Transcript Botswana' Mineral Sector: an update on challenges and

May Day Workers’ Summit
• “Challenges faced by mining companies in
Botswana in the current economic crisis and the
impact on the workers’ job security”
• Hon Minister of Minerals, Energy and Water
Resources, Dr P.H.K. Kedikilwe
Introduction
Global financial crisis
 Started with developed countries particularly in USA, banks
lending without due regard to the ability to repay the
commitments “sub-prime lending”.
 Low global demand for mineral commodities resulted in
sharp decline in prices during the second half of 2008.
 Mining Companies experienced a sudden decline in revenue
leading to marginal mines closing globally. The most affected
mines are;
 Base metals (Copper, nickel), and diamonds
Introduction cont.
Global financial crisis
 Botswana as an open economy heavily reliant on
diamond exports, is severely impacted by the decline in
demand from the jewelry manufacturers in USA.
 USA contributed 41% of he global diamond jewelry sales
 Diamonds contribute about 50% of government revenue
Impact on Botswana
Government
 Mineral revenue to the Government is expected to
decline by 50% during 2009,
 the diamond sales for 2009 have been worse than predicted
 Government drastically cutting expenditure to minimise the
budget deficit.
Impact on Botswana
Mining Companies
1.African Copper (Mowana Mine)
 Ceased production at the end of 2008 and now on care and
maintenance.
 The mine’s first commercial sale coincided with depressed copper
prices, therefore could not generate operational cash.
 384 jobs lost (including contractors) and only 190 people are currently
employed.
 New investors in the process of concluding an agreement to take over
the company. MMEWR’s role was to facilitate the negotiations
between two potential investors, one from Australia and the other
from Switzerland and Botswana Bond holders.
Impact on Botswana
Mining Companies
2.DiamonEx Botswana(Lerala Mine)
DiamonEx’s first disappointing sale in October 2008, the price
realised was 35% below the value of the diamonds.
 The Company has secured a P10 million loan facility from Stanbic
Bank, guaranteed by the Government of Botswana, to fund its
operating costs.
 Company put under Judicial Management in February 2009 because
of difficulty to meet financial commitments. Production at the mine
suspended indefinitely –about 284 jobs lost
 The Botswana Bond holders led by Fleming Assert Management in the
process of concluding an agreement to acquire the majority
shareholding in the mine and restructure the company debt.
MMEWR, again, played a facilitation role during this debt
restructuring process.
Impact on Botswana
Mining Companies
3.Debswana Diamond Company
 Production suspended from 29 December 2008 to 25 January 2009
and 25 February to 14 April 2009 to conserve cash.
 Production at Damtshaa Mine and Orapa Plant No 2 will remain
suspended until the end of 2009, while the rest of the operations
commenced production as planned after the 14 April 2009.
 During 2009 diamond sales are anticipated to be reduced from 27.6
million carats in 2008 to 19 million carats during 2009.
 Production will be reduced accordingly to match with demand/sales.
Impact on Botswana
Mining Companies
3.Debswana Diamond Company – Cont.
 Closure of Damtshaa Mine and Orapa No. 2 plant will affect 580
employees. Various options are in place to keep the employees
engaged, this include redeployments, extended leaves, working shorter
cycle times. RETRENCHMENTS WILL BE AVOIDED AS
MUCH AS POSSIBLE
 If the recession is short (less than 2 years as predicted by the market
observers) it will be critical for Debswana to be ready to react to any
upturn “operational readiness”
 This requires employees who are ready to produce whenever there is an
upturn.
Impact on Botswana
Mining Companies
4.Diamond Cutting factories
 15 of the 16 licensed factories prior to the economic crises had
reached a peak employment level of 3267.
 As at end of March 2009 the diamond cutting and polishing had
decreased to 2308, a decline of 29% from the peak employment level
in 2008.
 Two factories are currently under care and maintenance.
Impact on Botswana
Mining Companies
5.BCL & Tati Nickel Mining Company.
 Nickel price declined from an average high of US$ 14/lb in March
2008 to a low of US$4/lb in the last quarter of 2008 and first quarter
of 2009.
 The two companies are not able to meet their financial obligations
from their metal sales.
 No curtailment of production is envisaged from the two mines.
 285 jobs at BCL and 105 at Tati will be made redundant
Impact on Botswana
Mining Companies
6.Morupule, Botswana Ash and Mupane Gold Mine.
