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Botswana generates new economic sparkle
Brendan Ryan
Posted: Mon, 08 Sep 2008
[miningmx.com] -- BOTSWANA has embarked on a far-sighted overhaul of its economy that will have sweeping implications for its mining industry in general and diamond giant De Beers in particular.
The reason is government concern that it must diversify from the country's overwhelming dependence on diamond mining revenues. Those will drop as opencast mines are forced to go underground, resulting in lower production, higher costs, lower profits and lower tax payments.
Keith Jefferis, MD of Econsult and a former deputy governor of the Bank of Botswana, says the country's diamond revenues will peak in 2018 and then drop off sharply. Thanks to diamonds, Botswana was the best performing economy in Africa between 1970 and 2000, reporting average growth rates of 10%/year or better - comparable to Asia's "Tiger" economies.
Mining was the largest contributor to Botswana's economy
in 2006/2007, accounting for 43% of gross domestic product, followed by government expenditure at 15%.
Akolang Tombale, co-ordinator of Botswana's Diamond Hub development, says one of the major thrusts is to switch from being a diamond mining country to a diamond trading and beneficiation centre. That's where the pressure is being put on De Beers, which sources two-thirds of its total diamond production from its mines in Botswana, which are jointly owned with the government through De Beers Botswana (Debswana).
Production is sold through five-year contracts, with the current one expiring in 2010, with renewal negotiations due to start next year. In 2005 De Beers was forced to expand its beneficiation operations in Botswana by moving the "aggregation" function for its total international production there from London.
Tombale - a former permanent secretary in Botswana's Department of Minerals, Energy & Water Resources - told the Botswana Resource Sector Conference held recently in Gaborone that he now wanted De Beers to also shift its sales - or "sights" - from London to Gaborone.
He added the Botswana government was keen to develop a trading system through which diamonds mined in the country by new producers would be sold outside the De Beers Diamond Trading Company (DTC) marketing channels.
Reasons were to increase the overall
volume of the diamond trading business in the country and also to allow Botswana's government to receive a comparison on prices achieved against those reported by the DTC. That's despite the fact the government is now involved in a joint venture with the DTC.
Though one new diamond producer - Australian-listed Diamonex - has already agreed to do that, De Beers is apparently jibing at the requirement. That situation lies at the heart of its dispute with partner African Diamonds over the development of the proposed AK6 diamond mine.
The other thrust is a major diversification of Botswana's resources sector into base metals, uranium and, in particular, coal and gas. The most important sector is probably coal, where projects are under way to develop power stations to sell electricity into South Africa's Eskom grid as well as coal to its power stations.
Most advanced of those is Canadian-listed junior CIC Energy, whose proposed Mmamabula colliery and linked
power station in eastern Botswana is "Project Delta" on Eskom's pipeline of new projects.
CIC is also keen to develop Botswana's coal export business and has put in place a high-powered management team - loaded with former Eskom, Richards Bay Coal Terminal and Transnet Freight Rail executives - to conduct a study to develop Trans-Kalahari rail link to the ports of either Walvis Bay or Lüderitz, in Namibia.
Other juniors include Australian- and Botswana-listed Aviva, which has submitted proposals to supply 1,000MW of power to Eskom from its Mmamantswe project, as well as sales of between 6 million tonnes and 12 million tonnes/year of coal.
The Botswana Power Corporation has also just awarded a tender for construction of a 250MW power station using coal bed methane (CBM) as fuel to a private company called Karoo Sustainable Energy (KSE).
Junior explorers, such as Australian-listed Discovery Metals and A-Cap resources, are now busy drilling up
potential new base metal and uranium deposits while others are searching for more of what put Botswana on the map in the first place - kimberlitic diamond mines.
A key point made by all of them is that Botswana is a far easier country in which to prospect and mine than South Africa.
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