The audacity to be a unicorn

Mbongeni Mguni | Wednesday April 24, 2024 17:59

Executives at the Minerals Development Company Botswana (MDCB) seem to particularly enjoy the use of graphs. Given that the many of the officials at the state-owned minerals investment firm have backgrounds either in mining or investment, the preference is understandable.

One graph in particular elicits both hope and apprehension. Frequently shown at MDCB’s public presentations, the graph shows both the gloom of a post-diamond future and the opportunity for new revenue or growth streams to emerge for the country.

MDCB sees its role as lifting the economy from the despair of a diamond-less future by making smart investments in other mineral assets now, for posterity. Essentially, by leveraging on the wealth of world-class mining industry expertise the country has built in its citizens over the decades, MDCB will invest in local, regional and international mining projects to earn revenues that are more sustainable than the country’s current resources.

As a private company wholly-owned by government, MDCB represents the first of a handful of emerging entities in which the state is reaching out into the specific sectors locally and internationally, hoping to leverage on homespun skills for generational value.

“Our purpose is to build a sustainable Botswana for future generations.

“Our mandate is to build a sustainable Botswana for future generations.”

MDCB CEO, Matome Tsholetsa Malema, a minerals industry veteran, is quick to explain that beneath the grand ambitions, lies a steel-willed, agile enterprise tuned for commercial success.

“We are a hard-nosed commercial entity and the way we have coined our mission is that as a company, we want to make sure that we generate attractive returns for the government of the Republic of Botswana. That’s the first thing.

“Our first mission is commercial returns.

“So, any investment that does not give commercial returns that we want, we will not go for it. “But if you have investments that are similar in terms of commercial returns, but one has spinoffs in terms of creating more employment, that’s what we would actually go for,” he says.

MDCB’s goal is to become a unicorn by 2030, or to achieve a book value of $1 billion (P13.78 billion) in the next six years. Unicorn companies are named such because of their statistical rarity.

Strictly speaking, unicorns are start-ups which are privately owned and not listed on a stock exchange.

MDCB, however, not only enjoys equity and other support from government, but its portfolio thus far is made up of investments it “inherited” from government such as the equity stake in De Beers, BCL Ltd and a convertible facility in Minergy.

But even with the more relaxed local definition, unicorns are hard to come by in the domestic market. Within the listed companies, which generally represent the cream of the crop of private capital, only First National Bank Botswana is within a whisper of unicorn status with a market valuation of P11.8 billion or $860 million as at Thursday.

At present, MDCB’s portfolio is valued at P7.1 billion ($520 million). Revenues of P1.6 billion are all from the investments inherited from government, while the MDCB’s own venture, Minergy Ltd, is under a “turnaround and stabilisation strategy” having spent most of last year without operations at its Masama Coal Mine.

The pursuit of being a unicorn means steadily increasing the portfolio through carefully selected “high-return” investments. The targets thus sharpen the MDCB’s pursuit of the returns required to carry the economy across the potential upheaval associated with a diamond-less future.

Within the company, much rests on the chief investment officer’s shoulders. Modise Mokone has the primary responsibility of searching for the investments that will produce the returns government needs going into the future.

“When we were formed, there were certain problems that the government was trying to solve,” Mokone explains.

“MDCB’s key role or the problem we are trying to solve is that we understand that diamonds are not really forever, and we are having to go underground and into other future projects.

“What we understand is that the revenues that the government will be earning from those assets will decline over time.

“So having understood that, government established MDCB to really try and cover that or mitigate that revenue gap.”

He continues: “The overdependence on diamonds and the challenges in the diamond market then said to government, ‘we need to look at other investments that will supplement the income that we expect to decline from diamond earnings’.

“So our role is really to look into the Botswana, the region and internationally for investments that will generate that return.

“That will augment that income and ensure Botswana’s financial security.

“It all in all a bid to achieve financial security for our country.”

The MDCB has a war chest of between one and two billion Pula available to look for investment opportunities. The plan going forward is to invest in near-term, low-cost, scalable and cash-generating projects in order to boost returns.

The MDCB could not have picked a worse industry to ride the road to becoming a unicorn. Mining is traditionally a high-risk industry, fraught with operational risks and a merciless boom-bust cycle so severe that even giants such as De Beers can be shaken in just a few months, as happened during last year’s diamond downturn.

The risk fluctuates along the pipeline of development, but does not ease at any point. MDCB has been re-learning some difficult lessons from Minergy, a coal investment reliant on high volumes, solid prices and steady market logistics.

Mokone says the team is keenly aware of its task.

“In investing in mining, MDCB will assume high levels of risk,” he says.

“We assume high levels from being in the commodity space as we know that prices fluctuate quite significantly due to economic conditions.

“But we also assume risk through investing through some of the instruments that we do.

“To manage this risk, we seek to undertake significant and robust due diligence exercises on all the entities that we invest in and ensure that all the risks that we find that we are unable to mitigate and those that we can mitigate, are adequately priced and the potential commercial returns are therein taken.”

According to the chief investment officer, in terms of which stage of development MDCB is ready to enter an investment at, the company focuses on projects that have demonstrated “some level of resource definition, some feasibility work”.

In terms of commodities, MDCB is “sector agnostic” meaning it is looking at all commodities, from diamonds, nickel, copper. However, the company is leaning towards critical minerals, which have captured global attention as the world undergoes an energy transition from fossil fuels to renewables.

“We are continuously seeking to refine, augment and improve our investment evaluation practices to ensure that we efficiently deploy our capital at all times,” he says.

“Our focus will be on optimising our existing portfolio and of course building in new portfolios to enhance this performance.

“Our focus in investment is a global investment focus but our mandate allows us to look anywhere on the globe and beyond.

“We have taken a deliberate decision to say we will first and foremost focus on Botswana, the assets we can see, develop, augment and optimise within the Botswana portfolio as we build out that strategic approach to then phase out to regional and international.”

The hard-nosed commerce experts at MDCB are determined. Their graphs and targets are clear. The journey to unicorn status appears set. The challenge of lifting the economy into its post-diamond future is underway.