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.
The Bulb World Chief Executive Officer (CEO) and entrepreneur, Ketshephaone Jacob has been selected as a 2021 Top 50 Africa’s Business Hero.
Jacob was chosen from a pool of 12,000 applicants – many of whom are highly-skilled and accomplished entrepreneurs.
Africa’s Business Hero, sponsored by technology entrepreneur, Jack Ma, aims to identify, support and inspire the next generation of African entrepreneurs who are making a difference in their local communities, working to solve the most pressing problems, and building a more sustainable and inclusive economy for the future.
The initiative is as inclusive as possible and applications were open in English and French to entrepreneurs from all African countries, all sectors, and all ages who operate businesses formally registered and headquartered in an African country, and that have a 3 year-track record.
Every year, finalists are selected to compete in the ABH finale pitch competition and participate in a TV Show that will be broadcast online and across the continent.
The finalists will compete for a share of US $1.5 million in grant money.
The Bulb World, is home grown LED light manufacturing company, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017.
The Bulb World operate from the Special Economic Zone of Selibe Phikwe. Early this year, The BulB World announced its expansion to South Africa, setting in motion its ambitious Africa expansion plan.
During the first quarter of 2021, production in Botswana’s economic nucleus- the mining sector contracted by 12 percent. This is according to Mining Production Index released by Statistics Botswana this week.
The country’s central data body revealed that Index of Mining production stood at 74.4 during the first quarter of 2021, showing a negative year on-year growth of 12.0 percent, from 84.6 registered during the first quarter of 2020.
The main contributor to the decline in mining production came from the Diamonds sector, which contributed negative 11.7 percentage points. Soda Ash was the only positive contributor in the mining production, contributing 0.1 of a percentage point. However Soda Ash’s contribution was insignificant to offset the negative contribution made by Diamonds.
The quarter-on-quarter analysis by Statistics Botswana experts shows an increase of 16.3 percent from the index of 64.0 during the fourth quarter of 2020 to 74.4 observed during the period under review.
Diamond production decreased by 12.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. The decrease was as a result of planned strategy to align production with weaker trading conditions mostly linked to Covid-19 protocols restrictions.
Botswana’s diamond sector is underpinned by Debswana, the country’s flagship rough producer- a 50-50 joint venture between government and global mining giant De Beers Group. The other producer is Canadian based Lucara Diamond Corp through its wholly owned Karowe Mine which is a relatively small but significant production that has made a name for itself worldwide with rare diamond recoveries of unprecedented carat size.
On the other hand, quarter-on quarter analysis shows that production has improved, registering a positive growth of 17.5 percent during the first quarter of 2021 compared to the preceding quarter – 2020 Q4.
Though production was significantly lower in the first quarter, the two producers ended Q2 with rare diamond recoveries. Debswana early last month found the world’s third largest gem diamond – weighing 1098 carat at Jwaneng Mine, its flagship gem quality diamonds producer, also regarded the world’s richest diamond mine.
A week later Lucara announced its second biggest recovery, the 1174 carat clivage near-gem dug from its Karowe Mine. The diamond is the world third in carat size after the plus-3000 carat Cullinan found in South Africa back in 1905 and the 1758 carat Sewelo unearthed at its Karowe mine in 2019. Debswana and Lucara are investing billions of pulas in underground mining projects to extend the life of its mines, Jwaneng & Karowe respectively.
In terms of Gold which is produced at Mupani mine near Botswana’s second city of Francistown output decreased by 17.9 percent during the first quarter of 2021 compared to the same quarter of the previous year.
Similarly, quarter-on-quarter analysis reflects that production decreased by 21.4 percent during the first quarter of 2021, compared to the preceding quarter. The decrease was as a result of the deteriorating lifespan of the mine as well as the impact of COVID-19 which slowed down the mining activities.
Soda Ash production increased by 11.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. In terms of quarter-on-quarter Soda Ash production also showed an increase, picking up by 2.1 percent during the period under review. The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.
Salt production decreased by 34.0 percent during the first quarter of 2021, compared to the same quarter of the previous year. Similarly, the quarter-on-quarter analysis shows that salt production registered a decrease of 32.9 percent during the period under review. Both salt and Sodash are produced by partly government owned Botswana Ash (BotsAsh) operating from Sowa town near Makgadikgadi pans.
Coal production decreased by 11.2 percent during the first quarter of 2021, compared to the corresponding quarter of the previous year. The decrease was attributed to the reduced demand from Morupule B Power Station following the remedial works being undertaken, as one boiler was in operation during the period under review.
Although production fell, Statistics Botswana says there was no shortfall in supply of coal due to stockpiling. On the other hand, the quarter-on-quarter comparison shows that coal production increased by 20.4 percent compared to the preceding quarter.
Botswana’s flagship coal producer is Morupule Coal Mine; a wholly state owned mining company located in Palapye producing primarily for Botswana Power Corporation (BPC)’s power generation plants Morupule A & B.
The other coal producer is Botswana Stock Exchange listed Minergy which operates a 390 MT Coal Resource mine in Masama near Media in the southwestern edge of the Mmamabula Coalfields.
