Business confidence improves despite challenges
Business
Bank of Botswana has released the Business Expectation Survey for the last half of the year which shows that there has been an increase in overall business confidence. However businesses still remain wary of the uncertainties surrounding demand for commodities in the global market, which continues to threaten business operations.
The Bank undertakes the Business Expectations Survey (BES) twice a year in order to collect information on perceptions among the local business community about the prevailing state of the economy, as well as future prospects. Businesses are asked to respond to a range of questions relating to, among others, the business climate and prospects for economic growth, inflation and business performance over the survey horizon, which starts from the second half of 2016 until end of 2017.
The survey report shows that overall business confidence in the last half of the year is 43 percent, up by 7 percent from the level that prevailed during the first half of the year reported in the March 2016 survey. The higher confidence level in the second half of 2016 is, however, five percentage points lower than the 48 percent anticipated for the same period at the time of the March 2016 survey. Moreover, there is an improvement in the level of confidence for the rest of the survey period, rising to 51 percent in the first half of 2017 and to 58 percent for the entire 2017.
Domestic oriented businesses were much more optimistic with the level of confidence reaching 43 percent in second half, compared to 31 percent in the first half of the year. Looking ahead, the level of optimism improves to 46 percent in the first half of 2017 and 52% for the whole of 2017.
However, the survey reveals that the confidence level of export-oriented businesses declined significantly, from 71 percent in the first half of the year as reported in the previous survey, to 42 percent in the last half of 2016. Going forward, business confidence recovers markedly to anticipated levels of 75 percent and 92 percent in H1 2017 and the whole of 2017, respectively. Thus, the overall expected upswing in business confidence for 2017 is due to a more positive outlook by both export and domestic oriented businesses.
When it comes to national output growth, businesses are conservative about Gross Domestic Product (GDP) growth. On average, businesses expect real GDP to grow by 2 percent in 2016 and by 2.6 percent in 2017. These are lower than the government forecasts of 3.5 percent for 2016 and 4.1 percent for 2017, indicated in the Budget Strategy Paper for 2017/18. According to the report, the expected economic growth rate for 2016 by the business community, is an improvement over the actual contraction of 0.3 percent realised in 2015, and is consistent with the improving business confidence.
In terms of capacity utilization, investments, input costs and job creation, the majority (85 percent) of businesses expect to utilise at least 50 percent of their productive capacity in the second half of 2016, while at the same time anticipating to raise investment and employment levels in the first half of 2017. This is in spite of strong business sentiments about rising costs of inputs in the period.
The survey indicates that 15 percent of the respondents anticipate operating below 50 percent of their productive capacity in the current period, while 54 percent expect to produce between 50 and 80 percent of their capacity; 31 percent of the businesses expect their productive capacity to exceed 80 percent. Thus, the current levels of capacity utilisation by businesses are broadly comparable with those reported in the March 2016 survey (46 percent anticipated operating between 50 and 80 and 33 percent expected to exceed 80 percent), hence suggesting that the business environment is still challenging, but stable.
Despite the challenging operating environment, the businesses surveyed are optimistic about demand for their products and services, expecting inventory levels to drop as they move more products and services in the first half of 2017.
“In turn, this feeds through to more positive expectations regarding production, employment and profitability in the current period and the remaining period of the survey. Nonetheless, expectations for investment in building, plant and machinery and other items in H2 2016, have been revised downwards in the current survey, compared to expectations for the same period expressed in the March Survey,” the report stated.
Still on that, the report highlighted that there is an improvement in expectations relating to investment in vehicles and equipment between the two surveys. Looking ahead, a majority of businesses anticipate to undertake more investment in the first half of 2017, indicative of the optimistic outlook for 2017.
The Business Expectations Report also reveals that sentiment amongst firms regarding rising cost of inputs is still strong and higher than in the March 2016 Survey. Nonetheless, expectations of higher costs eased for wages and utilities, while remaining broadly strong for materials, rent, and transport and other items in the first half of 2017. The survey from respondents show that expectations of rising costs of inputs decreases in the later period of the survey, consistent with moderating inflation expectations.
The decision by the central bank to slash the bank rate in 2015 and 2016 has struck a chord with the business community as the survey shows that they anticipate an easy access to credit with a bias towards domestic borrowing in the early part of 2017 due to favourable interest rates, before opting to borrow from South Africa later in the year, taking advantage of the currency exchange. The report further reveals that for capital investment, companies would prefer to borrow domestically than abroad (South Africa and international markets) in the first half of 2017, but would opt to borrow from South Africa in the 12-months period to December 2017.
“Regarding borrowing costs, there is some anticipation of lower domestic interest rates in the first half of 2017 before rates start to rise in the later part of the year. Expectations of lower domestic interest rates are aligned to the reduction of the Bank rate from 6 percent to 5.5 percent since August 2016, together with prevailing low inflation, which continues to fluctuate around the lower end of the Bank’s 3 – 6 percent range,” part of the report reads.
While in 2015 there were talks of liquidity crisis, the central bank eased the reserve requirements cap, allowing for more money in the banking sector to enable more lending. The decision appears to have opened doors for businesses. In terms of access to finance, there is a reduction in the proportion of businesses which believe access to credit is tight (44.9 percent compared to 50.8 percent in the previous survey), while the number of those viewing access as easy has fallen from 13.6 percent in the March 2016 Survey to 9 percent. However, there is a significant increase in the proportion of businesses which believe access to credit is normal (46.2 percent from 35.6 percent in the March 2016 Survey). In general, compared to the March 2016 survey, the business sentiment about access to finance has improved.
Despite inflation rate treading below the bank’s medium term range for most part of the year, the respondents projected inflation is above the current inflationary levels but within the Bank’s inflation objective, suggesting confidence in the bank’s monetary policy.
“Businesses have revised their inflation expectations for 2016 slightly downwards to an average of 3.6 percent from 3.7 percent in the March 2016 Survey. Inflation expectations of 3.8 percent for 2017 remained the same as in the March 2016 Survey. Despite the relatively low average inflation expectations, they still remain above actual inflation which averaged 2.8 percent in the 9 months to September 2016,” the report said and also adding that the majority of respondents expect inflation to be within the Bank of Botswana’s medium term inflation objective range of 3-6 percent in 2016 (66 percent) and 2017 (68 percent), possibly reflecting the sustained period during which inflation has been within the objective range, which adds to the Bank’s policy credibility.
In the previous surveys, local based businesses used to cite the water and power crisis as a major challenge to their operations. However in the latest survey respondents now point to weakening domestic demand coupled with reduced government spending as the first and second most significant challenges facing businesses due to perceived slow growth in household disposable income and public expenditure. According to the report, the next ranked impediments to business operations relate to regulatory and supervisory framework and availability of raw materials. Respondents also highlight unavailability of skilled labour and weak international demand among the serious challenges they face.
Business
New Khoemacau owners commit to mine’s multibillion Pula expansion
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.
Business
Khoemacau Copper Mining to be acquired by MMG Limited
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.
Business
BPC Signs PPA with Sekaname Energy
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.