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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

Global recovery from COVID-19 remains unbalanced

2nd March 2021
Global recovery

As COVID-19 and its variants continue to cast a shadow over the world’s health systems and economies, the level of uncertainty and strength of the economic recovery will vary across countries. The real GDP in all G-20 countries is expected to grow compared to the previous year, but some countries will take longer than others to return to full capacity.

According to Mooody’s Global Macro Outlook 2021-22 report released this week, precautionary behavior and official restrictions are still hampering interpersonal interactions. The resulting toll on global economic activity has been staggering, even as the economy has also shown a remarkable degree of resilience.

Overall economic outcomes in 2020 exceeded Moody’s forecasts in most countries because of stronger-than-expected rebounds in the second half of the year. Aided by technology, many people and businesses quickly adapted so that they could carry on with daily activity with reduced in-person interactions.

However, Moody’s says the recovery remains unbalanced, with the pandemic affecting individual businesses, sectors and regions very differently. According to the group, goods demand has almost fully recovered because goods can be produced and consumed with limited in-person interactions, while the recovery in service continue to lag.

Within services, businesses that were able to effectively deliver their products at arms-length have stabilized, if not prospered. Large businesses with access to cheap funding have performed better than small and mid-sized firms. According to the report, the transportation, hospitality and leisure and arts sectors continue to languish, but the information technology, consumer goods, pharmaceuticals and financial sectors have thrived.

According to the report, many individuals around the world (including Botswana), have lost their jobs and continue to face employment uncertainty, but on the flip side, the forced decline in household consumption and the rise in asses prices have buttressed household financial balances at an aggregate level. Moody’s reported that all G-20 countries will post growth rates in 2021 and 2022, but the pace of recovery will vary significantly.

“The COVID-19 shock has exposed differences between countries in terms of political leadership, community health management, fiscal and monetary policy response, economic structures and inherent economic dynamism. Public health considerations drove the economic shock of the pandemic. In that sense, the steep declines in GDP in 2020 across advanced and emerging market countries were less a reflection of underlying weaknesses in the economy, and more a function of the combined effects of the spread of the virus and the stringency of lockdown measures,” says Moody’s.

Economic outcomes will remain closely tied to the pandemic, Moody’s said. “The quicker countries can curb the spread of the virus, the faster their economic activity will recover. Otherwise the costs of keeping parts of the economy shut, in terms of lost income and revenue, will keep adding up. The longer the crisis lasts, the more difficult it will be for governments to compensate the private sector for its continuing losses.”

Without adequate government support, Moody’s predict that large-scale deterioration in asset quality will ensue. Such detrimental effects, it says, could eventually transmit the shock through financial channels to other parts of the economy.

“We have cut or estimate of the 2020 contraction for the G-20 countries. We now expect a collective contraction of 3.3%, compared with our previous estimate of 3.8%, because of a better-than-expected recovery across a wide range of advanced and emerging market economies in the second half of the year. We expect the G-20 countries to grow by 5.3% in 2021 and 4.5% in 2022, up from our prior forecasts of 4.9% and 3.8% respectively.”

US ECONOMY TO LEAD THE GLOBAL SERVICES DEMAND RECOVERY

The US economy advanced at a 4.0% annualized rate in the fourth quarter 2020, but the headline figure masks the fact that the economy has lost momentum since November, when COVID-19 cases began to rise. Moody’s says it expects this current moderation in economic growth to be temporary. Economic momentum will likely puck up pace over the course of 2021 and 2022, supported by: enhanced pandemic control, significant additional fiscal support to the economy and a more predictable policy environment.

With infection rates now starting to fall, economic momentum should naturally pick up in the second quarter and into the summer as individual states progressively ease up social distancing restrictions, Moody’s reports.  “We believe that a stronger pandemic management response from the Biden administration, will increase public confidence and allow for a relation of restrictions over this year and next.”

COVID-19 SHOCK EXACERBATES EXISTING STRUCTURAL CHALLENGES IN SOUH AFRICA

South Africa’s economy is expected to growth by 4.5% in 2021 and by 11% in the following year, following an estimated 7.0% contraction last year. According to Moody’s, this will make South Africa’s recovery one of the weakest among emerging market countries. The economy has struggled to build momentum for many years, and as a result suffers from chronically high unemployment. The COVID-19 shock has made the economic situation all the more challenging, says Moody’s.

