The aftermath of depressed commodity prices and slow uptake of locally produced minerals that has resulted in reduced production at Debswana diamond mines and copper mines is being felt as fears of more mining job losses escalate. The dreaded job cuts axe is hovering over workers at one of Debswana suppliers Multotec Botswana, with fears that the company may release some workers if their contracts, which end this year, are not renewed. The company currently employs approximately 275 workers in different operations at Debswana mines in Orapa, Letlhakane and Jwaneng. The trade union representing miners, Botswana Mine Workers Union (BMWU) said last week that they are awaiting feedback from Multotec Botswana to be presented at a Joint Negotiating Committee (JNC) meeting on 07-08 July 2016. "We do not know of any job losses. As far as we are concerned the company is still negotiating renewal of their contracts with Debswana. Some (contracts) have already been extended," said Mbiganyi Moffat Ramokate - the Union Secretary General a day after the union presented a petition to Vice President Mokgweetsi Masisi pleading that Government intervene to save jobs in the mines, particularly at the country’s leading copper mine BCL which faces closure.
Rough diamond sales drop
Sources said Multotec could decide to reduce staff due to loss of business if Debswana fails to extend most of the contracts between the parties. The company, engaged in 2011 to supply and maintain equipment for processing plants at Debswana mine, was awarded three five-year contracts through their divisions Multotec Manufacturing (Pty) Ltd, Multotec Processing Equipment (Pty) Ltd, Multotec Ware Linings (Pty) Ltd. The three divisions collectively employ approximately 275 workers, sources say. Multotec is said to have indicated that, should Debswana fail to renew their contracts, they will have no option but to downsize staff. Debswana – a partnership between mining giant De Beers and Botswana government – has been forced to cut production of rough diamonds from its mines due to a slump in the diamond market worldwide. De Beers parent company-Anglo American, reported this week that De Beers’ latest rough diamond sales have dropped. Anglo American reported that the value of rough diamond sales (Global Sightholder Sales and Auction Sales) for De Beers’ fifth sales cycle amounts to $560 million, compared to the $636 million value of the fourth cycle of 2016. “Sales in the fifth cycle of the year were somewhat lower than in the fourth cycle, in line with our expectations and typical seasonal demand patterns,” said outgoing De Beers Chief Executive, Philippe Mellier. He said however that rough diamond demand and polished diamond prices remain stable, reflecting steady consumer demand, “but we maintain a cautious outlook,” he said.
'We are not retrenching'
With head offices in Johannesburg, South Africa, Multotec's core business is the supply of products and services to the mining, mineral beneficiation and power generation industries. The company boasts of business expertise in Mineral Processing, Mineral Beneficiation Equipment, Screening and Classification, Metallurgical Process Knowledge, Dense Medium Classification, Cyclones and Spirals, Sampling Protocol Equipment, Wear Linings, Rubber Screens and Linings.
Multotec General Manager Chris Zergote, who took over in July 2014, said on Wednesday that "it is wrong to suggest that we will soon retrench workers. We are currently in the middle of negotiations with Debswana over the contracts. This is a normal process, which we undertake every two years when our contracts expire. We will update BMWU at a meeting scheduled for next Thursday in Gaborone." Zergote said he was on his way to Jwaneng to address branch leaders to keep workers in the loop about the evolution of the negotiations. Debswana Corporate Affairs Manager Matshediso Kamona said Debswana is not at liberty to discuss contractual agreements entered into with contractors and suppliers.
Depression in diamond market
Insiders in the mining industry speculate that Debswana may not renew all the contracts for Multotec due to the ongoing depression in the diamond industry, which has negatively affected turnover. Despite remaining optimistic about recovery early last year, six months ago in December 2015 Debswana Managing Director Balisi Bonyongo closed down Damtshaa Mine for up to three years, and reduced output at Orapa No. 1 Plant to approximately one million carats per year, to achieve the lower production at OLDM. Such drastic measures followed soon after Debswana, the world's No.1 diamond producer by sales value, cut its 2015 production target to 20 million carats from 23 million carats due to slowing demand in India, China and the USA. Jwaneng Mine continues to produce an average 12 million carats per year while production at OLDM will average 8 million carats per year for the 3-year period. These developments forced Botswana to halve its 2015 economic growth forecast in August to 2.6 per cent from 4.9 per cent projection in February, citing expected weakness in the diamond market which accounts for nearly 40 per cent of its budgetary revenue and around 85 per cent of exports in dollar terms.
Announcing re-deployment of Damtshaa mine staff to other parts of the business to preserve jobs, Bonyongo said at the time: "Although at this juncture we do not anticipate any job losses, we cannot guarantee that this may not change should the market worsen materially and require us to review our current response plans". Bonyongo has even coined the phrase; Volatility, Uncertainty, Complexity and Ambiguity (VUCA) to describe the situation in the diamond market. For Botswana, growth in the mining sector was 4.5 per cent in 2014 down from 23.9 per cent registered in 2013, resulting from a general decline of commodity prices including weakened demand for diamonds. According to the IMF World Economic Outlook report a modest growth rate of 3.1% was projected for the world economy in 2015. Due to the steeper than originally projected slowdown in mineral revenue, expected domestic economic growth was adjusted downwards to 2.6% last year.
The decline in prodution at Debswana contributed to a sharp drop in De Beers' rough supply, as reported by an official of the Diamond Hub last week. De Beers supplied around half the amount of rough stones to local cutting and polishing companies last year compared to 2014. Botswana currently has 20 diamond cutting and polishing factories. De Beers supplied rough worth about $502 million in 2015 compared with $936 million in 2014, Rough & Polished reported. “The challenges that the sector is facing include lack of funding, high rough prices that do not correspond with prices of polished diamonds, as well as competition from other luxury goods because diamonds are considered luxuries when polished or set in jewelry," the official said, further suggesting that the country needs to develop the trading of polished diamonds, grow and sustain essential diamond industry support services and consolidate the diamond cluster. The diamond industry is also facing tough competion from other luxury commodities.
Diamonds tilt trade balance
The turbulence in the diamond market has also affected the country's trade balance. The latest Trade Report from Statistics Botswana April 2016 shows a trade surplus of P3, 307.9 million, which is influenced by the high value of diamond exports while imports of the same commodity recorded a low value.
Total Imports drop
The Trade Report shows that in April 2016 total imports were valued at P4, 741.8 million, showing a decrease of 26.9 percent (P1, 746.4 million) from the revised March 2016 value of P6, 488.2 million. This is attributable to decrease in imports of Diamonds and Fuel, which dropped by 76.9 percent (P1, 737.8 million) and 38.5 percent (P386.0 million) respectively. Comparison of import figures for April 2016 and April 2015 show a decrease of 15.1 percent (P840.2 million), from P5, 582.0 million recorded during April 2015 to P4, 741.8 million recorded during the reference month. The decrease in import value in this case is mainly due to the low value of diamond imports for aggregation during the reference period.
Total Exports drop
In April 2016, total exports were valued at P8, 049.6 million, showing an increase of 25.2 percent (P1, 621.5 million) from the March 2016 revised value of P6, 428.1 million. The increase is mainly due to increase in exports of Diamonds which recorded an increase of 32.9 percent (P1, 794.2 million). Comparison of April 2016 total exports value to that of April 2015 shows an increase of more than 100 percent (P4, 264.5 million), from P3, 785.1 million recorded during April 2015 to P8,049.6 million recorded during the month under review.