The challenging operating environment experienced by companies in 2016 is set to take shape in the form of figures as companies prepare for the financial reporting period.
While there has not been comprehensive information on the extent of the damage caused by economic downturns in 2016, leading companies listed on the Botswana Stock Exchange have offered insights (BSE) in what was perhaps the worst year for local businesses, particularly big companies in the financial services industry.
The 2016 operating environment, although considerably better than 2015, was marked by several retrenchments from different sectors of the economy, with the liquidation of BCL group likely to have the most impact. The retrenchments were in addition to the rising unemployment rate, stagnated wages, and accommodative monetary policy.
As the reporting period approaches, listed companies have sent out less optimistic cautionary notes warning shareholders to exercise caution when dealing with the affected company’s stock. While some cautionary statements were scant in details, other companies were outright blunt that they were expecting lower than projected profits.
Letshego, the largest indigenous BSE-quoted company with a market capitalisation of just under P4.7 billion, has announced that that the Company’s profit after tax for year ended 31 December 2016 will be lower than those reported for the period ended on 31 December 2015. In the previous full year end results for 2015, the Pan-African financial services group achieved profit before tax of P1.1 billion, a 5% increase on the prior period.
The drop in profit is likely the result of foreign currency fluctuations, retrenchments in the local economy, reduced borrowings, and historically lower interest rates that have driven customers to seek cheap credit from banks. Over the last five years, Letshego has experienced a period of rapid transformation from its roots in Botswana as a consumer finance company established in 1998, with a single product, into a pan-African broader based financial institution.
It has achieved geographic and product diversification with subsidiaries across ten countries in Southern, East and West Africa – Botswana, Kenya, Lesotho, Mozambique, Namibia, Nigeria, Rwanda, Swaziland, Tanzania and Uganda. In its 2015 annual report, the group said whilst the business environment has remained competitive, it has continued to grow its market share via geographic expansion and acquisitions into new markets and diversification with a broader product and services offering.
Letshego is currently trading at P2.20 after losing 4.34% of its stock value in year to date returns. This will not look good for shareholders who had to stomach a loss of 20% in 2016. The stock however remains the most traded on the BSE. The Botswana Insurance Holdings Limited (BIHL) has also announced that the Group’s results for the year ending 31 December 2016 will likely be lower than those reported for the year ended 31 December 2015. In 2015, the group achieved profit after tax of P597.7 million, 18% higher than in 2014. The group says the expected lower profit for 2016 is mainly due to current relatively unstable trading conditions.
BIHL Group has the most extensive exposure to the economy through its dominant subsidiaries which include Botswana Life Insurance Limited, Botswana Insurance Fund Management Limited, BIHL Insurance Company Limited as well as non-controlling stakes in Letshego Holdings (23%), Funeral Service Group (35%) and 21.5% stake in Nico holdings.
The group’s profits will be dragged down by fall in insurance premiums, high claims payouts, and reduced returns from the local and global equities markets. It will also be a double whammy for BIHL which will receive a lower share of profits from Letshego. A fall in profit for the group will mask what has been an impressive performance at the stock market after the group’s share price gained 15.46% in 2016 at a time when most stock prices were falling. For this year, the stock is up by 0.22% to trade at P17.59.
The country’s largest bank, First National Bank Botswana (FNBB), is also expected to post lower profit. Although the bank has yet to confirm it, it has hinted that its exposure to the BCL group has left them in a vulnerable position. The bank says the full details of which will be shared at the announcement of the Half Year Interim Results later this month.
In its previous financial performance for the year ending June 2016, FNBB’s profit for the year fell by 15%, marking two years of declining profits on the back of a challenging trading environment characterised by low interests, limited lending and investment opportunities. The bank saw its profit before tax fall by 13% to P659 million while the profit after tax was at a 2 year low of P504 million. With its exposure to BCL coupled with reduced consumer spending power, the interim results are expected to reflect the upheaval that happened in the last half of 2016.
FNBB’s half interim results will be closely watched by investors who have started to lose faith on the company stock. The bank, which has the biggest market capitalization under the local counter on the BSE, has lost as much as 22.51% of its share value in 2016 and the rout has extended to this year as the stock continues to lose, shedding off 7.43% to trade at P2.75.
The embattled Standard Chartered Bank Botswana which was the first to confirm its large exposure to BCL group has also warned that its financial performance might not be stellar. The bank has consecutively reported declining profits since 2014. In its last reporting period, the oldest bank in the country reported lower profit for the half year ended June 2016. For that period, the bank slightly improved on its revenues and contained costs following a dismal 2015 financial performance. However, a 42% surge on net impairments losses resulted in the bank posting profit before tax of P80.1 million, while the profit after tax fell by 5% to P63 million.
Standard Chartered Bank Botswana shocked many in its financial performance for the year ending 2015 after recording profit after tax of P47.4 million, a steep drop from a high profit of P319.2 million recorded in 2014. The steep drop was attributed to high net impairment losses as a result of exposure to the mining sector. While the bank seemed to have been recovering from that, the liquidation of BCL will surely have a negative material impact on the upcoming full financial results to be released next month.
