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De Beers restructures as COVID-19 slashes half year earnings

Diamond mining giant, De Beers Group is embarking on a holistic review of its operations to transform and restructure its business models across the entire value chain, from upstream operations to the way it sells rough diamonds in the midstream and all the way down to how it conducts its retailing downstream, BusinessPost has learned.

According to reports, the long imminent restructuring has been accelerated by the need to respond swiftly to business challenges occasioned by COVID-19 global crisis. The pandemic has adversely impacted De Beers Group and the entire global diamond industry.

“These difficulties, which have inhibited our growth over the past several years, have become even more urgent to address. They require us to act now to protect the short-term health of the business while refocusing and reorienting it to realize our long-term potential,” said De Beers Group Chief Executive Bruce Cleaver, quoted by Bloomberg last week.

According to these media reports, Cleaver sent a letter to De Beers employees notifying them that COVID-19 pandemic had accelerated the restructuring of the company. “COVID-19 has compounded and exacerbated difficulties that already existed in the diamond world,” he said.

IMPACT OF COVID-19 ON DE BEERS BUSINESS

The London headquartered diamond mining behemoth released its half year financial results last Thursday; figures depict a sharp decline in both revenue and earnings. All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.

After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved. However, from February, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewellers suspending all polished purchases and/or delaying payments to their suppliers.

Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centres and preventing buyers from attending sales events. These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.

Rough diamond sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.

Consequently, De Beers offered Sightholders the option to defer up to 100% of their allocations at the fourth and fifth Sights and held some viewings for Sight 5 outside of Botswana, following the cancellation of the third Sight of 2020 due to Covid-19 related travel restrictions.

The average realised price decreased by 21% to $119/carat from $151/carat driven by a higher proportion of lower value rough diamonds being sold in the first two Sights of the year and an 8% decline in the average rough price index.

Underlying EBITDA decreased to $2 million from $518 million registered last June owing to the impact of the considerably lower sales volumes and the lower rough price index reducing margins in both the mining and the trading businesses. Unit costs were flat compared with the first half of 2019 due to cost-saving measures and favourable exchange rates.

Rough diamond production decreased by 27% to 11.3 million carats from 15.6 million carats last June primarily due to the Covid-19 lockdowns in southern Africa. In Botswana, production was 36% lower at 7.5 million carats against 2019 value of 11.7 million carats. This was driven by a lengthy nationwide lockdown from 2 April to 18 May. Production at Jwaneng fell by 34% to 4.3 million carats from 6.6 million carats due to the shutdown.

Production at Orapa fell by 39% to 3.1 million carats 5.1 million carats due to the lockdown impact, as well as challenges related to commissioning of new plant infrastructure. Operations restarted from mid-May, with production targeted at levels to meet the lower demand.

In Namibia, production increased by 6% to 0.9 million carat from 0.8 million carats, driven by the marine operations as the Mafuta crawler vessel was under planned maintenance in the second quarter of 2019, and supported by the implementation of measures to enable continuity of the fleet while safeguarding the workforce. This increase was offset by a 30% reduction at the land operations to 0.1 million carats following the Covid-19 lockdown.

In South Africa, production increased by 37% at Venetia to 1.3 million carats from 1.0 million carats supported by a significant increase in grade as the final ore from the open pit mined prior to the transition to underground, partially offset by the lockdown.

Canadian production decreased by 23% to 1.6 million carats from 2.1 million carats as Victor reached the end of its life in the first half of 2019. At Gahcho Kué, production decreased by 3% due to Covid-19 measures. Jewellery retail stores were significantly affected by Covid-19, with the majority of De Beers Jewellers (DBJ) stores and Forevermark outlets closed across key markets for a considerable part of the reporting period. Stores have re-opened following the gradual lifting of lockdowns; however De Beers says the risk of another temporary closure remains due to COVID-19 second-wave concerns.

THE TRANSFORMATION

De Beers noted in the interim financial results that the current market outlook is highly uncertain owing to the possibility of a second wave of Covid-19 infections; the ability of fiscal and monetary measures to continue to support employment and businesses in consumer countries; as well as the shape and strength of the global macro-economic recovery.

“Significant challenges for rough diamond demand look set to continue in the short term with the ongoing restrictions to travel in southern Africa, as well as the risk of further Covid-19 cases in the Indian cutting centres,” the London headquartered diamond miner said.

However the company says in the longer term, the outlook for the diamond sector remains positive, noting that it is accelerating its business transformation from discovery and mining; to how it sells rough diamonds to customers and how consumers purchase diamond jewellery – to ensure it retains its prime position as the world’s leading diamond business.

