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Mining sentiment capsizing…

MIning

An unabridged market and economic survey by this publication has picked bearish sentiments towards a key sector of Botswana; mining, as well as the energy exploring firms.

A suggestion that when the new normal came by, humanity sought safety and refuge from the virus while taking less consideration in digging the soil for natural resources hence dwindling sentiments.  With Botswana key sectors economically under siege, this should already sound like a deafening and creepy siren to Botswana if the current struggle of some mining and energy firms is anything to go by.

Botswana with a power deficit of almost 600 MW is dwarfed in the other sector discussed, energy, but observers said there should be investment on it hence there is potential growth and a lot of opportunities. Most companies discussed offer coal energy exploration. When the GDP shot down by 27 percent from the first quarter to the second quarter of this year, it was mining which suffered the most.

For the same GDP data, Mining and Quarrying had a big decrease in the real value added GDP by 60.2 percent which was mainly influenced by Diamond and Coal real value added. There are many private companies in the coal and mining business, some which are listed in the local stock exchange are perpetually losing value.

Diamond production in carats went down by 67.0 percent while Coal production in tonnes decreased by 40.7 percent. For the recent quarterly statistics, the Index of Mining Production stood at 30.0 percent during the second quarter of 2020, showing a year-on-year decrease of 65.1 percent from the index of 85.9 recorded during the second quarter of 2019.

According to Statistics Botswana, this was the biggest decline ever recorded in the mining activity since the decline of 91.6 percent recorded in the first quarter of 2009, when diamond registered zero production due to the economic recession.

The current decline came as a result of the Covid-19 pandemic and nationwide lockdown regulations (2nd April to 18th May 2020) which affected the operations of the business community at large, according to Stats Bots. The rating agencies suggested that countries which are mostly dependent on mining, like Botswana on diamonds, are vulnerable to external factors due to their reliance on diamond exports.

The latest Market Performance by the Botswana Stock Exchange shows that the stocks which were hard hit by Covid-19 were of companies whose business lean on extraction of the ground or mining and exploration.

These companies are mostly in the mining and energy sector.

While the local stock exchange managed to stand when all the world’s exchanges collapsed just towards the end of the first quarter of 2020, when BSE took a hit in April, it was mining and energy companies were seen at the bottom of the dark pit.

According to a performance survey recently released by BSE for the period 1 January to 31 October 2020, diamond miner Lucara and coal-bed methane (CBM) gas explorer Tlou Energy, made the biggest declines in share prices, a decline of 61.5 percent and 58.8 percent respectively.

The other companies in the same or related sectors also had their share price eroded in the first three quarters of the year and for the month of October 2020. This could be a sense of the sentiment towards soil digging companies in the markets or domestic economy.

Coal miner Minergy, a market competitor to Lucara in the Basic Materials sector, is in the top 5 of the biggest losers for the past 10 months, with a share price decline of 27.3 percent for the period 1 January to 31 October 2020.  A foreign company with a niche for this country’s precious stones, Botswana Diamonds, is in the top 10 of biggest losers of the 10 months period with a share price decline of 20.0 percent. Another soil explorer, coal explorer Shumba Energy, is languishing with a share loss of 13.6 percent in the same period.

Botswana’s diamond partner Anglo American has never shook or let alone increased in value, but remained flat with a price of 21800 thebe for all the periods under review. In its Q3 2020 market report released last week which showed “a bearish market amidst economic downturn,” Stockbrokers Botswana said miners, Tlou Energy and Lucara, were again caught in the red.

Tlou Energy lost 60 percent while Lucara lost 23.5 percent as the Domestic Company Index registered a plunge of 2.2 percent. Stockbrokers Botswana also showed that in Q2 2020 it was time for Minergy (22.7 percent) and Shumba (13.6 percent) to lose.

A trend graph by Stockbrokers Botswana shows that on the domestic companies’ index, Minergy value began cracking in the second quarter of 2020 where the stock declined by 25 thebe. Anglo American stock on the foreign counter has been flat since last year’s two quarters.

Botswana Diamonds began losing value by 2 thebe last year in the fourth quarter in a seemingly non-Covid-19 related effect. The company maintained its 13 thebe price amid Covid-19 lockdowns before it tripped to 12 thebe just in the just ended third quarter of 2020.

Lucara price began tumbling when crossing over to 2020 from the third quarter of 2019, falling by almost 50 percent which was a reflection of losing 660 thebe. Lucara further lost by 157 thebe in the third quarter of this year. Shumba lost 15 thebe in the second quarter of this year while Tlou Energy went down by 48 thebe.

Books reflecting losses by soil drillers

Owners of Karowe mine, Lucara, in their recently released Q3 2020 financials where the company had a net loss of $5.4 million compared to last year’s $ 4.0 million. Diamonds from the Karowe mine in Botswana are said to be large, high value diamonds and have historically accounted for approximately 60 percent to 70 percent of Lucara’s annual revenues.