 Production from this mines not significantly affected by the global
crisis.
 No Job Loses is expected as a result of the global financial crisis.
Intervention
 MMEWR engaged experts to conduct a strategic review of the mining
industry and advise government on suitable short and long term
strategies to safe guard the Industry (to be completed in May 2009)
 In the mean time companies are assisted on a case by case basis and they
include: DiamonEx P10 million loan guarantee by Government.
 Facilitation to restructure Lerala and Mowana Mine and introduction of new
capital investment.
 Facilitation in labour disputes between Debswana management and Employee
representatives (Botswana Mine Workers Union).
 Participating in issuing shareholder loans together with other private partners in
entities where Government is a shareholder.
 Now considering new requests to defer payments due to Government
from some mining companies.
Intervention cont..
 careful monitoring of the situation and fine tuning strategies to minimise
any adverse domestic consequences.
 Prudent financial management with regard for the future, whilst
ensuring that any negative impact on the private sector is minimised.
 Borrowing and drawing down on foreign exchange reserves to sustain
government spending in the face of a short-term revenue downturn.
 Basic considerations are cost containment, employee welfare and
maintenance of the company’s readiness to restart when a turn around
occurs.
Conclusion
 The mining industry has to find innovative ways of addressing
developmental needs within the limited expected revenues.
 Exercising more Financial restraint and discipline.
 Government fully committed to ensuring that investment in the
country is protected from the crisis and all the operations survive.
 Employees remain the critical assert of the mining industry and
should be treated as such, “I have urged all companies to ensure
that all measures are pursued to conserve cash and
retrenchments should always be the last resort”.
 Government will continue to assist companies on a case-by-case,
while we develop a long term strategy.
 Thank you
Annexure – Additional charts on
Employment
Annual Average Employment Trends
20,000
No of People employed
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Employment
2001
13,143
2002
13,323
2003
13,236
2004
14,132
2005
13,807
2006
14,574
2008 employment 11% higher than 2007 mainly due to:
•BCL due to the smelter shutdown
• Construction of the new DMS plant and Botswana Metals Refinery at Tati Nickel
•startup of new mining operations such as Messina Copper and DiamonEx
2007
16,380
2008
18,726
Feb-09
14,731
Mining Companies Employment Trends
10000
8000
Number of People
6000
4000
2000
0
-2000
-4000
Jan-08
Aug-08
Dec-08
Feb-09
Change from 2008 high
Mowana
BCL
Botash
336
579
463
194
(385)
5648
5336
4918
4352
(984)
425
445
438
446
1
DiamonE Debswan
x
a
208
7328
284
7717
7717
5801
(284)
(1,916)
Tati
Morupule
Mupane
Quarries
3488
4013
3117
2352
(1,661)
285
285
285
288
3
404
319
278
348
29
786
839
164
The employment figures include the mine establishment, Outside contractors employed by the mines and
trainees
Mine
Mowana
BCL
Botash
Possible Job losses
190
212
0
DiamonEx Debswana
284
235
Tati
Morupule
Mupane
Total
105
0
0
1026
Diamond Cutting Industry Employment Trends
600
Number of Employees
500
400
300
200
100
0
-100
Lazar
Leo
HA
Euros Plucz Dalu Yerus
Motig Suash Safdic Stein
e
DMB TMC Schac
DDA Rand
Cuttin Zebra
tar
enik
mi halmi
anz
ish
o
metz
Kapla
hter
g
n
Jun-08 199
298 306 473
152
151
151
261
79
243
78
82
99
169
121
0
Dec-08 199
318
343
514
166
172
147
255
128
254
49
98
162
226
147
0
Mar-09 90
319
206 362
140
137
126
18
122
240
5
115
120
189
119
0
Loss
109
-1
137
152
26
35
21
237
6
14
44
-17
42
37
28
0
Care &
Maintenance
Cutting Factories
Jun-08
Nov-08
Dec-08
Mar-09
% change from Dec 08
Total
2862
3267
3178
2308
-20.3%
Cutting Factories Employement
Number of Employees
3500
3000
2500
2000
1500
1000
500
0
Target
Actual
Year
2005
1600
950
2006
2400
1100
2007
2900
2700
2008
3200
3178
Feb-09
3300
2308
2010
3300
2011
3300