Banking stocks facing the heat with nose down
Business
The once MVP of the local bourse, and the leader in the banking sector in terms of market performance First National Bank Botswana(FNBB) has been going downwards on the slide amid 48-day national lockdown at a time when customers were not traditionally queueing for services or banking was practiced via social distancing. When statistically studying the FNBB price, things started to change for the worse a week before lockdown when it saw a drastic fall of 20 thebe or -6. 78 percent as the stock rolled down from a solid price of 295 thebe to 275 thebe.
But the signs of tough times ahead also came when Motswedi Securities researchers signalled that FNBB is looking down the swing as on 25 March the share price tumbled down from 290 thebe to 288 thebe.
This sudden drop in the FNBB stock was discovered just three days before Botswana announced her first three cases of coronavirus. Government declared an initial 28-day lockdown, when the FNBB stock was already feeling the temperature.
On February, before March fall of its price, FNBB posted their half year 2020 financial results according most experts expectations the bank profit before direct tax went up by 13 percent while its non-interest income pumped up 10 percent.
But the 20 thebe downward move by the bank stock on 27 March overlooked this FNBB financial performance. A market expert engaged for the stock reaction during corona strike and the subsequent lockdown said: Banks will get the heat because of possible impairments and bankruptcies and loan defaults which are their main revenue.
A study of the FNBB stock from 20th March 2020 to 19th June 2020 shows that from 295 thebe when many expected the stock to go up in reaction to the half year positive financial results, the FNBB share price went the opposite direction of the expectations.
But after the 20 thebe fall on 27 March the stock slowed in gliding down and remained at 275 thebe beginning of April. However, it fell down by 5 thebe on 9 April, a price it maintained for the whole month till May before encountering another slip to 265 thebe or -1.9 percent on 15 May. The FNBB price is currently selling at 240 thebe.
In an interview with BusinessPost, Stockbrokers Botswana research analyst Donald Motsomi put it to thought that FNBB is not the only banking stock getting shocks of the pandemics effects, there has been a downfall in the share price of another listed bank, Stanchart.
Motsomi said, but it is only a matter of time till ABSA and BancABC stock looks down. It is likely only a matter of time before ABSA and BancABC share prices come under pressure as well, he said in an interview.
The Stockbrokers Botswana researcher noted his concerns on the banking sector, going as far to state that the dire economic situation of coronavirus bound failures is a generic issue. He said a repricing of all the banking stocks is warranted.
One of the corona response to come to the banking sector during the pandemic was the 50 basis points rate cut by Bank of Botswana in April, Motsomi saw this as the positive side for the sector.
The support measures initiated by the Bank of Botswana such as the easing of the capital adequacy requirements, regulatory forbearance and liquidity support initiatives should help banks face this extreme stress event, said Motsomi.
Motsomi further stated that measures including government wage subsidies, tax deferrals, the recent 50 basis points rate cut, restructuring of loans and payment holidays by the banks will provide some relief to households and businesses.
He talked of the rate cut to the relief of inevitable retrenchments, contractions in income, and declines in business profitability and closure of some businesses. Motsomi said anything worse than the mentioned could cause impairments to rise across the banking industry.
Furthermore, the recent rate cut will result in pressures on banks margins with little to no pass on effect on already low deposit rates. The quality and composition of the banks loan books differ and thus will be affected to differing extents, emphasized Motsomi.
However, central banks recent decision to maintain the rate at 4.25 percent was not fully welcomed by FNBB in its analysis. While we anticipated rates to go down by between 25bp and 50bp at todays meeting, Bank of Botswanas (BoB) MPC decided to leave rates unchanged at 4.25 percent today (Thursday).
The BoB reiterated that with the advent of Covid-19, domestic inflation will be restrained due to slow growth in personal incomes as well as low foreign inflation which provides scope for rates to remain accommodative.
The economy will also undergo significant growth pressures due to the anticipated recession and the impact of the pandemic on economic activity, said Rand Merchant Bank (FNBB) researchers just after the central bank decision.
Rand Merchant Bank experts also explained that unlike the 2009 economic recession, when the economy underwent a current and capital account crisis, the effects of Covid-19 are expected to be broad-based as the pandemic is expected to impact both the supply-push and demand-pull pressures.
Business
New Khoemacau owners commit to mine’s multibillion Pula expansion
The future of Botswana’s largest copper and silver operation, Khoemacau Copper Mining, looks promising as the new owners, MMG Group, commit to the mine’s expansion plans. MMG, an Australian headquartered company owned by China, has expressed its dedication to doubling Khoemacau’s production and transforming it into one of the most significant high-grade copper operations in Africa.
