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Minergy scales down operation as SA customers invoke force majeure

Minergy Limited has curtailed operations at its Masama coal mine, Botswana’s only private coal mine in operation. This was revealed by Minergy this week as catastrophic effects of coronavirus on the supply & demand of commodities worldwide intensifies.

A statement from the BSEL listed coal outfit say as with all industry in Botswana and the neighboring countries, business has and will be adversely affected by COVID-19. “The last week of March 2020 and the entire month of April 2020 bear the brunt of industry and country-wide lock down regulations,” reads statement from the company released on Monday.

In Botswana, mining services are gazetted as essential services which allow for the continuation of Minergy’s coal mining activities. However, Minergy says more than 90% of its target market, in volume terms, is in South Africa.

In addition, industries within the target market are classified as non-essential services in South Africa and consequently, have by law, been shut down since 27 March 2020. To this end Minergy has received formal confirmation from its contract customers that the lockdown has led them to invoke Force Majeure.

That is to say the COVID-19 situation is classified as an unforeseeable circumstance that prevents fulfillment of contractual obligations. This has required Minergy, from an operational perspective, to scale down operations considerably.

Minergy Chief Executive Officer, Morné du Plessis said in the statement that where sales are permitted to South Africa and Namibian essential services customers, primarily in the food processing and energy generation sectors, product stockpiles at the end of March 2020 are sufficient and are being utilized for this supply.

“Limited material handling activities are taking place, to allow for product loading and weighbridge operations to continue on a scaled-down basis,” he said.

Permission was granted to Minergy by the Department of Mines to undertake certain mining, plant and maintenance activities. These activities ceased on 17 April 2020 due to the extended lock down in South Africa and as a result the beneficiation plant and mining operations have stopped. Only necessary health, safety and maintenance activities, as required, are performed.

Morné du Plessis noted that exposed, but unblasted coal stocks are adequate to restart mining operations in May 2020 without any delays, should lockdown rules in both South Africa and Botswana be relaxed.

“The effect on May 2020 volumes and results are dependent on how quickly customers can restart and take delivery, which is in-turn dependent on border operations too,” he said. Non-critical staff has been asked to stay at home. Other critical staff, where required are working from home.

The company says permitting process, for legal and valid travel to and from the mine, is administratively burdensome but respected and complied with as a critical step in ensuring limited spread and control of the virus in Botswana.

Currently all Minergy employees are on full pay. Morné du Plessis says balancing the cash flow and cost implications on a start-up business in the ramp-up phase, with minimal sales and cash generation opportunity, is extremely challenging.

Minergy recently reported that it received funding to alleviate historical working capital shortages and that future estimated cash flows were subsequently considered adequate to sustain the company. On Monday Morné du Plessis however revealed that this is no longer the case with the company losing a minimum of one month’s sales while still having to carry fixed cost burdens.

To this end, Minergy has been liaising with its government-linked funders and has requested additional funding and assistance during this period. According to the CEO, initial discussions reflect goodwill. He said that discussions are in progress with major suppliers, who are also battling the impact of COVID-19.

“During this period management is extensively managing cash preservation and cost minimization which includes proportional salary cuts and/or deferrals.”On a positive noted Minergy revealed that that development of the rail siding, financed by BotRail, is progressing, with the necessary work permissions in place.

According to Minergy CEO, preparations are such that it is expected that the first loading of trains will take place in May 2020, bound for South Africa and provided lockdown is not extended.

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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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