Govt still weighing Lucara equity stake
Mbongeni Mguni | Friday January 29, 2021 17:02
Lucara’s Karowe Mine has become world-famous for discovering the 1,109-carat Lesedi la Rona and the 813-carat Constellation in 2015, before unearthing the 1,758-carat Sewelo in April 2019. Lesedi la Rona was sold for $53 million (P566 million at current rates) in 2017, while Constellation became the highest ever-selling single rough diamond going for $63.1 million (P673 million) in 2016.
Karowe has continued producing huge stones and this year alone announced the discovery of an unbroken 341-carat top white gem quality diamond and an unbroken 378-carat gem quality top white diamond, within 12 days of each other.
In 2019, President Mokgweetsi Masisi revealed that he and other senior officials had held talks with Lucara executives during his trip to the US, where the issue of securing a stake was discussed.
Minerals permanent secretary, Mmetla Masire told BusinessWeek that no decision had yet been taken on acquiring the stake.
“The issue is with the Department of Mines, then they will make a recommendation to the minister,” he said on Wednesday.
“Karowe’s licence was recently renewed, which was an opportunity for equity, but it is not too late.
“The taking up of shares can be done at any time and there are other channels for this to happen.”
The Minerals Development Company Botswana (MDCB), the government agency that holds all state interests in minerals, conducted and completed due diligence into the Lucara stake at least a year ago. Officials there said they had forwarded their recommendations to the ministry.
“Please note that as indicated above, MDCB as the mining and minerals investment arm of government, will from time to time assess mining and minerals opportunities in the market including those arising pursuant to government’s participation rights provided for in the Mines and Minerals Act at the time that mining licences are applied for or renewed,” MDCB head of corporate communications Esther Norris told BusinessWeek in emailed responses.
“In this regard, MDCB performs detailed reviews and advises the government through the Ministry of Mineral Resources, Green Technology and Energy Security on the attractiveness of such emerging investment opportunities.”
By law, the government can acquire up to 15% equity in mining ventures, although it does not always exercise the right.
The issue of equity in Lucara has become highly topical, as Karowe keeps unearthing historic diamonds and creating value for its shareholders. Analysts say government snapping up equity now would be timely as Lucara’s shares on the Botswana Stock Exchange have been trending downwards since 2016, losing 24% in the last 12 months alone.
Had government attempted to buy into Lucara at its peak, it would have paid P34.78 per share at open market rates in 2016. Today, however, Lucara is trading at P5.10.
On the other hand, the acquisition of shares now could also open the government up to funding commitments for Karowe’s P6 billion underground expansion. Lucara executives have said the company is exploring debt financing options for the underground expansion for “those amounts, which are expected to exceed the company’s cash flow from operations during the construction period.”
The underground expansion is expected to be completed by 2026 and represents Karowe’s future.