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Gloves are off for the global mining industry – PwC


2014 was expected to be a tough fight for the global mining industry with commodity prices down and short-term volatility increasing. The initial scorecard for the largest 40 miners was mixed and now the gloves are off for the industry with widespread government intervention, internal industry conflicts and rising shareholder activism, according to PwC’s annual Mine report released this week.

According to a new analysis of the 40 largest global miners from PwC, the industry trimmed spending and largely managed expectations through higher production and unexpected help from currency devaluations and lower input costs, despite continued headwinds from weak commodity prices.

Michal Kotze, Head of PwC’s Africa Mining Centre of Excellence, says: “The success of cost-saving initiatives became more apparent in 2014 as operating costs decreased 5%. While the mining industry had been indicating for the last two years their intention to reduce capital spending, such reductions were actually realised in 2014 as expenditures on significant projects declined 20%.

“A key measure of the industry’s investment agenda, capital velocity, slowed to just over 12% with further decreases expected in 2015 and for the first time, the total asset base shrunk 1%.”

The report analysed 40 of the largest listed mining companies by market capitalisation.  Two of the three new entrants in this year’s Top 40 were Chinese companies and one was North American. The financial information for 2014 covers the reporting periods from 1 April 2013 to 31 December 2014, with each company’s results included for the 12-month financial reporting period that falls into this time frame.

While commodity prices decreased across a number of commodities and drove lower revenues, the report found this was partially offset by increased volumes, particularly in iron ore where supply expanded on the back of large expansion programs of the past few years.

“The decline in the iron ore price is having a significant impact on the top 40 miners. While slower demand from China is making headlines, the price declines are more related to the current oversupply in the market.

“With few exceptions, market supply and demand trends result in miners operating on the assumption that lower commodity prices will continue and the focus will therefore remain on containing operating costs and maintaining capital discipline,” adds Kotze.

Mine also found, for the second year, the majority of the largest mining companies came from emerging markets Brazil, Central & Eastern Europe, China, India, and Saudi Arabia, rather than OECD markets, with another two top entrants from China and a lower overall decline of only 7% – compared to an OECD drop of 21% – in market capitalisation. This decrease was despite a lower adjusted profit contribution from companies in the emerging markets.

Andries Rossouw, PwC Assurance Partner, says: “Mining companies from emerging markets tend to focus on mining in their own jurisdictions whereas those in the OECD tend to have more diverse global portfolios. This divide, coupled with the wealth of new development potential in emerging markets and differing shareholder expectations, continues to create divergence.”

“How the industry will grow in the years ahead will be impacted by a number of factors, including the ability of tier 1 assets to produce substantial quantities at costs significantly below average; the demand for commodities from China and other emerging markets; the impact of changing tax, environmental and beneficiation regimes; and the willingness by the industry to enter into greenfield projects, instead of only developing smaller brownfield projects,” concludes Rossouw.

Distributed by APO (African Press Organization) on behalf of PricewaterhouseCoopers LLP (PwC).

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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