The bank’s share price has been under pressure since 2015 after losing 11% of its share value, followed by another decline of 30.80% in 2016. The bank’s stock is currently trading at P7.60 having lost about 1.9% since the beginning of the year.
The Bulb World Chief Executive Officer (CEO) and entrepreneur, Ketshephaone Jacob has been selected as a 2021 Top 50 Africa’s Business Hero.
Jacob was chosen from a pool of 12,000 applicants – many of whom are highly-skilled and accomplished entrepreneurs.
Africa’s Business Hero, sponsored by technology entrepreneur, Jack Ma, aims to identify, support and inspire the next generation of African entrepreneurs who are making a difference in their local communities, working to solve the most pressing problems, and building a more sustainable and inclusive economy for the future.
The initiative is as inclusive as possible and applications were open in English and French to entrepreneurs from all African countries, all sectors, and all ages who operate businesses formally registered and headquartered in an African country, and that have a 3 year-track record.
Every year, finalists are selected to compete in the ABH finale pitch competition and participate in a TV Show that will be broadcast online and across the continent.
The finalists will compete for a share of US $1.5 million in grant money.
The Bulb World, is home grown LED light manufacturing company, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017.
The Bulb World operate from the Special Economic Zone of Selibe Phikwe. Early this year, The BulB World announced its expansion to South Africa, setting in motion its ambitious Africa expansion plan.
During the first quarter of 2021, production in Botswana’s economic nucleus- the mining sector contracted by 12 percent. This is according to Mining Production Index released by Statistics Botswana this week.
The country’s central data body revealed that Index of Mining production stood at 74.4 during the first quarter of 2021, showing a negative year on-year growth of 12.0 percent, from 84.6 registered during the first quarter of 2020.
The main contributor to the decline in mining production came from the Diamonds sector, which contributed negative 11.7 percentage points. Soda Ash was the only positive contributor in the mining production, contributing 0.1 of a percentage point. However Soda Ash’s contribution was insignificant to offset the negative contribution made by Diamonds.
The quarter-on-quarter analysis by Statistics Botswana experts shows an increase of 16.3 percent from the index of 64.0 during the fourth quarter of 2020 to 74.4 observed during the period under review.
Diamond production decreased by 12.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. The decrease was as a result of planned strategy to align production with weaker trading conditions mostly linked to Covid-19 protocols restrictions.
Botswana’s diamond sector is underpinned by Debswana, the country’s flagship rough producer- a 50-50 joint venture between government and global mining giant De Beers Group. The other producer is Canadian based Lucara Diamond Corp through its wholly owned Karowe Mine which is a relatively small but significant production that has made a name for itself worldwide with rare diamond recoveries of unprecedented carat size.
On the other hand, quarter-on quarter analysis shows that production has improved, registering a positive growth of 17.5 percent during the first quarter of 2021 compared to the preceding quarter – 2020 Q4.
Though production was significantly lower in the first quarter, the two producers ended Q2 with rare diamond recoveries. Debswana early last month found the world’s third largest gem diamond – weighing 1098 carat at Jwaneng Mine, its flagship gem quality diamonds producer, also regarded the world’s richest diamond mine.
A week later Lucara announced its second biggest recovery, the 1174 carat clivage near-gem dug from its Karowe Mine. The diamond is the world third in carat size after the plus-3000 carat Cullinan found in South Africa back in 1905 and the 1758 carat Sewelo unearthed at its Karowe mine in 2019. Debswana and Lucara are investing billions of pulas in underground mining projects to extend the life of its mines, Jwaneng & Karowe respectively.
In terms of Gold which is produced at Mupani mine near Botswana’s second city of Francistown output decreased by 17.9 percent during the first quarter of 2021 compared to the same quarter of the previous year.
Similarly, quarter-on-quarter analysis reflects that production decreased by 21.4 percent during the first quarter of 2021, compared to the preceding quarter. The decrease was as a result of the deteriorating lifespan of the mine as well as the impact of COVID-19 which slowed down the mining activities.
Soda Ash production increased by 11.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. In terms of quarter-on-quarter Soda Ash production also showed an increase, picking up by 2.1 percent during the period under review. The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.
Salt production decreased by 34.0 percent during the first quarter of 2021, compared to the same quarter of the previous year. Similarly, the quarter-on-quarter analysis shows that salt production registered a decrease of 32.9 percent during the period under review. Both salt and Sodash are produced by partly government owned Botswana Ash (BotsAsh) operating from Sowa town near Makgadikgadi pans.
Coal production decreased by 11.2 percent during the first quarter of 2021, compared to the corresponding quarter of the previous year. The decrease was attributed to the reduced demand from Morupule B Power Station following the remedial works being undertaken, as one boiler was in operation during the period under review.
Although production fell, Statistics Botswana says there was no shortfall in supply of coal due to stockpiling. On the other hand, the quarter-on-quarter comparison shows that coal production increased by 20.4 percent compared to the preceding quarter.
Botswana’s flagship coal producer is Morupule Coal Mine; a wholly state owned mining company located in Palapye producing primarily for Botswana Power Corporation (BPC)’s power generation plants Morupule A & B.