Nan Wang, the Executive General Manager for Australia and Africa at MMG, stated that while the immediate focus is on maintaining a consistent production level of 60ktpa, there are solid plans to increase Khoemacau’s production capacity. The company aims to double its production from 3.65Mtpa to 8.15Mtpa, resulting in an increase in payable copper from approximately 60ktpa to around 130ktpa.
To achieve this expansion, Khoemacau has completed a pre-feasibility study on the project and a solar power initiative. The next step is to conduct a feasibility study, which will pave the way for increased production capacity. Additionally, Khoemacau has identified extensive exploration opportunities across its license area, positioning the company for an exciting new phase of development.
The current Khoemacau operation reached full production and nameplate capacity in December 2022, following over a decade of investment totaling over P10 billion. This significant investment allowed for an intense exploration program, resulting in the development of the most automated underground mining operation in Botswana. The first concentrate was produced in June 2021, and the product entered the export market in July of the same year. Throughout 2022, the company has been working on the pre-feasibility study for the expansion project, with the feasibility study scheduled for the following year.
The expansion plans will involve the construction of a new world-class process plant in Zone 5, where the current mining of ore takes place. This new plant will be larger than the existing one in Boseto, which currently receives ore from Zone 5. The expansion will also involve the development of new underground mines, including Mango, Zone 5 North, and Zeta North East. These additional mines will bring the total number of underground shafts at Khoemacau to six. The ramp-up of production from the expansion is expected to occur in 2026.
Khoemacau, which acquired assets in the Kalahari Copper Belt after the liquidation of Discovery Metals in 2015, currently employs over 1500 people, with the majority being Batswana. The Khoemacau Mine is located in north-west Botswana, in the emerging Kalahari Copperbelt. It boasts the 10th largest African Copper Mineral Resource by total contained copper metal and is one of the largest copper sedimentary systems in the world outside of the Central African Copperbelt.
The mine utilizes underground long hole stoping as its mining method and conventional sulphide flotation for processing. Resource drilling results have shown the existing resources to have continuity at depth, and there are several exploration targets within the tenement package that have the potential to extend the mine’s life or increase productivity.
The Zone 5 mine has already ramped up production, and further expansion in the next five years will be supported by the deposits in the Zone 5 Group. The estimated mine life is a minimum of 20 years, with the potential to extend beyond 30 years by tapping into other deposits within the tenement package.
In conclusion, the commitment of MMG Group to Khoemacau’s expansion plans signifies a bright future for Botswana’s largest copper and silver operation. With the completion of pre-feasibility and feasibility studies, as well as significant investments, Khoemacau is poised to become one of Africa’s most important high-grade copper operations. The expansion project will not only increase production capacity but also create new job opportunities and contribute to the economic growth of Botswana.
Business
Khoemacau Copper Mining to be acquired by MMG Limited
Khoemacau Copper Mining, a leading copper mining company, has recently announced its acquisition by MMG Limited, a global resources company based in Australia. This acquisition marks a significant milestone for both companies and demonstrates their commitment to continued investment, growth, and sustainability in the mining industry.
MMG Limited is a renowned mining company that operates copper and other base metals projects across four continents. With its headquarters in Melbourne, Australia, MMG has a strong track record in mining and exploration. The company currently operates several successful mines, including the Dugald River zinc mine and the Rosebery polymetallic mine in Australia, the Kinsevere copper mine in the Democratic Republic of Congo, and the Las Bambas Mine in Peru. MMG’s extensive experience and expertise in mining operations make it an ideal partner for Khoemacau.
MMG’s commitment to sustainability aligns perfectly with Khoemacau’s values and priorities. Khoemacau has always placed a strong emphasis on safety, health, community, and the environment. MMG shares this commitment and applies the principles of good corporate governance as set out in the Corporate Governance Code of the Hong Kong Listing Rules. As a member of the International Council on Mining and Metals (ICMM), MMG adheres to sustainable mining principles, ensuring responsible and ethical practices in all its operations.
Over the past 12 years, Khoemacau’s current shareholders have made significant investments in the development of the company. With approximately US$1 billion deployed in the project, Khoemacau has successfully transformed from an exploration and discovery phase to a fully-fledged operating copper mine. The completion of the ramp-up of the Zone 5/Boseto operations has set the stage for the next phase of expansion.
With the acquisition by MMG, Khoemacau is poised for an exciting new chapter in its development. The completion of a pre-feasibility study on the Khoemacau expansion and a solar power project has paved the way for increased production capacity. The feasibility study will be the next step in doubling the production capacity from 3.65 million tonnes per annum (Mtpa) to 8.15 Mtpa, resulting in a significant increase in payable copper from approximately 60,000 tonnes per annum (ktpa) to 130,000 ktpa. Additionally, Khoemacau has extensive exploration opportunities across its license area, further enhancing its growth potential.
