Botswana is setting out to lower the fiscal burden on resources investors in a charm offensive that separates it from the mining jurisdictions that are currently looking to increase mining taxes.
Botswana Minerals Minister Dr Ponatshego Kedikilwe, who shepherded the abolition of exchange control as Minister of Finance, is now dealing with lessening the country’s heavy dependence on diamonds.
To do so, the country is going out of its way to avoid having a fiscal formula for nondiamond minerals that disincentivises investors. Amendments to Botswana’s Income Tax Act and Value Added Tax Act now lean towards investor friendliness.
The amendment of the Income Tax Act, for example, resulted in a reduction of company tax from a minimum of 25% to 22%. “It is through this effectiveness that we are able to lure, to entice and to goad companies to search for nondiamond minerals,” Kedikilwe, who addressed the Botswana Resource Sector Conference, tells Mining Weekly.
As the large diamond mines that have served the Botswana economy so well age and yield declining revenues, the country’s success beyond diamond mining is now falling to a new breed of eager young start-up entrepreneurs in mainly coal and, more recently, also in Botswana’s new copper/silver belt.
The government has embarked on a strategy to improve the ease of doing business in Botswana and to improve the country’s global competitiveness.
“The attitude of the Botswana government is that the private sector must be given the opportunity to participate as freely as possible in mining.
“Governments don’t have the know-how nor the massive financial resources that are required, but are best able to create an environment for those who invest to make a return on their investments,” he says.
Kedikilwe constantly encourages investors to provide inputs on how well the government is performing.
“We cannot be our own judge,” he says.
On a mission to reduce undue red tape, he is insistent that bureaucracy must not impede the aims of government. The country is racing against time to find revenue substitutes for the large diamond mines.
The large Jwaneng mine’s Cut 8 project, for instance, will not increase the production output of the crucially important mine but only allow it to mark time production wise.
A coordinated effort is being made with the new Coal Development Unit to have a more substantial go at developing the country’s coalfields and Kedikilwe’s view is that there is no reason why copper/ silver mining in Botswana cannot, in time, be even bigger than diamond mining in the country (also see page 10).
Botswana has developed a national strategy on coal development – the Coal Roadmap.
With estimated coal deposits of 200- billion tons, of which 7.1-billion tons are measured reserves, coal presents a growth opportunity for Botswana and a route to diversification, reducing the overreliance on diamonds.
The government lifted its moratorium on the issuing of new coal, coal-bed methane and related mineral prospecting licences in January 2012.
CIC Energy president Greg Kinross reports that the business climate is starting to change positively for the coal-based projects that the TSX-listed company is planning.
CIC Energy has a resource estimate of 2.4-billion tons of coal, 98% of which is in the measured category and accounting for about 50% of Botswana’s measured coal.
The company is looking at a flagship 1 200 MW electricity export project, which is awaiting a power purchase agreement with South Africa; an export coal project, which is logistics dependent; a 300 MW domestic power project, which awaits government information; and a coal-to-hydrocarbons project, which is a longer-term market-dependent project.
It has sufficient water for all of its projects and the company is ready to proceed with its plans once decisions are taken at government level on infrastructure provision and power price agreements.
CIC Energy’s most recent corporate development is the introduction of the new influential Vitol Group as its largest shareholder with nearly 10% of the equity.
The 46-year-old Vitol, a large inde- pendent energy trader, controls 11 terminals on five continents and has various exploration interests.
Vitol and a partner recently acquired majority shareholdings in nearly 80 Shell retail service stations in Botswana and Namibia and, on completion of the transaction, the joint venture will operate 1 300 retail stations across Africa and have access to 1.2-million cubic metres of storage.
Energy Corridor
Kalahari Energy Botswana group CEO Steve Martin believes that Botswana has the potential to become a major energy corridor within the Southern African power pool.
Kalahari Energy, which is pioneering coal-based methane exploitation in Botswana, operates the small 90 MW Orapa power plant and is in the process of developing a new 180 MW power project in the country.
Martin says that the Botswana government, which has already shown itself to be a facilitator of independent power producers, now needs to take the next step to positioning the country as a major Southern African energy source.
The State-owned Botswana Power Corporation, Martin adds, needs to transition from being a generator and buyer of electricity to being a regional energy trader.
Kalahari Energy works closely in Botswana with South Africa’s JSE-listed, majority-black-owned Exxaro, whose Danie Mouton urges that all the coal- mining companies working in Botswana collaborate in order to provide efficient, bulk-based essential infrastructure to realise the landlocked country’s full coal potential.
ASX-listed African Energy Resources head Frazer Tabeart says that Botswana’s central regional location positions it to export power multidirectionally into the Southern African region.
African Energy is building the 300 MW Sese integrated power project, which is served by a captive low-cost coal mine. Many would also like to see coal used in coal-to-liquids transport fuels and chemicals.
The ASX- and Botswana Stock Exchange- (BSE) listed Discovery Metals has emerged as the belt’s first copper/silver miner and TSX- and BSE-listed Hana Mining and the ASX-listed MOD Resources are on the way to joining it.
Market response to Discovery Metals’ performance has been a sevenfold uplift in its share price (see also page 10).
Meanwhile, Kedikilwe declined, in interviews on the sidelines of the Botswana Resource Sector Conference, to say whether or not the Botswana government would be taking up its option to increase its shareholding in De Beers, from the current 15% to 25%.
Diamond mining accounts for 41% of the Botswana government’s revenue and 32.3% of gross domestic product, which has prompted the government to adopt an economic diversification drive.
The global financial meltdown saw Botswana’s diamond production plummet to 17.7-million carats in 2009 from 32.6-million carats in 2008 and employment in cutting and polishing fall from 3 267 in 2008 to 2 183 in 2009, rising back to 3 297 in the first quarter of 2012.
The Botswana government will be buying 10% to 15% of the production of Debswana and selling those diamonds itself through the Okavango Diamond Trading Company as a verification exercise.
“To us, that leverage is extremely important because we won’t be depending solely on De Beers to do the marketing,” he adds. The government is developing a mining investment company that will manage its investment in mineral resources on a daily basis. Policy Framework
Broadly, Botswana’s minerals policy framework has aimed to engage the private sector as the main driving force in exploiting the country’s mineral resources.
In maximising the economic and other benefits for the country, the minerals policy aims to accelerate prospecting and new mine development; encourage activities that generate real value add and linkages with the rest of the economy; create training and employment opportunities for citizens; and minimise the environmental damage caused by mining operations.
Primarily, the Mines and Minerals Act 1999, govern the exploration and mining in Botswana, which is reviewed on a continuous basis.
Edited by: Martin Zhuwakinyu
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