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Lesedi La Rona: Lucara diamond named

The world’s second largest diamond has been named “Lesedi La rona” following a month long competition which saw Thembani Moitlhobogi’s entry clinching the winning name. Lesedi La Rona means “our light” and it surely shone light in Moitlhobogi’s account as he pocketed P25, 000 for coming up with the name.  The naming of the spectacular diamond comes three months after Lucara Diamond Company unearthed a 1,111carat gem quality, Type IIa diamond.

The white Type IIa diamond is considered the purest form of diamond.  The magnificent stone, which originated from the south lobe of Lucara’s Karowe Mine, is the world’s second largest gem quality diamond ever recovered since the discovery of the world largest diamond; the 3,106-carat Cullinan, found near Pretoria in South Africa in 1905.

“The outpouring of pride and patriotism shown by all the participants in the contest was incredible. The diamond industry has played a vital role in the country’s development, allowing for significant and ongoing investment in world-class healthcare, education and infrastructure. “Lesedi La Rona” symbolizes the pride and history of the people of Botswana,” beamed William Lamb, CEO and President of Lucara, in a press release.

While the naming of the diamond offers the latest information on Lucara’s three months old rare find, the value of the diamond remains speculative, with estimates now hovering around $60 million. It also appears Lucara is not in any hurry to sell the diamond, something that Lamb hinted to in late 2015.

“We need to see how best to get maximum value of the stone” he said. Instead the company has announced the dates for its first Exceptional Stone Tender (“EST”) of 2016. The tender will feature ten diamonds with a combined weight of 1,525 carats including a magnificent 296 carat Type IIa diamond. The tender does not include any of the three previously announced exceptional diamonds recovered in November 2015.

Karowe mine has been a rare source of exceptional diamonds with its consistent recovery of large high value diamonds. Although it produces less than 1% of world’s diamonds, the mine is recovering more than 50% of the world’s diamonds larger than 100 carats.

In January 2013, it sold a 9.46 carat blue diamond recovered from Karowe mine for $4.515 million. This was later followed by the mining of a 239 carat diamond, which at the time was the largest diamond ever to have been recovered from the highly prolific Orapa kimberlite in over 40 years of production. This set in motion more discoveries of valuable diamonds, a 257 carat gem stone was unearthed in September 2013 and in May 2014, Lucara had mined 13 diamonds greater than 100 carats, two of which were greater than 200 carats. Just earlier this year in April, Lucara’s prized jewel was the 342 gem quality diamond mined from the central and south lobe of Karowe. The diamond was auctioned for $20.55 million.

Lucara’s Exceptional Stone Tender will be a closely watched affair as it will offer glimpses on the trajectory of diamond prices. In a 2015 diamond prices review by Rapaport magazine; Diamond sector profitability came under the spotlight in 2015 due to sluggish consumer demand in emerging markets and high rough prices relative to the resulting polished. Consequently, the year was one the industry would rather forget as it was characterized by excess supply and consolidation. Polished prices fell as manufacturers held large quantities of diamonds that were difficult to sell. There were simply too many diamonds available for too few buyers.

The recent data on diamond prices this year leaves everything uncertain as to what direction the diamonds market might take. The Rapaport Monthly Report demonstrates that polished prices rose in January due to shortages rather than increasing diamond demand. Polished trading was driven by U.S. jewellers replenishing stock sold during the holiday season as well as some inventory purchases. The report further states that diamond market sentiment improved during January and dealers feel that the worst may be over.

Prospects for manufacturers’ profitability improved as De Beers reduced rough diamond prices by an estimated 7 to 10 percent at the January sight. The company’s sales surged 118 percent to $540 million during January, compared with $248 million in December. Rough demand increased as manufacturers started to raise polished production to fill gaps in supply. Shortages are expected to support diamond prices throughout the first quarter, as rough bought in January will take a few months to pass through the manufacturing process

However, uncertainty remains as consumer demand is sluggish in emerging markets. Prices for diamonds are at their lowest level in five years as demand declined sharply in China, India and other emerging nations. China is the world's second-largest consumer of the precious stones after the U.S. The rise in diamond prices for January 2016 does not reflect the overall market sentiments as the price increases were largely driven by Anglo American, decision to stimulate consumers’ appetites through large scale advertising. De Beers (owned by Anglo American), the largest supplier of rough diamonds by value, has poured millions of dollars into advertising in the US and China, trying to boost jewellery sales as part of a strategy to unclog the manufacturing pipeline and lift demand and prices for rough diamonds. The miner also closed two operations in 2015:   Damtshaa in Botswana. Just recently Ghaghoo Diamond mine, also in Botswana, had to downscale production due to weak diamond prices.

