Plan of potential sale of Discovery Metals Limited (DML)’s Boseto Copper Operation in Botswana to Cupric Canyon Capital LP has collapsed as the two parties are reported to have failed to reach an agreement.
This was revealed in a recent DML statement of update on the status of discussions which read “DML announces that as of 31 January 2015, the Exclusivity Period entered into with Cupric (as announced on 2 December 2014) has expired.”
According to the update, DML and Cupric have been unable to agree the terms of a binding Terms Sheet Agreement by 31 January 2015 and accordingly the Exclusivity Period is now at an end.
On 2nd December 2014, DML announced that it had engaged in exclusive discussions with Cupric for the potential sale of its Boseto Copper Operation. The Company concluded a $5.0million short term working capital facility with Cupric which was set to be prior to 31 December last year. The amount was part of the exclusive discussions the two companies discussed.
The exclusivity period was extended until the earlier of the execution of a legally binding Terms Sheet Agreement with Cupric which was on the 31 January 2015 and DML has recently announced its expiry.
The condition of the Facility Agreement granted Cupric a period of exclusivity to allow it to complete due diligence. It was also expected to allow time for both DML and Cupric to finalise and agree definitive terms of the potential Transaction.
Besides for working capital purposes, this was meant for the Facility to be used to provide support to DML’s recent operations which arose from operating cash-flow shortfalls it experienced last year in November and December.
Now on the recent downturn of agreements, DML announces that the expiry of the Exclusivity Period with Cupric allows the company to now fully and openly consider and pursue alternative funding options and transactions.
“DML has started to re-engage with a number of parties with whom it was in discussions with prior to entering into the Exclusivity Period with Cupric. This includes the provision of short term working capital funding being made available to DML,” reads DML statement.
The statement further reports that DML has also been approached by another interested group which seeks to finalise a Terms Sheet Agreement with DML over the coming days.
DML reports that it will shortly receive a Terms Sheet offer from alternative sources, which will allow for the settlement of all its existing debt facilities.
The company underscores that this also will provide the required capital to allow the company to expedite the progression of the Zeta underground development and to provide additional working capital.
In its last quarter DML made a progressive decommissioning of the Zeta open pit. The open pit was DML operation’s main source of higher grade sulphide ore which has experienced a 3% decline according to the company’s latest quarter report.
The ore to ROM for the last quarter was delivered from Zeta and Plutus Stage 1 pits during the first month of the quarter. The main sources of ore supply to the ROM during the last two months of the quarter were sulphide and transitional ore from Plutus Stages 1 and 2 with only minor volumes of sulphide ore still coming from the Zeta pit’s “good bye cuts”.
DML is actively pursuing its current plan of placing the current open-pit operations at Boseto into care and maintenance” by 30 June 2015, and simultaneously will be actively pursuing the commencement of development of the Zeta underground development.
In recent months, DML has continued with internal works on optimizing the 2014 Feasibility Study for the Zeta underground development. DML remains firmly committed to unlocking value from its extensive Mineral Resources through the commencement of the Zeta underground development. Accordingly, DML continues to consider and pursue options which allow for this project to be funded and progressed in the near term.
Following the expiry of the Exclusivity Period with Cupric, US$5 million in interim funding drawn from Cupric is repayable on or prior to 31 March 2015. The company Directors is reported to be considering alternative funding sources for the repayment of the amount.
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.
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.
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”