Lucara’s revenue of $82.9 million for the nine months ended September 30, 2020 from the sale of 268,101 carats or $309 per carat reflecting a decrease from revenue of $136.5 million recognized for the nine months ended September 30, 2019 (313,189 carats sold at an average price of $436 per carat).

In its recent communication to investors Lucara said, the reduction in revenue results from a combination of a 15% decrease in the number of carats sold and a deliberate decision not to sell any diamonds +10.8 carats in favour of entering into a committed supply agreement for these diamonds for the remainder of the year.

“Though the mine has remained fully operational throughout the COVID-19 pandemic, 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 the significant weakness observed in the rough diamond market,” said Lucara.

Coal miner Minergy on the other hand suffered Covid-19 loses from March 2020 onwards, with 25 percent of the financial year impacted. Minergy suffering was part of the 15 weeks border closure, challenges with border crossing by its essential staff, the weakening of the South African Rand and the sales which were at 10 percent of pre-COVID-19 volumes.

According to another coal explorer, Shumba Energy, the COVID-19 pandemic outbreak and the subsequent lockdowns in both Botswana and South Africa meant that the coal trading business was only able to operate for 9 months out of the year.

While heading towards April this year, the trading business was on track to grow by 15 percent year on year. But the company dealt a blow of a 15.6 percent decline in income from the business.
In its Annual Report 2020, Tlou Energy suffered a loss for the year of $12,950,601 (30 June 2019: $3,216,695).

Tlou Energy did not report that it was hit hard by Covid-19 like its counterparts in the mining sector, but explained that the loss was due to the impairment of some of the Group’s non-core prospecting licences.

Botswana also mines soda ash with a company called Botash which has felt the pinch of Covid-19. Botash’s main export partner Sasol from South Africa, is said to have shut down part of its salt processing units, subsequently stopping buying from the Botswana companies. More woes are on Botash which is reported to be retrenching.

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Business

Gambling Authority tender dangles as a jittery lottery quandary

30th November 2020
SEFALANA MD: CHANDRA CHAUHAN

Lucrative and highly anticipated national lottery tender that saw several Batswana businessmen partnering to form a gambling consortium to pit against their South African counterparts, culminates into a big power gamble.

WeekendPost has had a chance to watch lottery showcase even before the anticipated and impending national lottery set-up launches. A lot has been a big gamble from the bidding process which is now set for the courts next year January following a marathon legal brawl involving the interest of the gambling fraternity in Botswana and South Africa.

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Business

The uncertainty of getting the next meal in Botswana

30th November 2020
uncertainty of getting the next meal

Households representing more than half of Botswana’s population-mostly residing in rural areas- do not know where their next meal will come from, but neither do they take into consideration the quality and/or quantity of the food they consume.

This is according to the latest Prevalence of Food Insecurity in Botswana report which was done for the 2018/19 period and represents the state of food insecurity data even to this time.
The Prevalence of Food Insecurity was released by Statistics Botswana and it released results with findings that the results show that at national level 50.8 percent of the population in Botswana was affected by moderate to severe food insecurity in 2018/19, while 22.2 percent of the population was affected by severe food insecurity only.

According to the report, this translates to 27 percent of the population being food secure that is to say having adequate access to food in both quality and quantity. According to Statistician General, Burton Mguni, when explaining how the food data was compiled, Food and Agriculture Organization of the United Nations (FAO), is custodian of the “Prevalence of Undernourishment (PoU)” and “Prevalence of moderate or severe food insecurity in the population based on the Food Insecurity Experience Scale (FIES)” SDG indicators, for leading FIES data analysis and the resultant capacity building.

“The FIES measures the extent of food insecurity at the household or individual level. The indicator provides internationally comparable estimates of the proportion of the population facing moderate to severe difficulties in accessing food. The FIES consists of eight brief questions regarding access to adequate food, and the questions are answered directly with a yes/no response. It (FIES) complements the existing food and nutrition security indicators such as Prevalence of Undernourishment.

According to the FIES, with increasing severity, the quantity of food consumed decreases as portion sizes are reduced and meals are skipped. At its most severe level, people are forced to go without eating for a day or more. The scale further reveals that the household’s experience of food insecurity may be characterized by uncertainty and anxiety regarding food access and compromising the quality of the diet and having a less balanced and more monotonous diet,” says Mguni.

The 50.8 percent of the population in Botswana which was affected by moderate to severe food insecurity are characterized as people experiencing moderate food insecurity and face uncertainties about their ability to obtain food. These people have been forced to compromise on the quality and/or quantity of the food they consume according to the report on food insecurity.

Those who experience severe food insecurity, the 22.2 percent of the population, are people who have typically run out of food and, at worst, gone a day (or days) without eating. According to the statistics, rural area population experienced moderate to severe food insecurity at 65 percent while urban villages were at 46.60 percent and cities/town were at 31.70 percent. Those experiencing the most extreme and severe insecurity were at rural areas making 33.10 percent while urban villages and towns were at 11.90 percent and 17.50 respectively.