Mark Cutifani Chief Executive Officer of Anglo American PLC, 85 % owners of De Beers Group told investment analysts last week when delivering Anglo’s interim results that the restructuring of De Beers would range from improving shovel operating productivity at mines such as Orapa in Botswana to its ForeverMark brand through which it sells directly to consumers.

“We want to invest in our brands; we want to invest in ForeverMark. We think we can get a fairer value if it gets the right brand,” said Cutifani. Furthermore Cutifani said Sightholders, the diamond cutters and polishers who buy unpolished diamonds from De Beers in ten ‘sights’ or sales meetings a year, are also part of the strategic re-evaluation of De Beers.

“We are consulting them as part of the process; an important exercise will be who will get what and how we position ourselves in those conversations. The whole value chain needs to change and evolve to suit the times,” said Cutifani.

De Beers has however maintained production guidance at 25–27 million carats, subject to continuous review based on the disruptions to operations as a result of Covid-19, as well as the timing and scale of the recovery in demand.

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Business

MD, Board in BBS battle for supremacy

12th April 2021

Botswana Stock Exchange (BSE) moved swiftly this week to suspend BBS Limited from trading its securities following a brawl between Board of Directors and Managing Director, Pius Molefe, which led to corporate governance crisis at the organisation.

In an interesting series of events that unfolded this week, incumbent board Chairperson, Pelani Siwawa-Ndai moved to expel Molefe together with board Secretary, Sipho Showa, who also doubles up as Head of Marketing and Communications.  It is reported that Siwawa-Ndai in her capacity as the board Chairperson wrote letters of dismissals to Molefe and Showa.

Following receipt of letters, the duo sought and was furnished with legal opinion from Armstrong Attorneys advising them that their dismissals were unlawful hence they were told to continue to report to work and carry out their duties.

Documents seen by BusinessPost articulate that in the meeting which was held on the 1st of April, the five outgoing board members, unlawfully took resolutions to extend their contracts by a further 90 days after April 30 2021 as they face tough competition from five other candidates who had expressed interest to run for the elections.

Moreover, at the said meeting, management explained that neither management nor the board have the authority to decline nominations submitted by shareholders or the interested parties which is in line with Companies Act and also BBS Limited constitution.

Molefe also revealed that as management they cautioned the board that it was conflicted and it would be improper for it to influence the election process as it seems they intended to do so.
“Nonetheless, in a totally unprecedented move in the history of BBSL, the board then collectively passed the unlawful resolutions below. Leading to the illegitimate decisions, the board had brazenly directed that its discussions on the Board elections should not be recorded totally violating sound corporate governance,” reads the statement released by management this week.

When giving their legal advice, Armstrong Attorneys noted that notice for the AGM should state individuals proposed to be elected to the board and directors have no legal authority to prevent the process.

Armstrong Attorneys also noted that, “due process” cited by board members are simply to ensure that the five retiring Directors avoid competition from interested candidates to be appointed to the BBS Limited board.  The law firm further opined that the resolution of the 90 day extension of term of the five directors pending re-election or election was unlawful.

Molefe expressed with regret that BBS has been suspended from trading by BSE until the current matter has been resolved. “I am concerned by this development and other potentially harmful actions on the business. As management, we are engaging with stakeholders to mitigate any negative impact on BBS Limited,” expressed a distressed Molefe.

He assured shareholders and the rest of Management that they are working very hard to ensure that the issues are being dealt with in a mature manner.  BBS which hopes to become the first indigenous commercial bank has seen its shares halted barely four months after BSE lifted the trading suspension of shares for BBS following submission of their published 2019 audited financial statements.

According to Chief Executive Officer (CEO) of the local bourse, Thapelo Tsheole said the halting of shares of BBSL is to maintain fair, efficient and orderly securities trading environment. “The securities have been suspended to allow BBS to provide clarity to the market concerning the recent allegations which have been brought to the attention of the BSE relating to the company’s Board of Directors and senior management,” said Tsheole.

Meanwhile in their audited financial statements for the year ended 31 December 2020, BBS recorded a loss of P14.6 million as at 31 December 2020 compared to the loss of P35.7 million for the comparative year ended 31 December 2019. According to Molefe the year under review was the most challenging for the bank, its shareholders and customers endured the difficult economic environment and the negative impact of the coronavirus.

He revealed that as the bank, they were forced to put in place several measures to ensure that the business withstands the impact of coronavirus and also to cushion mortgage customers from the effects of the pandemic. “Since April 2020 up to the end of December 2020, BBS assisted 555 mortgage customers with a payment holiday,’’ he said.

This is the bank whose total balance sheet declined by 12 percent from P4, 626 billion for the year ended. 31 December 2019 to P4, 088 billion as at 31 December 2020. As if things were not bad enough, total savings and deposits at the bank declined by 14 percent from a balance of P2, 885 billion as at 31 December 2019 to P2, 494 billion as at 31 December 2020.

