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DIAMOND SLUMP: De Beers’ revenue down P27 billion in two years

DIAMOND SLUMP

In the 24 months period ended December 2020 De Beers Group, the world largest diamond producer by value has cumulatively lost over P27 billion from its revenue earned when gauged against 2018 figure of $6.1 billion.

According to official figures contained in the Anglo American yearend financial report released this week De Beers has suffered another massive decline in revue in 2020 following another huge slump in 2019.

THE 2019 DOWNTURN

In 2019 , total revenue dropped by 24% from $6.1 billion (approximately P61 billion) to $4.6 billion (approximately P46 billion) with rough diamond sales falling by 26% to $4.0 billion from $5.4 billion in 2018.This in local currency mirrored a whooping P15 billion decline in De Beers total revenue for the year 2019.

This was due to an 8% decrease in consolidated rough diamond sales volumes to 29.2 million carats from 31.7 million carats in 2018 and a 20% reduction in average realized price to $137/ct from $171/ct in 2018.  The reduction in realized price was driven by a 6% decline in the average rough price index and from a lower value mix of diamonds sold, in response to the weaker demand for higher value diamonds that year.

In response to the challenging midstream trading environment, De Beers offered increased supply flexibility to Sightholders and sold a lower value and volume of rough diamonds to the midstream, while increasing marketing expenditure to $178 million( over P1.8 billion from $166 million( over 1.6 billion) in 2018 to further drive consumer demand for diamond jewellery.

Underlying EBITDA decreased by 55% that year, to $558 million from $1,245 million in 2018 owing to lower sales volumes, a lower value sales mix which curtailed mining margins, and the lower rough price index which reduced margins in the trading business. This 2019 slump in De Beers’s revenue was due to a range of factors that created significant challenges for rough diamond demand during the year.

In late 2018, stock market volatility and US-China trade tensions resulted in lower than expected holiday retail sales, which led to higher than anticipated stock levels in the industry’s midstream at the start of 2019.

Throughout the course of 2019, the midstream inventory position was under further pressure due to the closure of some US ‘bricks and mortar’ retail outlets, an increase in online purchasing (where inventory levels are lower), and retailers increasing their stock held on consignment. Tighter financing also affected the midstream’s ability to hold stock, all of which resulted in lower demand for rough diamonds during the year 2019.

OVER P12 BILLION PULA DECLINE IN 2020

The year 2020 was another catastrophic year for De Beers Group and the entire global diamond industry. The lucrative business began the year on a high note with De Beers and Alrosa, both world’s leading producers, registering a significant upswing in rough diamond sales.

However that was short-lived as the COVID-19 pandemic which broke out of China in late 2019 spread across the world, halting international trade and restricting both movement of people and shipment of goods.

The onset of the Covid-19 pandemic, and measures taken by governments in response, had a profound impact on global diamond supply and demand. Much of the industry was temporarily unable to operate, with up to 90% of jewellery stores closed at the peak of lockdowns, first in China, then in Europe and the US.

Reduced demand from jewellery retailers due to store closures combined with the closure of diamond cutting and polishing factories in India from April to June, led to a substantial reduction in rough diamond purchases in the first six months of 2020.

In response, De Beers reduced production and offered significantly increased flexibility to customers. The gradual easing of restrictions across the globe led to improved trading conditions and an increase in demand throughout the supply chain in the second half of the year.

As a result of the difficult market conditions, lockdowns in India and associated flexibility offered to customers, De Beers total revenue decreased by 27% to $3.4 billion(around P34 billion) from $4.6 billion( over P46 billion) in 2019 with rough diamond sales falling by 30% to $2.8 billion from $4.0 billion in 2019.

Rough diamond sales volumes decreased by 27% to 21.4 million carats (2019: 29.2 million carats). The average realized price decreased by 3% to $133/ct (2019: $137/ct), with a 10% decline in the average rough index largely offset by an increased proportion of higher value rough sold in 2020, driven by midstream demand and inventory mix.

Rough diamond production decreased by 18% to 25.1 million carats (2019: 30.8 million carats) in response to lower demand due to the pandemic and the Covid–19-related shutdowns in southern Africa during the first half of the year.

In Botswana, where De Beers operates a 50-50 joint venture with Government , production decreased by 29% to 16.6 million carats (2019: 23.3 million carats), with volumes at Jwaneng reduced by 40% to 7.5 million carats (2019: 12.5 million carats), while production at Orapa decreased by 16% to 9.0 million carats (2019: 10.8 million carats).

This was largely due to a nationwide lockdown from 2 April to 18 May, and the planned treatment of lower grade material at both Jwaneng and Orapa, following their restart, as a production response to lower demand. Both mines substantially reconfigured their mining operations to preserve costs in light of the lower levels of production, thereby preserving the mining margin.

In Namibia, production decreased by 15% to 1.4 million carats (2019: 1.7 million carats), while next door in South Africa, production increased to 3.8 million carats (2019: 1.9 million carats). Across oceans In Canada, production decreased by 15% to 3.3 million carats (2019: 3.9 million carats) principally reflecting Victor reaching the end of its life in the first half of 2019. Gahcho Kué production decreased by 4% to 3.3 million carats (2019: 3.5 million carats) as a result of the implementation of Covid-19 workforce protection measures.

PROSPECTS ARE HOWEVER LOOKING GOOD

De Beers says recent consumer demand trends have been positive in key markets and industry inventories are in a healthier position, providing the potential for a continued recovery in rough diamond demand during 2021, subject to the ongoing impact of Covid-19.

The London headquartered diamond mining giant says consumer desirability for natural diamonds is set to remain high over the medium to long term despite the economic impact of the pandemic and increasing supply of lab-grown diamonds.

De Beers says in the longer term, the impact of Covid-19 has accelerated the transformation that was already underway across the industry and which is expected to continue at pace. This includes more efficient inventory management, increased online purchasing, and a growing consumer desire for products with demonstrable ethical and sustainability credentials, including an enhanced appreciation for the natural world.

The long term outlook for the sector remains positive as De Beers continues to focus on its business transformation to support the continued growth of its own business and the wider diamond value chain.  For 2021, production guidance is 32–34 million carats, subject to trading conditions, the extent of further Covid-19related disruptions and ongoing operational challenges.

The higher production is driven by an expected increase in ore and improved grade performance at both Jwaneng and Venetia. Unit cost guidance is c. $55/ct, reflecting the increase in production volumes and the benefits of the restructuring undertaken in 2020.

Business

The  Bulb World CEO selected for Africa’s prestigious award

22nd July 2021

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.

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Business

Mining production down 12 % IN Q1 2021

14th July 2021

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.

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Business

Gov’t awards mining licence for Gantsi Copper Mine

14th July 2021
Moagi

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.

MINING CONTRACT

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.

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