Lucara Diamond Corp which trades on the Botswana’s Stock Exchange foreign counter has made impressive gains since the discovery of Lesedi La Rona diamond. In November 2015, before the discovery, the stock was trading for P13.78, but quickly rose in the following months to trade at P17.69, marking a spectacular 28 percent in returns within 3 months. On December 17, Lucara paid out gross dividend of 0.1616 thebe per share to its shareholders

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Fiscal policy: new taxes, levies for 2021

25th January 2021
Fiscal-policy-new-taxes,-levies-for-2021

Government has made some adjustments0 in fiscal policy, as some taxes and levies are to be imposed from the beginning of March this year. It is expected that effective 1st March 2021, government will announce an increase on fuel levy followed by increases in tax items including VAT and tax on sugar-sweetened beverages.

FILL UP AND PAY CAESAR TOO AMID FUEL CRISIS

Ministry of Mineral Resources, Green Technology and Energy Security in 2017 approved 17.5 thebe per litre which will be in addition to the already existing fuel levy of 13.5 thebe per litre.
Apparently Botswana consumes 1.2 billion litres of petroleum products and the levy could raise P210 million per annum which could be used to; purchase of stocks for Botswana Oil Limited, meet insurance premiums for government oil storage facilities and construction of other strategic storage facilities around the country.

According to investment manager Kgori Capital, the new tax might not immediately lead to an increase in fuel pump prices as the National Petroleum Fund (NPF) might be able to cushion the effect of the tax in the short term.  Kgori Capital said this however could see increased outflows from the fund which could be unsustainable over the long term.

Recently government released a ‘National Fuel Supply Update’ announcing that the shutdown of three refineries in South Africa, making Botswana look elsewhere to increase sourcing from alternative suppliers. As assurance government stated that it is currently able to meet fuel demand, that back-up is available, it would only be deployed if the situation deteriorates.

Other determinants of fuel price dynamics could be the Rand vs US Dollar. This week on Thursday the Rand rallied for another day, retaining gains from the previous day, as risk appetite stayed high on hints that the new US administration would be in support of a huge stimulus to uplift the economy.

On Thursday commodity news oil prices were supported for yet another day on Wednesday, climbing above US$56 per barrel in mid-afternoon trading, supported by expectations that the incoming US administration would approve a large stimulus package to boost the economy and in turn support oil demand.

According to stockbroker Motswedi Securities, also supporting the commodity’s pricing were ongoing supply cuts by the Organization of Petroleum Exporting Countries as well as expectations that US crude inventories are forecast to decline for the week ended 15 January 2021.

Last week the FNBB researchers said they expect a possibility of a rebound in oil prices as economic activity recovers this year. FNBB said it is probable that fuel prices will be increased to mimic international oil price movements.

First National Bank of Botswana Quantitative Analyst, Gomolemo Basele, in his recent analysis of December inflation, said over the course of this year inflation should receive some upward pressure from volatile items, particularly the transport group index as the fuel levy is anticipated to increase from P0.12 to P1.12, effective 1st March 2021.“We also expect further pressures on the administered prices of water and electricity, as well as increases in tax items,” said Basele on behalf of his FNBB economy research team.

VAT TO GO UP SOONER THAN EXPECTED, JOB LOSSES

Amid being met with a lot of opposition, FNBB expect an increase in VAT from 12 percent to 14 percent, effective 1st April 2021. Last year permanent secretary in the Ministry of Finance and Economic Development, Wilfred Mandlebe told Parliamentary Committee on Government Assurances (PCGA) that as part of economic recovery from Covid-19 shocks, VAT will be increased from 12 percent to 14 percent in the next financial year.

This is despite Basele in his December inflation report warning that the demand side will remain muted this year as the bulk of Botswana’s labour force will be faced with unemployment challenges as well as pressures on disposable income levels due to diminished economic activity.

State of Emergency which bars employers to lay off employees might end the same time when government imposes an increase in VAT, this is why FNBB expects inflation to average 2.8 percent in 2021 and anticipate that the Bank of Botswana will remain accommodative this year and cut the bank rate by 25 basis point.

INTRODUCTION OF SUGAR LEVY

The beginning of the next financial year will see tax on sugar-sweetened beverages be 2 thebe per gram over and above 4 grams per 100 millilitres. This tax will be implemented by a Statutory Instrument to be issued by Ministry of Trade and Investment.

According to World Bank last year September, sugar-sweetened beverages (SSBs) are non-alcoholic beverages that contain caloric sweeteners, such as sucrose (sugar) or high-fructose corn syrup (HFCS). SSBs include carbonated soft drinks (carbonates), energy drinks, concentrates or syrups, sports drinks, less than 100 percent fruit or vegetable juices such as juice drinks or nectars, ready-to-drink teas and coffees, sweetened waters, and milk-based drinks.