Department of Mines in the Ministry of Mineral Resources, Green Technology & Energy Security has awarded mining licence to Tshukudu Metals-a subsidiary of Aussie firm Sandfire Resources ,giving the company a green light to start piecing the ground at its Motheo Copper Project near Gantsi.
Lefoko Moagi, minister in charge of mineral resources in Botswana confirmed to weekendpost on Tuesday. Minister Moagi revealed that “the licence has been approved , but Sandfire Resources as a listed company will report to its shareholders and investors then make an official public statement” he said.
Based on a forecast copper price of US$3.16/lb (reflecting current long-term consensus pricing) the Base Case 3.2Mtpa – Ghantsi copper project is forecast to generate US$664 million (over P7 billion) in pre-tax free cash-flow and US$987 million (over P10 billion) in EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), at a forecast all-in sustaining cost of US$1.76/lb over its first 10 years of operations.
In December 2020, the Board of Sandfire Resources approved the commercial development of the Motheo Copper Mine located in the Kalahari Copper Belt in Botswana, marking a key step in its transformation into a global, diversified, and sustainable mining company.
Tshukudu Metals Botswana (Pty) Limited (Tshukudu) a 100% owned subsidiary will be the owner and operator of the Motheo Copper Mine which is scheduled to produce up to 30,000 tonnes per annum of copper in concentrate over a 12 year mine life.TMB is targeting development of its Motheo Copper Mine in 2021 and 2022, with its first production in 2023.
GOVERNMENT NOT TAKING UP 15 % STAKE ON OFFER
Beginning of this year presentations were made to the Department of Mines as part of the Mining Licence approval process and to the Ghanzi Regional Council, additional information was requested by Department of Mines in April and was duly supplied by the company.
As part of the Mining Licence approval process, the Government of Botswana has a right to acquire up to a 15% fully contributing interest in all mining projects locally. Quizzed on whether government through Mineral Development Corporation Botswana (MDCB) would be taking up stake in the project Minister Moagi said, “No consideration is being made on that regard”.
“Government is not considering taking up a stake in the Ghantsi Copper Mine project, every opportunity is assessed on all risks, but Government makes money all the while from leases, taxes and royalties, remember if you take stake you are liable for liabilities of the project as well,” Moagi said.
Last month Sandfire announced that it has awarded over P5 billion worth mining contract to African Mining Services (AMS), a subsidiary of Perenti, to deliver the open cast operation.
The contract, which has an estimated value of US$496 million (over 5 billion), is the largest single operational contract for the new Motheo Project covering a period of 7 years and 3 months, with provision for a one-year extension.
The contract according to Sandfire Resources was awarded following a competitive 3-stage tender process which saw a number of key factors taken into consideration when selecting the preferred contractor.
These included Citizen Economic Empowerment, safety culture, equipment suitability and availability, commercial terms and identified improvement opportunities. Under the terms of the contract, AMS has agreed to form a 70:30 Joint Venture with a suitable local Botswana partner or partners.
The JV is expected to be finalized ahead of commencement of mining in early 2022. African Mining Services has been operating in Africa for over 30 years. AMS’ parent company, ASX listed diversified mining services group Perenti, already has a presence in Botswana through Barminco, their underground mining division, at the large-scale Khoemacau Copper Mine located 200km north-east of Motheo.
Last month Sandfire executives said the award of the open pit mining contract represents another key milestone in advancing the Motheo Project towards production, with all components of the contract in line with the key parameters outlined in the December 2020 Definitive Feasibility Study (DFS).
The company said full-scale construction of the US$279 million (over P 3 billion ) mine development is expected to commence immediately upon receipt of the Mining Licence, with mining scheduled to commence in early 2022 ahead of first production in early 2023. This week Sandfire Resources advertised over 10 positions in calling on applications from geologists, mining engineers and geotechnical engineers.
The Motheo mine has an initial mine life of 12.5 years based on production from the T3 pit. The initial development is expected to generate approximately 1,000 jobs during the construction phase and 600 direct full-time jobs during operations, with at least 95% of the total mine workforce expected to be made of up of Botswana citizens.
Later in the week Sandfire Resources announced in the company website that it has received the licence. Sandfire’s Managing Director and CEO, Mr Karl Simich, said the award of the Mining Licence represented a major milestone that would see a significant increase in construction and development activities on site.
“We are absolutely delighted to now be in a position to move to full-scale construction at Motheo, with our construction crews expected to mobilise to site over the next few days. I would like to thank the Government of Botswana for their support throughout the approvals process, which will see Motheo come on-stream in 2023 as one of very few new copper mines commencing production globally.”
Simich said the project is expected to generate approximately 1,000 jobs during construction and 600 full-time jobs during operations, and represents the foundation for Sandfire’s long-term growth plans in Botswana.
“Our vision is that Motheo will form the centre of a new, long-life copper production hub in in the central portion of the world-class Kalahari Copper Belt, where we hold an extensive ground-holding spanning Botswana and Namibia,” he said.