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De Beers ends year on a low but better off

Anglo American Plc has posted the lowest diamond sales for De Beer’s tenth sales cycle of 2016, amounting to $418 million, but a much higher figure compared with the $248 million value of the last cycle of 2015. The diamond sales figures from De Beers, the world’s biggest diamond producer, are highly monitored worldwide as they act as an indicator of the health of the diamond industry.


“We continued to see good demand for De Beers rough diamonds in our latest sales cycle. While the trade in lower value rough diamonds is experiencing a temporary slowdown as a result of the demonetisation programme in India, demand across the rest of the product mix continued to be healthy and overall sales remained in line with seasonal expectations. Pleasingly, sales were also significantly higher than those for the equivalent cycle in 2015,” said Bruce Cleaver, CEO of De Beers.

The figures fit in with expectations of slowing sales in the second half of the year. The diamond industry is seasonal, with the holiday period from thanksgiving in November through the Lunar New Year in Asia in January or early February the busiest period for jewellery sales. Rough diamond prices have rebounded by 7.4 percent this year, a marked contrast to the slump experienced in 2015 when sales slumped by 18%.


The slowdown in diamond sales in India follows the decision by India’s Prime Minister, Narendra Modi, to remove large denominations-the 500-rupee and 1000 rupee banknotes- as part of the government’s efforts to curtail money laundering and crackdown on tax evasion as well as counterfeit money. The process of demonetization has affected consumer spending in a country that prefers to hold large holdings of cash by hand instead of banking.


De Beers which holds ten Global Sightholder Sales and Auction Sales every year started 2016 strongly after a disappointing 2015. The sights or auction sales are restricted to the top 85 customers and it’s held in Gaborone. In the first cycle of the year, the diamond behemoth sold $545 million worth of diamonds, up from the $248 million of sales realised in the tenth cycle of 2015. The company followed up with $617 worth of sales in the second cycle before ramping up diamond sales in the third cycle, bringing $666 million in sales which remains the highest of the year.

 

In the first three months of the year, the diamond sales came to $1.8 billion, sparking concerns that the diamond producer might be selling too much too soon. Part of the diamond slump in 2015 was due to buyers holding too many stones in their inventories which were not moving as fast as expected following a slowdown in China’s economy.


In the second quarter of the year, De Beers’s auction sales recorded dwindling numbers. Philippe Millier who was De Beers CEO at the time said the slump in the fourth cycle was due to normal seasonal trends returning to the market and added that the company is encouraged by the continued stability of demand for rough diamonds shown in the fourth sales cycle. The seventh sales cycle defied expectations, as diamond sales went up by 21 % from the previous cycle.

 

Mr. Cleaver said the $639 million worth of sales was a result of healthy demand for the company’s rough diamonds as manufacturers bought forward some of their demand in order to cut and polish rough diamonds in time for the important retail selling season. However, the uptick in the diamond sales proved to be temporarily as rough diamond sales for the eighth cycle went down by 22.6% to $494 million on the back of normal seasonal patterns coupled with the shorter than usual period between sights 7 and 8, and the forthcoming holidays in some of the major diamond cutting centres. The ninth cycle sales were also lower, bringing in $476 million


De Beers which is majority owned by Anglo American Plc and the Botswana government which holds 15 percent, is also the other half of Debswana, a joint venture with the government. Debswana operates four diamond mines in the country (Orapa, Letlhakane, Damtshaa and Jwaneng). Jwaneng mine is largest and most valuable mine in the world. Diamonds are the mainstay of Botswana’s economy since they were discovered shortly after the country gained independence.

 

The partnership between the government and De Beers is one of the longest known public-private partnerships, stretching to 50 years.  The country is yet to diversify its economy from resources based despite imminent threats in the diamond industry that include competition from synthetic diamonds, stagnated growth in leading economies and the slowdown in China that affected several commodity prices.

 

In 2015 when diamond production fell due to waning demand, the country’s Gross Domestic Product (GDP) fell by 1.9 percent year on year, representing negative growth. However the diamond sector has rebounded and on its way to recovery as the country’s GDP for the first and second quarter have been positive.  The International Merchandise Trade Statistics show that the country exported over P48.6 billion worth of diamonds in the past eight months, representing more than 85 percent of the total export revenues so far this year.

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Pula smiles at COVID-19 vaccine

25th November 2020
COVID-19 vaccine

A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.

With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.

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Choppies high on JSE rollercoaster volatility

25th November 2020
CHOPPIES

After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.

Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”

Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.

However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.

The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.

In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.

“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.

This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.

On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.

However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.

Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.

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Foschini-Jet merger, a class and rivalry conundrum dissection

25th November 2020
Foschini

Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.

According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.

The two entities are South African retailers whose services stretched to Botswana shores.  Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.

South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.

However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.

When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.

“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.

The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.

This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.

What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.

“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.

Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.

CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.

Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.

“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.

CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.

Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.

“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.

According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of:  i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.

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