Hanging in there
Diamonds crunching the economy but interest in new mining developments remains
BOTSWANA HAS TAKEN a hammering from the meltdown in commodity prices – in particular, diamonds – but it’s coping and continues to attract keen interest from junior miners looking for a range of base metals. That emerged at last week’s Botswana Resources conference held in Gaborone.
And recent developments have shown mining companies will act aggressively to take advantage of opportunities in that country. In May a fight erupted between JSElisted Zambian Copper Investments (ZCI) and ASX-listed Natasa Mining over control of African Copper, which owned the small Mowana copper mine in north-east Botswana.
African Copper ran out of cash at yearend 2008 and was forced to put the mine on care and maintenance. The company initially struck a rescue deal with Natasa, which was voted down by shareholders due to the onerous conditions attached to the agreement. ZCI then moved in and ended up with 82% of the company. ZCI shares are currently suspended on the JSE because it’s classed as a cash shell. This acquisition should allow ZCI to be reclassified as an operating mining company and have its trading suspension lifted.
ASX-listed Diamonex wasn’t so fortunate over the fate of its Lerala diamond mine, which started producing in August last
year as Botswana’s first “independent” diamond producer not under the control of De Beers.
Diamonex raised the funds needed to develop Lerala when it listed in 2004. In a classic example of the cyclical risks inherent in mining ventures, the mine started production just in time for the collapse of the diamond market.
Diamonex put its Botswana operating subsidiary under judicial management in January this year and is currently selling 80% of its interest in the subsidiary through Fleming Asset Management. The company has also been forced to surrender its other diamond exploration permits held in Botswana.
Botswana is heavily dependent on diamonds, which over recent years have accounted for around 70% of export earnings and 40% of government revenues. In response to collapsing demand and prices for rough diamonds, De Beers shut down its Botswana mines for most of first quarter 2009.
According to economist Keith Jefferis, MD of Econsult and a former deputy governor of the Bank of Botswana, diamond sales are likely to be 50% down this year and 25% down next year on the volumes realised in 2008. Jefferis says Botswana’s balance of trade turned sharply negative in the first six months of 2009 but the country was still in reasonable shape.
Botswana’s foreign exchange reserves were still healthy at just more than 60m pula (around R69bn), while import cover sat at just less than 20 months.
Jefferis told the conference Botswana’s real GDP was forecast to decline by 10,2% this year but would start to recover in 2010 as diamond production picked up.
The crunch in the diamond sector has underscored just how crucial it is for Botswana to succeed in its strategy to diversify its economy from overwhelming dependence on diamonds, which was highlighted at last year’s conference. A decision to develop the country’s next copper mine could be taken in first quarter 2010, when ASX and AIM-listed junior Discovery Metals is due to complete the bankable feasibility study on its proposed Boseto mine. It will cost an estimated US$140m to develop the mine, which is situated west of Maun in northern Botswana.
The country’s most important diversification scheme is TSX-listed CIC Energy’s Mmamabula coal project that’s primarily intended to supply power to South Africa’s Eskom grid, although there are also longer-term plans to export coal. The project has been downsized to a 1 320MW power station due to start generating in first half 2013 but for that to happen a number of key agreements have to be put in place by third quarter 2009. Those include finalisation of the power purchase agreement with Eskom on which everything else hinges. According to CIC Energy’s presentation at the conference “significant tangible progress has been made to date”.