The other coal producer is Botswana Stock Exchange listed Minergy which operates a 390 MT Coal Resource mine in Masama near Media in the southwestern edge of the Mmamabula Coalfields.
Department of Mines in the Ministry of Mineral Resources, Green Technology & Energy Security has awarded mining licence to Tshukudu Metals-a subsidiary of Aussie firm Sandfire Resources ,giving the company a green light to start piecing the ground at its Motheo Copper Project near Gantsi.
Lefoko Moagi, minister in charge of mineral resources in Botswana confirmed to weekendpost on Tuesday. Minister Moagi revealed that “the licence has been approved , but Sandfire Resources as a listed company will report to its shareholders and investors then make an official public statement” he said.
Based on a forecast copper price of US$3.16/lb (reflecting current long-term consensus pricing) the Base Case 3.2Mtpa – Ghantsi copper project is forecast to generate US$664 million (over P7 billion) in pre-tax free cash-flow and US$987 million (over P10 billion) in EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), at a forecast all-in sustaining cost of US$1.76/lb over its first 10 years of operations.
In December 2020, the Board of Sandfire Resources approved the commercial development of the Motheo Copper Mine located in the Kalahari Copper Belt in Botswana, marking a key step in its transformation into a global, diversified, and sustainable mining company.
Tshukudu Metals Botswana (Pty) Limited (Tshukudu) a 100% owned subsidiary will be the owner and operator of the Motheo Copper Mine which is scheduled to produce up to 30,000 tonnes per annum of copper in concentrate over a 12 year mine life.TMB is targeting development of its Motheo Copper Mine in 2021 and 2022, with its first production in 2023.
GOVERNMENT NOT TAKING UP 15 % STAKE ON OFFER
Beginning of this year presentations were made to the Department of Mines as part of the Mining Licence approval process and to the Ghanzi Regional Council, additional information was requested by Department of Mines in April and was duly supplied by the company.
As part of the Mining Licence approval process, the Government of Botswana has a right to acquire up to a 15% fully contributing interest in all mining projects locally. Quizzed on whether government through Mineral Development Corporation Botswana (MDCB) would be taking up stake in the project Minister Moagi said, “No consideration is being made on that regard”.
“Government is not considering taking up a stake in the Ghantsi Copper Mine project, every opportunity is assessed on all risks, but Government makes money all the while from leases, taxes and royalties, remember if you take stake you are liable for liabilities of the project as well,” Moagi said.
Last month Sandfire announced that it has awarded over P5 billion worth mining contract to African Mining Services (AMS), a subsidiary of Perenti, to deliver the open cast operation.
The contract, which has an estimated value of US$496 million (over 5 billion), is the largest single operational contract for the new Motheo Project covering a period of 7 years and 3 months, with provision for a one-year extension.
The contract according to Sandfire Resources was awarded following a competitive 3-stage tender process which saw a number of key factors taken into consideration when selecting the preferred contractor.
These included Citizen Economic Empowerment, safety culture, equipment suitability and availability, commercial terms and identified improvement opportunities. Under the terms of the contract, AMS has agreed to form a 70:30 Joint Venture with a suitable local Botswana partner or partners.
The JV is expected to be finalized ahead of commencement of mining in early 2022. African Mining Services has been operating in Africa for over 30 years. AMS’ parent company, ASX listed diversified mining services group Perenti, already has a presence in Botswana through Barminco, their underground mining division, at the large-scale Khoemacau Copper Mine located 200km north-east of Motheo.
Last month Sandfire executives said the award of the open pit mining contract represents another key milestone in advancing the Motheo Project towards production, with all components of the contract in line with the key parameters outlined in the December 2020 Definitive Feasibility Study (DFS).
The company said full-scale construction of the US$279 million (over P 3 billion ) mine development is expected to commence immediately upon receipt of the Mining Licence, with mining scheduled to commence in early 2022 ahead of first production in early 2023. This week Sandfire Resources advertised over 10 positions in calling on applications from geologists, mining engineers and geotechnical engineers.
The Motheo mine has an initial mine life of 12.5 years based on production from the T3 pit. The initial development is expected to generate approximately 1,000 jobs during the construction phase and 600 direct full-time jobs during operations, with at least 95% of the total mine workforce expected to be made of up of Botswana citizens.
Later in the week Sandfire Resources announced in the company website that it has received the licence. Sandfire’s Managing Director and CEO, Mr Karl Simich, said the award of the Mining Licence represented a major milestone that would see a significant increase in construction and development activities on site.
“We are absolutely delighted to now be in a position to move to full-scale construction at Motheo, with our construction crews expected to mobilise to site over the next few days. I would like to thank the Government of Botswana for their support throughout the approvals process, which will see Motheo come on-stream in 2023 as one of very few new copper mines commencing production globally.”
Simich said the project is expected to generate approximately 1,000 jobs during construction and 600 full-time jobs during operations, and represents the foundation for Sandfire’s long-term growth plans in Botswana.
“Our vision is that Motheo will form the centre of a new, long-life copper production hub in in the central portion of the world-class Kalahari Copper Belt, where we hold an extensive ground-holding spanning Botswana and Namibia,” he said.