On a much brighter side, BBSL mortgage loans and advances improved from P3, 401 billion to P3.408 billion with impairment allowance significantly improving to P78, 648 million from P102, 532 million for the year under review, representing a positive variance of 23 percent. BBS maintained a strong capital base with capital adequacy ratios of 26.32% for the year ended 31 December 2020.

Molefe was optimistic and anticipated a positive outcome during the implementation of the new BBS corporate strategy, whose main drive is commercialization of operations, which is in full force.
“It will be spurred on by the positive results we have achieved for the year ended 31 December 2020, and our planned submission of our banking license application to Bank of Botswana which we anticipate to operate as a commercial bank in the third quarter of 2021,” he alluded.

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Mphathi promises people centred, environmentally sensitive new BCL

12th April 2021
CEO of Premium Nickel Resources Botswana: Montwedi Mphathi

Chief Executive Officer (CEO) of Premium Nickel Resources Botswana (PNRB), Montwedi Mphathi, has said his company will resuscitate the formerly owned BCL assets and deliver a new, sustainable and cutting edge mining operation.

The new mine which will leverage on modern and next generation technology, will be environmentally sensitive and cognisant of the needs of its people and that of the communities around the area of influence.

In a statement last week, Premium Nickel Resources Botswana and its parent company, the Canadian headquartered Premium Nickel Resources announced that they have now completed the Exclusivity Memorandum of Understanding (MOU) with the Liquidator.

The MOU will govern a six-month exclusivity period to complete its due diligence and related purchase agreements on the Botswana nickel-copper-cobalt (Ni-Cu-Co) assets formerly operated by BCL Limited (BCL), that are currently in liquidation.

On February 10, 2021, Lefoko Moagi, the Minister of Mineral Resources, Green Technology and Energy Security of Botswana, affirmed in Parliament a press release by the Liquidator for the BCL Group of Companies, stating that PNR was selected as the preferred bidder to acquire assets formerly owned by BCL.

“This is encouraging for the company and for Botswana. Our ambition in this new project dubbed “Tsholofelo” is to redevelop the former BCL assets into a modern, environmentally sensitive, efficient NI-Cu-Co-water producer where sustainability and the people are at the forefront of the decisions we make,” said Mphathi in a statement last Thursday.

“We also understand that no matter how successful we are at building the “New BCL” , our success will only be measured at our ability to create local wealth , skills and support the continued transition of local economy to a longer term sustainable base.”

The next step during the exclusivity period will be the completion of the definitive agreement. Simultaneous to this the PNRB will be conducting additional investigative work on site to further its understanding of the potential of these assets.

Specifically the company will complete an environmental assessment, a metallurgical study, a review of legal and social responsibilities, a review of the mine closure and rehabilitation plans and an on-site inspection of the legacy mining infrastructure and equipment that has been under care and maintenance.

Mphathi said they continue to monitor the global Covid-19 developments noting that they are committed to working with health and safety authorities as a priority and in full respect of all government and local Covid-19 protocol requirements. PNRB has developed Covid-19 travel, living and working protocols in anticipation of moving forward to on site due diligence.

“We will integrate these protocols with the currently applicable protocols of Ministry of Health & Wellness as well as District Health Management Team ( DHMT) and surrounding communities,” reads a statement released by the Gaborone based Premium Nickel Resources team.

PNRB is looking to become a catalyst in participating and building a strong economy for Botswana, with a purpose where respect and trust are core to every single step that will be taken. “Our success will mean following international best-in-class practices for the protection of Botswana’s environment and the focus on its people, building partnerships and earning respect, through cooperation and collaboration,” explains PNRB on its website.

“We are committed to Governance through transparent accountability and open communication within our team and with all our stakeholders.” Mphathi, a former BCL Executive, is widely celebrated for achieving unprecedented profitability at the mine during his tenure as General Manager.

The Serowe-born mining guru obtained a Diploma in Mining Technology from Haileybury School of Mines in Canada. He later obtained a B.Eng. Mining degree from the Technical University of Nova Scotia. Mphathi went on to City University in London, UK and obtained a M.Sc. in Industrial and Administrative Sciences.

Before ascending to the top country managerial role of Premium Nickel Resources. Mphathi was General Manager of Botswana Ash (Botash), Southern Africa’s leading salt and soda ash producer.
He was at some point linked to Debswana top post, which is still to date not substantively filled following the death of Managing Director, Albert Milton, in August 2019.

With Mphathi out of the race and now leading the rebuilding of his former employer, the top post at De Beers- Botswana joint venture is likely to be filled by current acting Managing Director Lynette Armstrong, a seasoned finance executive with unparalleled experience in the extractive industry.

