Low Diamond Sales Partly Blamed for Contraction in Mining Sector

The drastic contraction of 12 percent in the country’s mining industry up to the third quarter of 2015 has been attributed to a sharp decline in diamonds and copper-nickel production and sales. This was mainly driven by the slowing of the Chinese economic growth, which declined from over 7 percent per annum in 2014 to around 6.9 percent in 2015.

 The average percentage contribution of minerals to GDP was 22 percent compared to 24 percent in 2014. Mineral revenue (dividends and royalties) declined by 48.6 percent compared to the 2014/15 figure of P14 billion. 

Appearing before the 54th Parliamentary Accounts Committee (PAC) to respond to the Auditor General’s report for the financial year ended March 31st 2015, the Permanent Secretary (PS) in the Ministry of Minerals, Energy and Water Resources Kgomotso Abi stated that Debswana Diamond Company sold 14.7 million carats in 2015, compared to 24.2 million carats in 2014. 

He said revenue from these sales at USD 2.35 billion represented a 38 percent decrease over the 2014 sales value. Abi spoke of Boteti Mining Company that produced 377 000 carats compared to 421 000 in 2014. He also explained to the Committee that  Boteti upgraded their processing plant, which enabled them to recover an exceptionally large 1111 carat stone named Lesedi la Rona, being the second largest stone ever recovered in the world. 

“De Beers Global Sightholder Sales supplied the local cutting and polishing industry with diamonds worth US $502.16 million, 46 percent below the 2014 supply. The impact of the depressed demand was not evenly spread along the diamond pipeline,” he said.

The Accounting Officer further stated that the hardest hit were suppliers of polished diamonds and jewellery due to the misalignment between the prices of rough and polished diamonds – a situation which resulted in minimal profits in the cutting and polishing industry. Some local factories were forced to close operations whilst others retrenched. 

He also opined that the performance of base metals mines was poor in 2015 mainly due to declining commodity prices. BCL Limited and Tati Nickel Mining Company’s copper and nickel production were 31 000 tonnes matte and 139 000 tonnes concentrate respectively, marginally higher than that of 2014. 

“BCL and Tati are under severe financial difficulties and government, as a shareholder, assisted the two companies by guaranteeing a US$100 loan facility arranged by Barclays Bank of Botswana as a short term measure while the business rationalisation and long term funding requirements of the business are being finalised,” Abi stated. 

He also acknowledged that the ministry in its attempt to resolve the issues is faced with records management problems as some of the issues being dealt with are from long ago, adding that the systems used then are no longer in existence.

Quizzed about the vision of the newly established Minerals Development Company Botswana (MDCB), Abi said the process of capacitating MDCB to start managing government’s interest in minerals companies is ongoing. He said the MDCB CEO Paul Smith was appointed effective February 2016. More so, he said the ministry engaged consultants to provide transactional advisory services for the transfer of assets being, Morupule Coal Mine (MCM), Debswana Investments and BCL.

With regards to the Water Utilities Corporation (WUC), he said it was subsequently decommissioned as it has a different billing system. He also said while WUC has in principle agreed to make payment to government for the consumer water accounts, the current financial status of WUC is weak such that their ability to pay is compromised.