According to a paper compiled by Sirak Bahta, Francis Wanyoike, Hikuepi Katjiuongua and Davis Marumo and published in December 2017, titled ‘Characterization of food security and consumption patterns among smallholder livestock farmers in Botswana,’ over 70 percent of Botswana’s population reside in rural areas, and majority (70%) relies on traditional/subsistence agriculture for their livelihoods.

The study set out to characterize the food security situation and food consumption patterns among livestock keepers in Botswana. “Despite the policy change, challenges still remain in ensuring that all persons and households have access to food at all times. For example, during an analysis of the impacts of rising international food prices for Botswana, BIDPA reported that food prices tended to be highest in the rural areas already disadvantaged by relatively low levels of income and high rates of unemployment,” said the study.

According to the paper, about 9 percent of households were found to be food insecure and this category of households included 6 percent of households that ranked poorly and 3 percent that were on the borderline according to the World Food Programme’s (WFP) definition of food security.

Media reports state that the World Bank has warned that disruption to production and supply chains could ‘spark a food security crisis’ in Africa, forecasting a fall in farm production of up to 7 percent, if there are restrictions to trade, and a 25 percent decline in food imports.

Food security in Botswana or food production was also attacked by the locust pandemic which swept out this country’s vegetation and plants. The locust is said to have contributed to 25 percent loss in production.

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Business

Solid demand for diamonds towards the ‘gift’ season

30th November 2020
Diamonds

Global lockdown have been a thorn in diamonds having shiny sales, but a lot of optimism shows with the easing of Covid-19 restrictions, the precious stones will be bought with high volumes towards festive season. The diamond market is however warned of the resurgence of Covid-19 in key markets presents ongoing risks amid the presence and optimist about the new Covid-29 vaccines.

The latest findings published as De Beers Group’s latest Diamond Insight ‘Flash’ Report, which looks at the impact of the pandemic on relationships and engagements, has revealed that in the US that more couples than ever are buying diamond engagement rings. Bridal sales is mostly the primary source of diamond jewellery demand in recent months, De Beers said.

According to De Beers, interviews with independent jewellers around the US revealed that the rate of couples getting engaged has increased compared with the period when Covid-19 first had an impact in the US in the spring.

“In addition, despite challenging economic times, consumers were spending more than ever on diamond engagement rings – often upgrading in colour, cut and clarity, rather than size. Several jewellers speculated that with consumers spending less on elaborate weddings and/or honeymoons in the current environment, they had more to spend on choosing the perfect ring,” said De Beers.

According to De Beers, a national survey of 360 US women in serious relationships, undertaken in late October in collaboration with engagement and wedding website, The Knot. This survey is said to have found that the majority of respondents (54%) were thinking more about their engagement ring than the wedding itself (32%) or the honeymoon (15%), supporting jewellers’ hypothesis that engagement ring sales were benefiting from reduced wedding and travel budgets in light of Covid-19 restrictions.

When it came to researching engagement rings, online was by far the predominant channel for gaining ideas/inspiration at 86% of consumers surveyed, with 85% saying they had saved examples of styles they liked, according to De Beers. According to the survey, only a uarter of respondents said they had looked in-store at a physical location for design inspiration.

“For many couples, the pandemic has brought them even closer together, in some instances speeding up the path to engagement after forming a deeper connection while experiencing lockdown and its associated ups and downs as a partnership. Engagement rings are taking on even greater symbolism in this environment, with retailers reporting couples are prepared to invest more than usual, particularly due to budget reductions in other areas,” De Beers CEO Cleaver said.

According to De Beers Group, its Diamond Insight Flash Report series is focused on understanding the US consumer perspective in light of Covid-19 and monitoring how it evolves as the crisis evolves. Also, the company said, it is augmenting its existing research programme with additional consumer, retailer and supply chain touch-basis to understand the pain points and the opportunities for stakeholders across the diamond pipeline.

Demand for diamonds is as hard and resilient as the precious stone itself. De Beers pocketed US$ 450 million in its recently held ninth rough diamond sales cycle, and the company says it is more flexible approach to rough diamond sales during the ninth sales cycle of 2020, with the Sight event extended beyond its normal week-long duration.

“Steady demand for De Beers Group’s rough diamonds continued in the ninth sales cycle of the year, reflecting stable consumer demand for diamond jewellery at the retail level in the US and China, and expectations for reasonable demand to continue throughout the holiday season. However, the resurgence of Covid-19 infections in several consumer markets presents ongoing risks,” said De Beers CEO Bruce Cleaver recently.

High expectations are on diamonds being a sentimental gift for holiday season or as the most fetished gift. However the ninth cycle was lower than the eighth which registered US$ 467 million. For the last year period which corresponds with the current one, De Beers managed to raise US$ 400.

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