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Business

BOL, MDC advised to take interest in Kavango oil tale

2nd March 2021
BOL-MDC

Reconnaissance Africa, a Canadian exploration company has started piercing the natural resource-rich lands of Kavango basin in Namibia, the company in searching for oil and gas.

The prospective area stretches into North West district of Botswana, the company through its local subsidiary Recon Africa Botswana has been given the nod by Ministry of Mineral Resources, Green Technology & Energy Security to explore petroleum mineral for four (4) years.

Amid all the negative reports around the company’s drilling activities in the Kavango basin, which covers ecosystem components feeding into the mighty Okavango Delta, the bottom line is that there are prospects of billions of dollars beneath the area in form of oil and gas-and Recon Africa is out to unearth the treasures.

Member of Parliament for Selibe Phikwe Dithapelo Keorapetse says Botswana should strive to participate in the exploration and development of these potential oil and gas deposits in the North West district. Contributing to the 2021/22 budget speech on Monday Keorapetse cautioned government against watching from afar while a potential multi-billion pula industry unfolds in the Okavango area.

He implored Botswana Oil Limited(BOL) and Mineral Development Corporation Botswana (MDCB) both state owned enterprises, to take up equity stakes in the exploration activities as early as now to “ rather than being spectators and waking up late when the foreigners are enjoying the billions”.

ReconAfrica through its subsidiary Recon Botswana was issued an exploration license under the Petroleum Act to explore for petroleum minerals in the North West District of Botswana, on 1 June 2020, for a period of four years.

“Botswana Oil as the country ‘s petroleum investment company together with MDC-a state owned mineral interest holding company must come together and acquire a stake in the ongoing exploration activities ,not to wait until Recon is making money and you say you want shares”. Keorapetse made reference to Karowe mine which Botswana’s diamond mining partner De Beers Group sold to Lucara over a decade ago while still at exploration stage.

Lucara bid on the site, and its internal partner Lundin provided a bank guarantee to De Beers for fifty million dollars, capturing some seventy per cent of the stake.Soon afterward, Lucara bought the remaining stake by acquiring De Beers’s London-based junior venture partner, African Diamonds. Lucara now owns AK6 (now Karowe Mine), having spent a little more than seventy million dollars.

The mine has since developed into a prolific rare gem producer celebrated worldwide, having unearthed some the world’s largest diamond ever in history , such as the over 1000 carats Lesedi La Rona, Sewelo and the magnificent 813 carats Constellation.

“We are now mulling acquisition of shares in Lucara but when transactions were happening in 2009 we were just spectators, we could have acquired shares back then when they were affordable now it is expensive to buy into Karowe mine, we must not make the same mistake with this oil and gas projects” said Keorapetse urging Government to be pro-active and move quickly to approach Recon Africa for a stake in Recon Africa Botswana.

ReconAfrica is a junior oil and gas company engaged in the exploration and development of oil and gas in North East of Namibia and North West of Botswana—the Kavango Basin. The company officially launched the oil and gas exploration project in Namibia in early January 2021. The exploration activities are taking place in the Kawe area, Kavango East Region, Namibia.

ReconAfrica holds a 90% interest in a petroleum exploration license in Namibia which covers the entire Kavango sedimentary basin in Namibia, the remaining 10% is owned by Government of Namibia. The exploration licence covers an area of 25,341.33 km2 (6.3 million acres), and based on commercial success, it entitles ReconAfrica to obtain a 25-year production license.

Further, ReconAfrica holds a 100% interest in petroleum exploration rights in Botswana over the entire Kavango sedimentary basin in the country. This covers an area of 8,990 km2 (2.2 million acres) and entitles ReconAfrica to a 25-year production license over any commercial discovery. The company acquired a high-resolution geomagnetic survey of the license area and conducted a detailed analysis of the resulting data and other available data, including reprocessing and reinterpretation of all existing geological and geophysical data.

The survey and analysis confirm that the Kavango Basin reaches depths of up to 9,000 m (30,000 feet) under optimal conditions to preserve a thick interval of organic rich marine source rock, and is anticipated to hold an active petroleum system.

“We believe that the Kavango Basin is another world class Permian basin, analogous to the Permian basin in Texas It is estimated that the oil generated in the basin could be billions of barrels. Recon Africa’s initial goal is to establish the presence of an active petroleum system with its fully funded 3-well drilling program starting early January 2021.