SSBs are said to be the main factors of overweight and obesity which leads to a number of chronic non-communicable diseases (NCDs), including coronary heart disease (CHD), stroke, diabetes, and at least 12 cancers (cancer of the mouth, pharynx and larynx, oesophagus, stomach, pancreas, gallbladder, liver, kidney, prostate, colorectal, endometrium, ovaries, and post-menopausal breast).

In his first State of the Nation Address (SONA) in 2018, President Mokgweetsi Masisi blamed the increasing incidence of people who are overweight and obese amongst the Botswana population on the increased consumption of sugar sweetened products, especially beverages.

HOUSING INFLATION TO SOAR INTO THE NEXT FINANCIAL YEAR

Botswana Housing Corporation is expected to rise to the occasion this year by taking more from Batswana pockets in the coming financial year. The housing utility will adjust rentals by more than 100 percent margin effective 1st April 2021.

This could further spike future inflation into the housing and utilities group index which in December registered a rise of 0.3% m/m owing to higher costs associated with materials for the maintenance and repair of dwellings (0.9% m/m).

INFLATION TO REMAIN SUBDUED AND UNDER THE OBJECTIVE RANGE

The December 2020 inflation remained unchanged at 2.2%, bringing the 2020 inflation average to 1.9%. While Basele believes the 2021 inflation should receive some upward pressure from volatile items, particularly the transport group index as the fuel levy is anticipated to increase from, he said the demand side will remain muted this year as the bulk of Botswana’s labour force will be faced with unemployment challenges as well as pressures on disposable income levels due to diminished economic activity.

This moves FNBB to expect inflation to be just below the 3-6 objective range and be lower at 2.8 percent, the bank’s researchers further anticipate that the Bank of Botswana will remain accommodative this year and cut the bank rate by 25bp.

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Gov’t throws weight behind CBM industry

25th January 2021
Anthony-TONY-GILBY

Botswana Government through Ministry of Mineral Resources, Green Technology & Energy Security (MMGE) has underscored its intention to support power generation through Coal-Bed- Methane (CBM).

This week Tlou Energy, one of the publicly listed companies exploring CBM power generation revealed in a circular to shareholders that the Ministry’s commitment to support the industry was a significant push to its ambitions.

Tlou Energy is focused on delivering power solutions to Botswana and southern Africa to alleviate some of the chronic power shortage in the region. The company is currently developing projects using gas and plans to add solar power projects to provide a cleaner power source. Botswana has a significant energy shortage and generally relies on imported power and diesel generation to fulfill its power requirements.

Last year Tlou Energy and state owned Botswana Power Corporation (BPC) singed a Pilot Power Purchase Agreement (PPA) for the first 2 Mega Watts of power from the Lesedi project. A grid connection agreement was also signed which enables the injection of power into the BPC grid.

These according to Tlou are key agreements that will facilitate development of the power project and the sale of first power. The company says things are promising for a larger power purchase agreement. The BSE listed energy outfit revealed that, “Botswana’s Ministry of Mineral Resources Green Technology and Energy Security (MMGE) has provided confirmation that negotiations on a larger PPA are due to commence in February.”

Tlou’s Managing Director, Mr Tony Gilby commented, “It is great to see that Botswana is open for business and the Government is motivated to get the gas industry up and running.” Gilby revealed that his company plans to start development of the Lesedi project as soon as possible noting that “confirmation of the Government’s enthusiasm to provide the necessary support to ensure commercial development of CBM is very well received.”

“In addition, we have also recommenced negotiations with Botswana based project financiers this month as we aim to close a deal for funding as soon as possible. After what was an extremely challenging year the Company is already making progress in 2021 and anticipate further advancement on all fronts in the coming term. We look forward to updating the market with further developments in due course,” he said.

Tlou said it has received written confirmation from MMGE of the “intention of MMGE to fast track the development of Coal Bed Methane (CBM) in Botswana.” MMGE also stated that it is “happy to provide the necessary support to ensure commercial development of CBM.”

In relation to the current tender to implement up to 100MW of CBM fired power plants MMGE has stated that negotiations with preferred bidders are due to commence in February 2021. The letter also acknowledged that the “Government is fully committed to seeing this project coming to fruition, as it will promote the gas industry, contribute toward import substitution, as well as to improve the livelihood of Batswana.”

“We welcome this update and look forward to negotiation and finalization of the tender process in the near term,” Tlou Energy Directors said.In 2018, MMGE issued a Request for Proposal for Development of up to 100 Mega Watts of CBM fueled power plants in Botswana.

Tlou submitted a comprehensive response to the tender including a plan to develop the project in stages, as well as outlining project feasibility, proposed field development, installation of power generation facilities and supply of power into the grid in Botswana.

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KBL shut down operations indefinitely

20th January 2021
KBL

Kgalagadi Breweries Limited (KBL) has suspended its operations indefinitely owing to the tough trading conditions occasioned Government decision to ban the sale of alcohol at the beginning of this month.