The CEO of Khoemacau, Johan Ferreira, expressed his gratitude to the current owners for their stewardship of the company and their successful transformation of Khoemacau into a fully operational copper mine. He also highlighted the company’s focus on the expansion study and its vision for the future with MMG. Ferreira emphasized that the partnership with MMG will ensure Khoemacau’s long-term success, delivering employment, community benefits, and economic development in Botswana.
MMG Chairman, Jiqing Xu, echoed Ferreira’s sentiments, stating that the acquisition of Khoemacau aligns with MMG’s growth strategy and vision. Xu emphasized MMG’s commitment to creating opportunities for all stakeholders, including shareholders, employees, and communities. He expressed confidence in Khoemacau’s expansion potential and the company’s ability to realize its full potential with the support of MMG.
The sale of Khoemacau to MMG is subject to certain conditions precedent and approvals, with the expected closing date in the first half of 2024. This acquisition represents a significant step forward for both companies and reinforces their commitment to sustainable mining practices, responsible resource development, and long-term growth in the mining industry.
In conclusion, the acquisition of Khoemacau Copper Mining by MMG Limited signifies a new era of investment, growth, and sustainability in the mining industry. With MMG’s extensive experience and commitment to responsible mining practices, Khoemacau is well-positioned for future success. The partnership between the two companies will not only drive economic development but also ensure the safety and well-being of employees, benefit local communities, and contribute to the overall growth of Botswana’s mining sector.
Business
BPC Signs PPA with Sekaname Energy
The Botswana Power Corporation (BPC) has taken a significant step towards diversifying its energy mix by signing a power purchase agreement with Sekaname Energy for the production of power from coal bed methane in Mmashoro village. This agreement marks a major milestone for the energy sector in Botswana as the country transitions from a coal-fired power generation system to a new energy mix comprising coal, gas, solar, and wind.
The CEO of BPC, David Kgoboko, explained that the Power Purchase Agreement is for a 6MW coal bed methane proof of concept project to be developed around Mmashoro village. This project aligns with BPC’s strategic initiatives to increase the proportion of low-carbon power generation sources and renewable energy in the energy mix. The use of coal bed methane for power generation is an exciting development as it provides a hybrid solution with non-dispatchable sources of generation like solar PV. Without flexible base-load generation, the deployment of non-dispatchable solar PV generation would be limited.
Kgoboko emphasized that BPC is committed to enabling the development of a gas supply industry in Botswana. Sekaname Energy, along with other players in the coal bed methane exploration business, is a key and strategic partner for BPC. The successful development of a gas supply industry will enable the realization of a secure and sustainable energy mix for the country.
The Minister of Minerals & Energy, Lefoko Moagi, expressed his support for the initiative by the private sector to develop a gas industry in Botswana. The country has abundant coal reserves, and the government fully supports the commercial extraction of coal bed methane gas for power generation. The government guarantees that BPC will purchase the generated electricity at reasonable tariffs, providing cash flow to the developers and enabling them to raise equity and debt funding for gas extraction development.
Moagi highlighted the benefits of developing a gas supply industry, including diversified primary energy sources, economic diversification, import substitution, and employment creation. He commended Sekaname Energy for undertaking a pilot project to prove the commercial viability of extracting coal bed methane for power generation. If successful, this initiative would unlock the potential of a gas production industry in Botswana.
Sekaname Energy CEO, Peter Mmusi, emphasized the multiple uses of natural gas and its potential to uplift Botswana’s economy. In addition to power generation, natural gas can be used for gas-to-liquids, compressed natural gas, and fertilizer production. Mmusi revealed that Sekaname has already invested $57 million in exploration and infrastructure throughout its resource area. The company plans to spend another $10-15 million for the initial 6MW project and aims to invest over $500 million in the future for a 90MW power plant. Sekaname’s goal is to assist BPC in becoming a net exporter of power within the region and to contribute to Botswana’s transition to cleaner energy production.
In conclusion, the power purchase agreement between BPC and Sekaname Energy for the production of power from coal bed methane in Mmashoro village is a significant step towards diversifying Botswana’s energy mix. This project aligns with BPC’s strategic initiatives to increase the proportion of low-carbon power generation sources and renewable energy. The government’s support for the development of a gas supply industry and the commercial extraction of coal bed methane will bring numerous benefits to the country, including economic diversification, import substitution, and employment creation. With the potential to become a net exporter of power and a cleaner energy producer, Botswana is poised to make significant strides in its energy sector.