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Business

Lucara suffers P287 million loss in 2020

2nd March 2021
LUCARA

Canadian mining company, Lucara Diamond Corporation, well known globally for producing rare gems of unprecedented quality, has not been spared by the 2020 global market downturn caused by the COVID-19 pandemic.

In their financial results for the year ended 31st December 2020, released from Vancouver Canada late Monday, the junior minor reported a significant net loss of $26.3 million for the year (approximately P287 in Botswana currency).

This according to the financials is a loss of $0.07 loss per share, which is a significant decline when compared to net income of $12.7 million ($0.03 per share) in 2019. The company which wholly owns and runs Botswana’s Karowe mine registered total revenues of $125.3 million (over P1.3 billion), a 34 percent drop compared to $192.5 million (almost P2 billion) recorded in 2019 or $335 per carat from $468 per carat in 2019.

The decrease in revenue resulted in adjusted EBITDA of $18.4 million, a decline when compared to adjusted EBITDA for the same period in 2019 of $73.1 million. Lucara executives explained that total revenue decline was a result of challenging market conditions, a longer ramp-up for production and polished sales in the latter half of 2020 under the HB supply agreement.

“As a result, revenue from certain polished diamonds from Lucara’s highest value stones that would otherwise have been recorded as revenue in 2020, is now expected to be realized in 2021.” reads a commentary alongside the figures.

During the year ended December 31, 2020, Lucara sold 373,748 carats at an average price of $335 carat. Diamond sales for the fourth quarter of 2020 were held through a combination of regular tenders, Clara, for diamonds less than 10.8 carats, and through HB under the supply agreement for those diamonds greater than 10.8 carats.

The Company recognized revenue of $42.4 million or $402 per carat from the sale of 105,648 carats. Price recovery was observed in most size and quality classes. Of note, prices achieved for goods sold on Clara (under 10.8 carats in size) in January 2021 have now recovered to the level of pricing achieved early in 2020.

For the year ended December 31, 2020, Lucara registered revenue totaling $55.2 million from the two agreements with HB, including an accrual for variable consideration of $7.2 million related to “top-up” payments arising from polished diamond sales in excess of the initial purchase price paid to Lucara.

With global restrictions impeding travel for many diamantaires, Lucara says interest in Clara grew significantly in 2020 and the number of buyers on the platform increased from 27 to 75.
During 2020, Clara began selling stones on behalf of third party sellers, which was a significant objective for the year.

“As Clara becomes the online marketplace of choice for rough buyers, discussions are underway with several producers to begin trials for the sale of their diamonds on Clara” the company said
Amidst challenging circumstances for the diamond industry in 2020 Lucara forged ahead with the Karowe mine underground project.

During the year period under review $18.7 million (over P190 million ) was spent on project execution activities including the following: Site earthworks (consisting of laydown preparation and clearing of shaft and surface infrastructure locations), geotechnical test pitting and drilling, and completion of two pilot holes at the shaft locations, a 746 metre hole for the ventilation shaft and a 768 metre hole for the production shaft.

The Company was able to complete on-site earth works and geotechnical studies by using local contractors while a State of Emergency remained in effect in Botswana.  Long lead time item orders were also placed for shaft muckers, and hoist and winder refurbishment was initiated. In addition, power line engineering and detailed shaft design and engineering (consistent with original targets for 2020) progressed.

In Q4 2020, the Government of Botswana approved the proposed powerline route and granted a 25-year extension to the Karowe Mine License to 2046, sufficient to cover the remaining open-pit life (to 2026) and the expected life of the proposed underground expansion, currently planned to 2040.

Lucara says it’s currently actively exploring opportunities to arrange debt financing for the underground expansion for those amounts which are expected to exceed the Company’s cash flow from operations during the construction period. The underground expansion program has an estimated capital cost of $514 million (over P5 billion) and a five year period of development.

President & Chief Executive Officer of Lucara Diamond Corporation, Eira Thomas said the measures that Lucara took early in the pandemic, including the decision not to sell rough diamonds in excess of +10.8 carats after Q1, helped protect and support prices for large, high value diamonds that account for more than 70% of the company’s revenues.

“These efforts in conjunction with our transformational supply agreement with HB Antwerp executed in July, resulted in strong price recoveries by Q4, a trend which has continued into 2021.”
Thomas said the recent recovery of two, high value +300 carat stones “continue to highlight the extraordinary nature of the Karowe resource and underpin the rationale for underground expansion, extending our mine life out to at least 2040”.

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