The brewer announced the decision today (Wednesday). KBL Corporate Affairs Manager Madisa said from the 25th January 2021 only a minimal number of critical roles will continue to be staffed and all other operational activity will stop.

KBL also acknowledged the impact this will have on the overall supply chain and those whose livelihoods depend on the beer industry and requests their understanding.

The current ban is expected to end on 31st January 2021, KBL said should the ban be extended past this date, suspension of its operations will continue.

KBL explained that its Tuesday meeting with suppliers was to align with them that due to the current situation, the brewer will suspend payments as of 6th February 2021, up for review pending the outcome of the current alcohol ban.

“However, it is regrettable that this latest total ban on alcohol sales has resulted in the suspension of KBL’s operations, which will remain in place for as long as the alcohol ban persists. KBL continues its efforts to engage government on this critical issue, which is having an enormous impact on the industry and its extensive value chain,” said Madisa.

On Tuesday afternoon, KBL conducted an ‘emergency meeting’ with its suppliers addressing some business decisions the company has made amid the current alcohol ban. Botswana has several alcohol bans since the first lockdown of March.

Mostly alcohol has been banned as a measure of curtailing the spread of Covid-19 and government then lived with putting stringiest operating hours for alcohol sales and distribution for a long time. Next week Monday KBL will be shutting down its operations, after a two weeks ban on liquor.

Sources say ever since the 4th of January 2021 when the December curfew regulations were extended, KBL has been brewing stacks of liquor for stockpiling. This is solely the reason why the brewer decided to close shop and stop manufacturing alcohol, because KBL’s depots no longer needed supply. On Tuesday suppliers were told to stop supplying KBL as next week the plant will be closing.

Air of uncertainty was hovering in the KBL plant premises on Tuesday as many workers feared mostly for their jobs. No one knows when alcohol ban will be lifted or if Botswana is going for a hard lockdown following the recent surge of Covid-19 infections. Botswana has 18,630 coronavirus cases, with 88 deaths and 14,624 recoveries.

KBL owner Botswana Stock Exchange (BSE) listed Sechaba Holdings came into contact with response to Covid-19 in March when Botswana recorded its first cases and that was the time when the company was doing well for years since the shedding of alcohol levy.

Sechaba associates, KBL and Coca Cola Beverages Botswana (CCBB), that time according to the holding company in its abridged financial results for the year ended 31 December 2019, continued to forecast growth in 2020 notwithstanding the challenges related to COVID-19.

Sechaba that time saw the business environment has been generally positive including relationship with stakeholders and the associates continue to manage the performance and business continuity risks.

Ten months ago the brewer underestimated the damage that can come with the pandemic and expected Covid-19 disruptions to be “temporary and the business will survive.”

That time Sechaba’s sole associate, KBL operates traditional beer breweries, alcoholic fruit beverages and a clear beer brewery.

In the period that just ended in December 2019, KBL contributed 72 percent to Sechaba’s revenues while CCBB contributed 28 percent. KBL also performed high in contribution to profit after tax with a share of 74 percent while CCBB contributed 26 percent.

Sechaba holds 49.9 percent in the local headline alcohol brewer KBL and 49.9 percent in the non-alcoholic drinks associate, CCBB. Sechaba holds 60 percent of the shares of KBL while SABMiller Botswana B.V. holds 40 percent. SABMiller Plc has management control in the operating company. The Botswana Development Corporation has a 25.6 percent shareholding in Sechaba Breweries Holdings Limited.

The glitter on the glass of KBL or Sechaba, is of December 2019 financial results which was downplayed and turned into a bearish affair in the financial results for the half year ended 30 June 2020. For those results, there was a spill in profit by Sechaba cash cow KBL by 72 percent while CCBB recorded a decline in profit by 15 percent, both and respectively in correspondence with the same period in 2019. All this downfall comes down to a loss of 60 percent of profit by the parent company. That was more than the 60 percent fall expected before the release of results.

In September during the release of the June 2020 results, Sechaba admitted that the intervention put by government since April, to fight the Covid-19 pandemic, negatively impacted its business performance and its associates, KBL and CCBB bore the full brunt. Revenue collected for KBL was lower by 37 percent while for its sister associate; CCBB, the numbers were down by 7.1 percent. This is the time when sale of alcohol was banned and manufacturing of soft drinks was not part of essential services.

Sechaba Chairman, Bafana Molomo last year said even though Covid-19 interventions would have an impact on the associates, this impact is expected to be temporary and the businesses will survive.

“However, it is advised that the situation is changing constantly and that it will be monitored closely. The Group’s associates continue to forecast growth in 2020 notwithstanding the challenges relating to Covid-19. The business environment has been generally positive, and the Group continues to enhance relationships with all stakeholders. The associates continue to manage the performance and business continuity risks,” he said.

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