The strength of the pula compared to its regional peers has been a bag of mixed fortunes. While it ensured that the Botswana Stock Exchange (BSE) returned 0.91% in dollar terms to investors, it has also put a dent in the financials of some local companies that have operations outside Botswana.
As other currencies tumble due to the rout in commodity prices amid weak demand in China, the pula has been resilient, even gaining against the rand, its major trading partner in Africa.
A look at published financial statements shows that companies with operations outside Botswana have had their performances dragged down by currency fluctuations. Choppies lost more than P16 million, Furnmat had P12.8 million wiped away, all this due to foreign currency translation differences from foreign operations. Nonetheless the companies remain resolute in their expansion plans into other markets.
Tobias Louis John Mynhardt, Managing Director of the Cash Bazaar Holdings Group, who also heads Furnmart, told this publication that currency fluctuations do have impact on their earnings as most of their earnings are outside Botswana. He said that currency movements affect their results in two ways: through the impact to the income earned and the other through the valuation of assets in foreign based operations.
Asked whether currency fluctuations will have any impact on their future expansions, he had this to say, “We continue to maintain that from an operational point of view, our priority is to achieve an acceptable rate of return in each of the territories in which we operate. That means if we consider there is an increased risk of devaluation in any of the territories then we need to achieve a higher rate of return, so in that sense, yes it does have a bearing on our expansion plans,” he also added that currency movements are critical in their pricing decision making, so it is a priority to keep alert to movements in foreign exchange rates.
Garry Juma, an analyst at Motswedi securities, said that companies that have operations in different markets with volatile currencies will invariably see the impact of currency fluctuations on their earnings.
“The expenses and revenue from different countries at some point will have to be harmonised in a single currency and any fluctuations on the various currencies will have an effect”. On the issue of businesses seeking to expand in other markets, Juma advised that if the currency in that market is depreciating much faster than the increase in profitability over a long period, then that company will be better off scaling down expansion in that country. The same also applies vice versa when there is an appreciation of the currency.
But not all currency fluctuations result in losses, sometimes they result in gains for companies. Wilderness Holdings, a tourism outfit, benefitted from currency fluctuations in their recent financials, as they realised gains of more than P12 million. Nonetheless, Ami Azoulay, Wilderness Safaris Financial Director, admits that currency fluctuations do impact on their earnings as their prices are in US dollar terms while their costs are based in local currencies.
“Any fluctuations between the Botswana Pula and the US Dollar could have a material impact on our results,” he added.
Azoulay’s take on future expansions is that as long as they can price and invoice their products in hard currency such as the US Dollar the risks are mitigated, therefore allowing for future expansions. Asked if they hedge against currency fluctuations, Azoulay said, “Wilderness Safaris is in the envious position that we sell in US Dollars and hence under current conditions with the US Dollar strengthening it requires very little hedging.
The opposite would be relevant and greater hedging would be considered,” also adding that currency management is always important and even more so in the current volatile environment.
This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.
“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.
A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.
Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.
A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.
Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.
In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.
The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.
In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.
Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.
The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”
In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.
Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.
The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.