Canadian miner, Lucara Diamond Corporation has taken a decision to limit expenditure towards Karowe mine expansion project, a multibillion pula undertaking intended to expand the 8 year old mine into an underground operation, the company said on Monday.
A performance report for the second quarter of 2020 released by the Vencuvour headquartered rare gems producer this week shows that revenue for the first six months of the year ended 30 June 2020 has dropped significantly to $41.6 million from $91.2 registered during the first Half year(H1) 2019, predominantly due to COVID-19.
The pandemic did not only curtail movement and restrict shipping of goods but also significantly eroded demand as tail end consumption of jewelry muted to record low levels, the likes of which the industry has never experienced before.
The BSE listed junior miner had initially planned to spend a whopping $53 million (over 600 million) this year on its first phase works for the underground expansion project after a successful feasibility study last year.
Lucara‘s 2020 spending forecast towards the expansion works was pinned to the company‘s operation cash flow and internal revenues, while succeeding works which coil up to $514 million for a period of 5 years would be financed by a combination of internal revenue and debt.
In the Q2 results, Lucara explained that its planned capital spending program for 2020 was to be largely focused on the initiation of an underground expansion project at Karowe and that was to be funded entirely from free cash flow generated by operations.
The top gem producer noted in a commentary alongside the financial results that although the recently announced supply agreement with HB is expected to provide regular monthly cash flow for the remainder of the year, some uncertainty remains around estimating revenue for that period.
“As a result, the underground expansion program has been re-scoped and reduced from the previous budget of $53 million and will focus on long lead time critical-path items through the remainder of the year,” the company revealed.
Lucara further shared that during H1 2020, $5.6 million, around P60 million was spent on project execution activities including detailed engineering and design work and early procurement initiatives.
Karowe mine underground expansion program has an estimated capital cost of $514 million and a five year period of development, with flexibility to adjust capital spending depending on market conditions.
The Canadian miner says it still expects to finance part of the capital cost with debt and the balance from cash flow generated from operations as financing options continue to be assessed.
Lucura directors on Monday noted that the company continues to have a strong availability of working capital, including $13.7 million in cash at the end of Q2 and $31 million available from its revolving term working capital facility with the Bank of Nova Scotia. The $50 million credit facility was extended to May 5, 2021 during the second quarter of 2020.
“As part of the extension, and until Lucara obtains greater clarity on its cash flow projections in the short-term, Lucara has agreed to limit capital expenditures related to the underground expansion project,” revealed President & Chief Executive Officer, Eira Thomas.
Thomas said, “The extension of this facility provides an important source of liquidity to Lucara during a period of significant uncertainty in global markets.”
The Underground mine plans were first reported early last year with positive results from the feasibility Study announced later in the year. Karowe is one of the world’s most prolific producers of large, high value type IIA diamonds and the only diamond mine in recorded history to have produced two +1000 carat diamonds.
The underground expansion would double the mine life, and generate significant revenue and cash flow out to 2040, extending benefits to the Company, its employees, shareholders, communities surrounding the mine, and Botswana.
The Underground mining operation combined with the current open pit mining is expected to yield production figures of up to 7.8 million carats out to 2040 and $5.25 billion in Gross Revenue at pre-production capital costs of $514 million for the underground project.
2020 Q2 PERFORMANCE
Due to COVID-19 Lucara made a deliberate decision not to tender any of its +10.8 carat production after early March 2020 amidst the uncertainty caused by the global crisis, and instead entered into a ground breaking supply agreement with HB Group, for the remainder of 2020.
This large, high value production from Karowe has historically accounted for approximately 70% of Lucara’s annual revenues. The company says revenue from this agreement will be realised starting in Q3 2020 based on a polished price mechanism.
Karowe continued to operate throughout the COVID-19 pandemic, and delivered strong production results in Q2, consistent with the original 2020 plan and below budget.
Adjustments were made to the original 2020 mine plan by reducing waste and ore mined through the second quarter to ensure the health and safety of employees operating in the pit and to reduce variable costs.
The process plant continued at full capacity, with additional safety measures in place, processing ore almost entirely from the South Lobe. Overall performance during the second quarter remains consistent with the strong operational results achieved over the past two years.
However the Company recorded a net loss of $13.9 million for Q2 2020 resulting in a $0.04 loss per share for the quarter. This compares to net income of $0.7 million for Q2 2019 and earnings per share of $Nil.
A decrease in total revenue, predominantly from deferral of sales of +10.8 carat stones, had the most significant impact on the current quarter’s results.