“We are happy to hear that former General Manager of BCL, Mr Montwedi Mphathi, has a relationship with the new Company that intends to resuscitate the mine, he is an experienced Mining Executive who knows BCL better, we want the mine to be brought back to life so that our people can be employed ” said Dithapelo Keorapetse Member of Parliament for Selibe Phikwe West recently in Parliament.

BCL was liquidated in October 2016 following a series of losses and government bailout occasioned by low Copper prices and allegedly poor Investment decisions and maladministration. Recently PNR CEO, Keith Morrison said his team of seasoned experts both from Canada and Botswana are committed to resuscitate the BCL assets and deliver a high performance mining operation.

“The World, Botswana and the mining industry have changed dramatically since mining first started at the former BCL assets in the early 1970s. The nickel-copper-cobalt resources remaining at these mines are now critical metals, required for the continued development of a decarbonized and electrified global economy,” he said.

Morrison added: “As we move forward, it is our goal to demonstrate the potential economics of re-developing a combination of the former BCL assets to produce Ni-Cu-Co and water in a manner that is inclusive of modern environmental, social and corporate governance responsibilities.”

He explained that to attain this, extensive upgrades to infrastructure will be required with an emphasis on safety, sustainability and the application of new technologies to minimize the environmental impact and total carbon footprint for the new operations.

“Our team remains committed to working with the local communities and all of the stakeholders throughout this period and we encourage anyone with questions or feedback to reach out to us directly,” he noted.

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Business

Lucara extends sales deal with Belgian diamond cutter

12th April 2021
Lucara extends HB Antwerp’s contract Signum technologies

Lucara Diamond Corporation, the Canadian 100% owners of iconic Karowe mine, this week announced the extension of its supply deal with Belgian diamond midstream giant HB Antwerp.

The definitive supply agreement is in respect of all diamonds produced in excess. of 10.8 carats in size from its rare gem producing Karowe diamond mine located in the Boteti district of Botswana.
Large, high value diamonds in excess of 10.8 carats in size account for approximately 70% of Lucara’s annual revenue.

Though the Karowe mine has remained fully operational throughout the COVID-19 pandemic, Lucara made a deliberate decision not to tender any of its +10.8 carat inventory after early March 2020 amidst the uncertainty caused by the global crisis.

Under the terms of this novel supply agreement with HB, extended to December 2022, the purchase price paid for each +10.8 carat rough diamond is based on the estimated polished outcome, determined through state of the art scanning and planning technology, with a true up paid on actual achieved polished sales thereafter, less a fee and the cost of manufacturing.

“Lucara is beginning to see the benefits of this strategy in accessing a broader marketplace and delivering regular cash flow based on final polished sales,” said Lucara CEO, Eira Thomas on Wednesday.

“We believe these early results warrant an extension of the arrangement for at least 24 months to determine if superior pricing and market stability for our large, high-value diamonds can be sustained longer term.”

The Canadian junior miner initiated a supply agreement with HB for large stones from its Botswana Karowe mine in July 2020, after pausing its tenders shortly after the Covid-19 pandemic began.
The deal enables Lucara to sell the rough diamonds to HB at a price based on an estimate of the polished outcome, which the companies determine using diamond scanning and planning technology.
Once HB sells the goods, it adjusts the price that Lucara receives based on the actual selling price of the polished, minus a fee and manufacturing costs.

The extended supply deal will follow the same payment terms as the initial agreement, and will be in effect through to December 2022. Lucara said in a statement this week that the agreement also provides increased tax revenue and beneficiation opportunities for the government of Botswana, and creates a streamlined supply chain for Karowe’s rough.

“More than a supply agreement, this collaboration structurally embeds a new transparent and sustainable way of working in the diamond-value chain,” said HB CEO, Oded Mansori.
“For the first time, different partners of the value chain are fully aligned, sharing data and information throughout the process from mine to consumer.”

Mansori added: “We are truly proud with this innovative and straightforward collaboration that has proven itself through the volatile and uncertain reality of 2020. We are confident to achieve even better results during the term of this new contract and demonstrate the power of a true partnership.”

Lucara, which early this year secured extension of Karowe mining license to 2040, announced over P2.4 billion funding for Karowe underground mining expansion project a fortnight ago. The Vancouver headquartered top large diamond producer says this supply agreement deal extension with HB will bring about regular cash flow for Lucara using polished pricing mechanism. Furthermore, the company says the deal has potential revenue upside, particularly suited for Lucara’s large, exceptional diamonds.

In the main, Botswana will benefit increased tax revenue and additional beneficiation opportunities for the Government and communities around Karowe mine. A streamlined supply chain that achieves alignment between Lucara and HB to maximize the value of each +10.8 carat diamond produced at Karowe.

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