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Low margins push beneficiation to the grim

Diamond beneficiation is under threat

Botswana’s potential benefits from diamond beneficiation are under threat as most diamond factories are driving defensive strategies of liquidation, downsizing and retrenching.

Botswana Diamond Hub executive, Mmetla Masire said, “we have a situation where the margin has diminished and it has become very tough for cutters and polishers to make any money.”

Already two diamond cutting and polishing factories have closed, that is Motiganz and Teemane Manufacturing Company and half of them have had to retrench and downsize.

Of late the cutting and polishing segment globally has become the least profitable realising the lowest profit margins with some companies earning as little as 1-2%, while by comparison, upstream mining and exploration and downstream end of the value chain enjoy the highest profits margins of 16-20% and 11% to 14% respectively.

Diamond manufacturers have been screaming since December when sales slumped. De Beers has been increasing prices of rough diamonds thereby squeezing the margins of the cutting and polishing firms. In such instances, Botswana’s diamond beneficiation hub had been left with a larger diamond inventory than anticipated.

Masire said the diamond-cutting industry has also fallen victim worldwide to the limiting of bank credit to the industry, which has made it even more difficult to operate. “Credit facilities had tightened, financial liquidity had reduced and the conclusion had been reached that none of the three key participants the Botswana government, diamond sightholders and De Beers could achieve success alone but had to synergise and work together”.

 “It’s not us and them anymore because we’re in this together,” said Masire. As a result, gross margins are falling in the cutting industry, and diamond manufacturers are closing their highest-cost operations in Southern Africa.

He said the 20 remaining cutting-and-polishing factories were processing $1-billion worth of diamonds a year and the government was considering both integration and diversification to improve the situation. Experts have long warned that Botswana’s potential benefits for diamond beneficiation will be permanently lost to India because production costs by far surpass those of India.

De Beers in its 2014 Insight Report has said that the cost of cutting in 2013 ranged from $60-120 per carat in Botswana, while in India the range varied from $10-50 per carat. In other words, in the smaller diamonds, Botswana is six times more expensive than India.

Comparatively higher labour costs were aggravating the issue of depressed polished prices set against high rough prices and it is understood that some local sightholders import rough and end up beneficiating non-Botswana rough.

Masire added that using the number of people employed as the measure of success had been abandoned and it was now acknowledged that many other factors had to be taken into account as well.

“While the country had always tracked the price of rough diamonds, it now also needed to track the price of polished diamonds and a big picture approach had to be adopted and global challenges mitigated,” he said.

He acknowledged that Botswana had not fully appreciated the complexities of beneficiation and the inflexibility the government exercised at the outset has now given way to greater flexibility. “We have a responsibility to ensure that diamonds are processed in Botswana but also have a responsibility to ensure that those processing them are profitable,” Masire added.

Despite steady recovery of the global economic growth, the price of diamonds has been oscillating from year-to-year for some time. For instance, the price of polished diamond was low in the early months of 2013 due to the slow economic growth in China and India. Liquidity in the cutter and dealer markets remained tight, profit margins were low and banks have reduced their credit for rough purchases in the manufacturing sector.

A UNDP – Botswana report on the Macroeconomic Analysis and implication of the Diamond Industry in Botswana indicates that for the past four decades the mining sector accounted for roughly 70 – 80% of foreign exchange earnings, 33% of government revenue and 40% of GDP.

“The Botswana government and De Beers signed a 10-year agreement in September 2011 that will see De Beers’ sales and sorting operations move to Botswana from London. The deal also provides for the government to market a portion of Debswana’s production independently, which it uses to kick start plans to establish Gaborone as a diversified diamond center. The transfer of activities from London has been completed in 2013 and Debswana has already started its operation in Gaborone,” reads the report.

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Grit divests from Letlole La Rona

22nd March 2023

Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.

The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.

Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.

This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.

In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.

Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.

The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.

“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said

In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.

The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.

Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.

Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.

Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.

Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.

“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.

LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.

The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.

An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.

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Stargems Group establishes Training Center in BW

20th March 2023

Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.

The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.

“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.

In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices.  Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.

“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.

Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy,  Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.

“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.

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Food import bill slightly declines

20th March 2023

The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.

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