Cash flow used in operations in Q2 2020 totaled $4.9 million compared to cash flow earned from operations of $6.5 million in Q2 2019, largely due to the $35.1 million decrease in comparable revenue between the periods and an increased outflow for taxes payable relating to 2019 tax payments required in 2020.
In the coming months prices will go up and inflation will shoot sharply above the target of 3 percent to 6 percent towards the third quarter of 2021, the Bank of Botswana on the other hand will continue to withhold its knife on the Bank Rate. This is according to a forecast made by Kgori Capital in its recent Market Watch Segment.
Statistics from Statistics Botswana show that the recent 1.8 percent increase in the September inflation, from 1 percent in August, was a reflection of the upward adjustment in public transport fares (Transport (from -6.9 to -3.9 percent) in September 2020, which is estimated to have increased inflation by approximately 0.64 percentage points.
Local anti-trust body, Competition and Consumer Authority (CCA), this month received back to back acquisition proposals from South African clothing retailers to wipe out their former rivals, Edcon, from Botswana malls.
Last week BusinessPost was in possession of Merger Notice No 23 of 2020 whereby a South African clothing retailer owner, Retailability Proprietary Limited, through Oclin Proprietary Limited, proposed to acquire parts of the Edgars business conducted by Edcon in Botswana (through Edcon Botswana), as a going concern, consisting of certain assets and identified liabilities.
South African government’s Business Rescue Practitioners earlier this year announced that Retailability will buy Edgars, after the latter filed for a business rescue plan in April after it failed to pay suppliers. This move will see Retailability add Edgars to its portfolio consisting of brands such as; Legit, Beaver Canoe and Style.
Retailability landed on Botswana shores 18 years ago with its flamboyant urban fashion Style which had 17 stores. Style, having almost the same target market as Edgars as it offers men’s and ladies’ contemporary and formal fashion, gave the 91 year old legendary clothing retailer a run for its money, and has won the battle as its parent company has taken over Edgars.
Retailability brands are synonymous with Botswana shopping centres and there are currently five (5) Beaver Canoe stores, 10 Style stores and seven (7) Legit stores across this country. The Beaver Canoe stores sell clothing apparel for men and boys only. The Legit stores have a fashion store format which focuses on the retailing of clothing, footwear, accessories, colour cosmetics and cellular products.
Retailability operates in over 460 stores across South Africa, Namibia, Botswana, Lesotho, and Eswatini. Many observers suggest that because of the deal with Retailability to swallow Edcon, most Edgars stores in Botswana will change their name and be branded Style. A sad tale for religious consumers of the Edgars trademark who got used to love their favourite brand for years.
According to CCA’s Merger Notice No 23 of 2020, Retailability is controlled by Clifford Raymond Lines (through a company which functions solely as a holding company of his interests in Retailability) and Metier Investment and Advisory Services Proprietary Limited (“Metier”). Metier is a private equity enterprise with investments in a number of industries spanning from healthcare, hospitality, FMCGs and telecommunications.
Retailability directors are mostly South Africans; Clifford Raymond Lines, Mark Richard Friday and Norman Victor Drieselmann. Only Nasreen Essack, who was appointed February this year, is a Motswana. He comes after Brian Thuto Tsima left on the same date. Retailability 100 percent owns Oclin Proprietary Limited, the company it is acquiring Edgars with, by a capacity of 3000 shares.
The target business, Edgars, offer textiles, cosmetics and cellular products. Edcon has a Motswana director, Charles Mzwandile Vikisi, a South African, Shane Van Niekerk and Zimbabwean Jethro Kamutsi.
“The Target Business comprises of two (2) Edgars franchise brands and private label stores across Botswana. These stores target middle to upper income customers and are home to a range of private label brands such as Free2BU, Charter Club and Stone Harbour, and a wide range of market label brands (such as Levi’s and Guess) for clothing, footwear and cosmetics.
In addition, the Target Business operates iconic Edgars Home and Edgars Beauty stores as store-in-store formats rounding out the department store offering in Botswana,” said CCA. Foshini also lines up to take Jet Botswana from Edcon.
The Foschini Group (TFG) released a statement confirming its latest intentions to acquire Edcon assets or Jet for a cash purchase consideration of R480 million. This was after the business rescue practitioners offered TFG to buy Jet by that amount.
