Mining not doomed yet…

SHARE   |   Monday, 07 November 2016   |   By Kabelo Adamson
BCL Mine underground BCL Mine underground

A sector that gave Botswana its pride is reeling from its worst performance in decades. Yet not all are writing its final obituary. KABELO ADAMSON reports.

Despite the closure of mines in the last couple of years, particularly copper mines, commodity experts still see the light at the end of the tunnel in an industry that has seen closures and reduced production in recent years. At least four base metal producers have shut operations in a period of less than two years, citing international low commodity prices but Charles Siwawa, CEO of Botswana Chamber of Mines (BCM) blames such closures on the shareholders running out of cash and not purely on the low commodity prices as everyone has been made to believe. He said there is no reason to believe that the industry is finished and that no investors will be willing to invest in Botswana. Siwawa said this week that as an advocacy body that exists to serve the interests of the mining and exploration companies together with associated industries they still do believe that the recent wave in the closure of mines would not in any way discourage investors or spell doom to the industry that has been the backbone of the local economy since the 1960’s.

First down – Boseto
First to fall in the copper mining business was Boseto Copper Mine situated in Toteng near Maun. In early 2015, the mine which was previously owned by Australian miner, Discovery Metals Ltd (DML), was completely closed throwing 400 workers into the streets after the company’s board of directors declared the mine insolvent. A new buyer in the form of Khoemacau Mining has since been found and has acquired the mine though mining activities are yet to restart.
One of the factors that Siwawa believes contributed to the fall of DML in running of the Boseto Mine was the high costs associated mainly with power generation as there was no electricity line connecting Toteng where the mine is located and Maun and therefore the company was forced to use diesel to produce power. “This was a costly exercise run by the shareholders,” Siwawa said, explaining that such events do not necessarily mean that copper mines are not profitable or have ran out of minerals, but mostly has to do with operating costs.

Then Mowana
Siwawa said due diligence has been followed in the case of DML and African Copper, the latter which was running Mowana Copper Mine in Dukwi in the North-Eastern part of Botswana before it was liquidated. Mowana Mine fell late last year after Messina Copper; a subsidiary of African Copper went into liquidation when a contractor, Diesel Power Mining petitioned the court for the liquidation of the company over a P47 million debt.The liquidation of Mowana Mine came just a few months after the cessation of mining activities at Boseto Mine. The company is said to have also owned millions of dollars to its parent company Zambia Copper Investments (ZCI) and several other local service suppliers together with Puma Energy and Global Holdings. In the case of Mowana Mine, Siwawa said it was also a similar issue to that of DML which involves funds as the major shareholders at the mine; ZCI might have as well experienced cash problems from the financiers.  The liquidation process of Mowana Mine has been completed and reports say a suitor to buy the mine has been handpicked by the liquidator, PricewaterhouseCoopers.

Commodity prices crash
On the low commodity prices, Siwawa said experts have asserted that commodity prices are expected to go up in the next three or four years. “You can ask consultants from the World Bank, International Monetary Fund (IMF) and other organisations and they will tell you that come 2018 commodity prices would definitely go up,” Siwawa said, dismissing the idea that low commodity prices is the reason behind the closure of base metals producing mines. The latest to close is the BCL mine in Selebi-Phikwe which has been the country’s key producer of base metals along with its subsidiary, Tati Nickel Mine Company (TNMC), leaving 6000 people jobless.

An economic analysis for the third quarter of the year released by Motswedi Securities this week indicates that base metals have been hard hit by slowdown in the industrial and manufacturing production from the world’s largest consumer, China. The report says the Chinese GDP grew by a modest 6.7 percent, driven mainly by retail sales in the period under review. The report further states that the demand for base metals is also predicted to go on a decline for the next three years. During the period reviewed by the brokerage company – nickel and copper – are reported to have been down by over 3.5 percent, trading at $10,165 and $4,633 a tonne respectively. Dr Keith Jefferis – Managing Director of an independent consulting firm, Econsult – does not believe the latest events taking place in the mining industry suggest that the sector has reached a dead end or is under threat. He said this would vary from mine to mine and mineral to mineral and does not see a situation where investors become reluctant to come here. “Well A-Cap has just received a uranium mining license and as far as I know Khoemacau is still intending to develop a copper mine near Ghanzi and the bankrupt Mowana Copper Mine apparently has a buyer, so there should still be investors,” Jefferis said. On the case of BCL, Jefferis - who was the Bank of Botswana Deputy Governor from 1999 to 2005 – thinks there was no choice given the level of BCL debts, the cost to government for another bailout and the succession of poor decisions by BCL management. He said the situation is exacerbated by low international prices which are likely to remain low for the foreseeable future. “There is no indication that copper and nickel prices are likely to rise anytime soon,” he said

Financial insitutions not worried
The financial institutions, which are the major financers of the mine, are however not worried about the closure of the mines in the country. At a recent event to announce the bank’s results, Barclays Bank reaffirmed its commitment to continue to dealing with the industry though that would be done on a case by case approach. The bank has this year extended a P1 billion facility to BCL Mine, which is currently going through provisional liquidation, and to that effect the bank does not stand to lose as the credit extension was guaranteed by the government.

Future positive
Sheperd Aisam, Head of Corporate and Investment Banking (CIB) at Stanbic Bank, said this week that he does no see any reason why banks can no longer be comfortable in supporting the mining industry, saying that lately there has been resurgence in mineral prices. Aisam said events happening in the mining industry are isolated and in the case of BCL Mine it was more of operational inefficiencies that led to the closure of the mine. “For a resource driven economy such as Botswana, and certainly since the region is blessed with natural resources in abundance, we will continue to participate in Mining Finance, Project Finance, Mergers & Acquisitions, Debt Capital Markets, and Advisory to this sector,” said Aisam. Aisam said the bank is committed towards working towards ensuring the sustainability of the economy beyond the base metals as well as to ensure sustainability to see the country through the commodity price volatility now and into the future. “Having called Botswana our home for over 24 years, we remain steadfast in our resolute commitment towards unlocking and harnessing the potential of the mining sector,” he said.