Botswana – Africa’s most transparent state
Michael Schwartz looks at Africa’s most transparent mining regime and some of its ambitious plans.
Botswana’s mining industry is well respected, as the Botswana Mining Report Q1 2015 from Business Monitor International makes clear. It states, ‘We maintain a positive outlook for Botswana’s mining sector over our forecast period to 2018. We forecast solid growth for the diamond sector, boosted by new projects planned by Debswana, Gem Diamonds and Lucara Diamond Corp. We also expect coal production to accelerate in the years ahead, bolstering growth in Botswana’s mining industry. We forecast the country’s mining industry value to average 5.2% growth from 2014–2018, reaching a value of US$6.6bln by 2018.’
How could such an optimistic set of forecasts be possible?
Botswana’s transparency recognised
Respect for mining in Botswana is long-standing. Key data is available from the Canadian Fraser Institute’s annual survey of senior mining executives. The 2014 survey reflects previous years in the consistency of its praise. Botswana is currently ranked 26th out of 122 administrations – in other words, the only areas likely to be more highly regarded than Botswana are the individual states, provinces and territories in areas such as Scandinavia, the USA, Canada and Australia.
The Institute also asks executives whether individual administrations are likely to encourage or discourage them to invest. There are 17 criteria, including law, finance, security and data quality. Of these 17, in only one, potential land claim disputes, is Botswana even listed in the discouragement band (only 3% of respondents would not pursue investment in Botswana due to land claims).
Looking to the future, further respect is demonstrated in the index for Current Mineral Potential, where only seven administrations in the world are more highly rated.
Botswana’s transparency is highly valued within the country itself. For example, Galane Gold Ltd has a wholly owned subsidiary, Mupane Gold Mining Botswana. This open-pit operation lies 30km south-east of Francistown in north-east Botswana and started operations in January 2005, producing its first half-million ounces of gold by September 2011.
Nick Brodie, Galane’s CEO, explained exactly why transparency is so important. ‘It is extremely helpful and is a question that is asked by all our stakeholders given the normal western view of Africa. As part of our investor presentation, we include the Fraser Institute survey information, which ranks Botswana as the top mining jurisdiction in Africa. What this means to us on the ground in Botswana is that, thanks to a clear mining code, we can conduct our business on a day-to-day basis and feel confident that if we work within the parameters of the code, the Department of Mines will actually be a positive partner for our business.’
Reinforcement of Botswana’s reputation comes from Gem Diamonds Botswana (GDB), which holds a 25-year licence for the Ghaghoo mine – named after a locally abundant camel thorn acacia tree and lying within the Gope area (which literally means ‘nowhere’). By the end of this year, Ghaghoo is expected to have processed 720,000 tonnes of ore, equivalent to 210,000 carats.
Sherryn Tedder, who handles investor relations for GMB’s parent company, Gem Diamonds Limited, describes business confidence in Botswana as, ‘extremely helpful. As a UK-listed company operating in Africa, we need to manage political risk – Botswana is a low-risk country to operate in, and one that investors feel comfortable with. We are also legislated by the UK’s Anti-Bribery and Corruption Act and it is helpful to operate in a country with low corruption rates.’
Transporting the minerals
Botswana’s mineral deposits are found along its eastern areas, and Botswana Railways (BR) operates a key line in the east of the country that transports the extracted minerals either south into South Africa or north into Zimbabwe, and then into Mozambique or Zambia. BR’s motive power comprises 34 locomotives and more than 1,100 wagons, designed for the bulk transportation of coal, diesel/petrol, general goods, soda ash and salt.
As proof of Botswana’s ambitious mineral policies, Namibia and Botswana have recently signed an agreement for a 1,500km heavy-duty railway. The Trans-Kalahari Railway (TKR) will link Botswana’s Mmamabula coalfields with Walvis Bay Port, Namibia. Construction, using local materials where possible, is expected to finish in 2019, at a cost of around US$9bln. Private sector financing is currently being sought.
Among the export targets for Botswana’s estimated 212 billion tonne coal resource are the Indian and Chinese power markets, using Walvis Bay’s 65Mt/y commodity terminal. The line will also assist other local economies, such as Malawi, Zambia and Zimbabwe.
BR’s value is also acknowledged by precious, rather than bulk, metals operators. Brodie says, ‘As we produce an average of 4,000oz of gold a month, transportation of finished goods is not a complicated process. More important to us is the importation of supplies and services. Botswana’s proximity to South Africa means that we have access to a large pool of suppliers who can deliver within a day to our mine site.’
Facing the future
Until the TKR is constructed, Botswana’s exports are substantially restricted. For all this, Morupule Coal Mine (MCM) has been successfully increasing its exports. It is now in the middle of a three-year contract to supply coal to PPC Slurry near Mafikeng in South Africa.
Coal is one of Botswana’s key economic drivers. Indeed, just as power-station coal can be exported, so it can play a vital part in generating domestic energy. This is set to produce further orders for MCM, as plans are well underway for a 30MW brownfield power station. MCM is also working with the Ministry of Minerals, Energy and Water Resources in implementing the national roadmap, an ambitious strategy geared towards sustainable and commercially viable coal use.
In the case of gold, Galane has recently signed an off-take agreement with Samsung for the latter to take all of Galane’s production. Samsung is obligated to source conflict-free minerals for its output, and the stability of Botswana means that gold produced there is seen as an ideal to meet its requirements.
Botswana’s diamonds also enjoy a highly respected reputation, as Sherryn Tedder describes, ‘We sell our rough diamonds to diamond cutters and polishers. We also have our own in-house capability for cutting and polishing select diamonds from our production, so the resulting polished diamonds are then sold into the polished wholesale market. Additionally, we show our goods in both Gaborone and in Antwerp, ensuring that we reach the widest number of key diamond buyers. Since De Beers has moved its entire sales operation to Gaborone, we time our sales to coincide with the De Beers sightholders’ visits, when the most buyers are in Botswana. From there, we move our goods to Antwerp, which has traditionally been the largest hub of diamond sales, especially for better quality diamonds. Once they’ve seen the goods, our customers are then able to tender for our goods online from whatever jurisdiction they are in.’
Brodie points out that there are few disadvantages and many advantages to mining in Botswana. His company is situated in the best mining jurisdiction in Africa, with a strong supply network and a highly skilled workforce.
Sherryn Tedder concludes,‘ Botswana is widely regarded as the number one address for diamonds globally. Geologically, it contains some of the richest diamond ore bodies in the world. As De Beers’ Diamond Insight Report 2014 confirms, in 2013 Botswana produced roughly 16% of the world’s production of carats, corresponding to 21% of overall value. Politically, the region is stable, with a sound mineral regime and significant knowledge in diamond mining in particular.’