CCA is currently mulling on a proposed merger by TFG to take over Jet operations in Botswana. Merger Notice No 21 of 2020 from TFG came a few days before the Retailability proposal. In this merger TFG, acting through Foschini Botswana, want to take over “parts” of the Jet business conducted by Edcon through Jet Supermarkets Botswana.
TFG will be willing to add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents. TFG will also get Jet’s distribution centre located in Durban and certain stores in Botswana, Lesotho, Namibia and Eswatini. Also part of this fat deal is that the company is looking to also acquire JET Club and all existing JET stock of no less than R800 million.
Johannesburg listed TGF owns Foschini Retail Group which owns the local operations called Foschini Botswana, the acquiring enterprise according to CCA merger notice. “TFG is not controlled by any enterprise/s and for completeness, the three largest shareholders of TFG holding shares greater than 5% as at 27th March 2020 are: Government Employees Pension Fund (16.2%) Public Investment Corporation (13.2%); Old Mutual Limited (6.7%); and Investec Asset Management (6.3%). The remaining issued share capital in TFG is widely held,” said the merger notice.
Only Abdool Rahim Khan is a Motswana in the Foschini Botswana directorship, the rest; Ganeswari Shani Naidoo, Anthony Edward Thunström and Gustav Jansen (alternate director) are South Africans.
According to the CCA merger, the Jet Business is Edcon’s discount department store division, selling clothing, footwear, homeware and some cosmetics as well as cellular products and targets lower-to-middle income consumers throughout Botswana. The Jet Business does not directly or indirectly control any enterprises, says the notice. CCA seeks any stakeholder views for or against the proposed merger, which may be sent within 10 days from date of this publication to the following address.
Botswana Communications Regulatory Authority BOCRA signed a memorandum of Agreement (MoA) with the Ministries of Transport and Communications (MTC), Basic Education (MoBE) as well as Local Government and Rural Development (MLGRD).
The MoA seeks to continue the collaboration that dates back to 2016 when the three parties first agreed to work together in a project aimed at computerizing and providing broadband Internet to primary schools in remote and underserved areas of Botswana.
The project benefitted 68 primary schools and 9 secondary schools through the construction of Local Area Network (LAN) in each primary school, provision of 5 Mbps dedicated broadband Internet to each Primary School and provision of Wi-Fi enabled tablets, laptops and related peripherals such as printers and copiers.
Further, the project will see the augmentation of computers in 9 Junior Secondary Schools with 30 laptops per identified school and employment of Information Technology (IT) officers at each primary school.
When speaking at the signing ceremony in Gaborone, Chief Executive of BOCRA and Chairperson of Universal Access and Service Fund (UASF) Board of Trustees Martin Mokgware said the project’s ultimate goal is to facilitate pupils in schools and host villages to be able to play a meaningful role in the digital economy.
Mokgware indicated that this necessitates upgrading of existing Telecommunications infrastructure to high capacity broadband that will support delivery of education, accessibility to the quality Internet and usage of ICTs.
The Fund began its inaugural programme by sponsoring the provision of WiFi hotspots in public areas around the country as its first project. Following the successful implementation of public WiFi hotspots, the Fund identified Kgalagadi, Ghanzi and Mabutsane areas for mobile network upgrades, schools computerization and internet provision.
Conscious that the project would not be possible without buy-in and support from MoBE, MTC and MLGRD, the Fund facilitated the signing of the first MoU between the three parties in 2016 for implementation of the project.
BOCRA Chief Executive said the signing of this agreement is aimed at benefitting the Kweneng District, adding that they have already assessed the area and have determined that they will be covering 62 underserved villages and 119 schools, 91 of which are primary schools.
“This is a project for which the partner Ministries need to re-commit for its success. Lessons from the previous schools’ computerization and internet connectivity project require that we increase our involvement and resources dedicated to the project for it to be successful. It is my belief as the project coordinator, that we will not do things the way we did them during the first project, for if we do, then we will not have learnt anything,” he said at the signing ceremony.
The purpose of learning is so that there can be continuous improvement to minimize the length of time and amount of resources utilized, he said expressing confidence that their partners will step up to the plate and ensure they play their part in the implementation of the project and that it will progress smoothly having already tread along a similar path.
UASF’s role lies mainly in funding and project management. According to Mokgware, once the project is completed, the work to integrate ICTs into the classroom begins in earnest. Therefore, he said, the project will not succeed without full cooperation and oversight of partners.
“MoBE will put in place the necessary content and ensure that the curriculum is available to all. MLGRD will provide, among others, the enabling environment by ensuring readiness of the school’s infrastructure and necessary security.”