, was the biggest contributor in terms of carats mined although production decreased by 8 percent due to expected lower grades. However this was partly offset by Orapa and Letlhakane mines, which increased by 5 percent and 4 percent. On the other hand, production at Damtshaa mine is still on hold after the mine was put under care and maintenance in January last year.
Production at Namdeb Holdings, another joint venture between the Namibian government and De Beers, increased by 6 percent to 0.5 million carats due to marginally higher grade at Namdeb. In DBCM (South Africa), production increased by 19% to 1.1 million carats largely as a result of higher grades at Venetia. Production in Canada increased by 290 percent to 0.6 million carats due to the contribution of Gahcho Kué, which reached commercial production on 2 March 2017.
The report also revealed that total rough diamond sales volumes in the first quarter of the year were 14.1 million carats (13.7 million carats on a consolidated basis) from three Sights, compared with 8.1 million carats (7.6 million carats on a consolidated basis) from two Sights in Q1 2016. Consolidated sales volumes exclude De Beers’ JV partners’ 50 percent proportionate share of sales to entities outside the De Bees Group of Companies from the Diamond Trading Company Botswana and the Namibia Diamond Trading Company, which are included in total sales volume.
The mining giant holds ten Global Sightholder Sales and Auction Sales every year in Gaborone and the sights or auction sales are restricted to the top 85 customers who buy the diamond packages at a price determined by De Beers. In 2016, the diamond behemoth sold as much as $4.9 billion worth of diamonds in its ten Sightholder sales. In the first quarter of this year, De Beers’ value of rough diamond sales amount to $1.86 billion, following strong opening to the year.
The world’s biggest diamond producer by value sold $720 million in its first sale of the year, a 70 percent increase from the last sale in December. The January figures are also 32 percent higher than the previous corresponding period when it sold $545 million. The surge in the value of diamonds sold in the first circle of the year was helped in part by a longer period between the final sight of 2016 and the first sight of the year.
De Beers then followed with a second sales cycle of 2017, amounting to $553 million, a lower figure compared with the $617 million value of the corresponding cycle of 2016. The provisional figures for the third cycle sales of the year show that De Beers sold rough diamonds worth $580 million, 12.9 percent lower than 2016’s third cycle sales.
Anglo American has added that their diamond production forecast for 2017 remains unchanged at 31-33 million carats, subject to trading conditions. In 2016, total rough diamond sales volumes increased by 55 percent to 32.0 million carats, as a result of the improved trading conditions from those experienced in 2015. However, the average realised price of $187 per carat was 10 percent lower than in 2015, reflecting the lower average rough price index, which was down 13 percent, partially offset by a stronger sales mix.
Meanwhile, on Tuesday at the annual Debswana stakeholder engagement session, it was announced that production has now begun from the Cut-8 project, an extension of the Jwaneng mine that was made at an investment of P24 billion. According to De Beers records, Cut-8 will become the main source of ore for Botswana’s Jwaneng mine in 2018 and extend the life of one of the world’s richest diamond mines by value to at least 2035.
It is called Cut-8 because it is the eighth cut, or expansion, of the mine. It will increase the depth of the mine from 400 metres to 650 metres, making the pit 2.7km long and 1.8km wide. The expansion will catapult Jwaneng mine to ‘super-pit’ status, becoming one of the largest open pit mines in the world.
The new mine will provide access to an estimated 93 million carats of mainly high-quality diamonds from about 84 million tonnes of ore mined. But before a single diamond can be found, about 500 million tonnes of rock surrounding the diamond-bearing ore must be removed. Debswana Managing Director Balisi Bonyongo said 88 percent of an estimated 500 million tonnes of waste above diamond bearing ore had been stripped away by the end of March.
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”