Mining trudges to recovery in 2010

| Wednesday December 22, 2010 00:00

 

DiamondsThe country entered 2010 with one of its four diamond mines, Damtshaa, suspended and operations at the massive Orapa No. 2 plant tottering after intermittent production during 2009.

Under its continuing Operational Review, Debswana announced that 1, 278 jobs would either be shaved off or outsourced by March 2011, while its financial muscle would be focussed on the P24-billion Cut 8 Project - the company's hope for sustained production amid declining mineral resources.

During 2010, price recovery and positive market fundamentals enabled Debswana to hike its targeted production from 17.7 million carats to 20 million, revising this further in September to 23 million. President Ian Khama also launched the mammoth Cut 8 Project in December, although the operation was already well underway with the first load of waste being mined in February.

During the year, the country witnessed the commissioning of only the second diamond mine outside the Debswana group, with production commencing at Firestone's BK11 Mine in Boteti. In December, the UK miner auctioned its inaugural parcel, selling 2, 162 carats for US$0.38 million. Late in December, having soldiered for seven years, shareholders of African Diamonds voted for a 100-percent takeover by Lucara, giving them two more diamond ventures as well as the lucrative AK6 project in Boteti district. Through the deal, former AfDiamonds' shareholders grabbed a 26-percent stake in Lucara, whose primary goal is to move AK6 to commissioning early next year. AK6 has an estimated in situ resource of US$2.2 billion (P14.9 billion).

Base MetalsFrom a collapse in prices linked to the crumbling of demand due to the recession, local copper and nickel producers entered 2010 hoping for a quick recovery in key markets and trendsetters such as China and India. BCL Mine and Tati Nickel Mining Company (TNMC), the country's largest and oldest producers of nickel and copper, soldiered through 2009, keeping the mills churning and minimising retrenchments while other producers around them folded. Resurgent demand from China, coupled with the warming global economy, quickly turned fortunes around for BCL Mine, which targeted 2.4 million tonnes of ore for 2010 up from 2.3 million in 2009.

The Selebi-Phikwe mine also announced successful exploration indicating an additional inferred resource of 31.5 million tonnes at 0.66 percent nickel and 0.54 percent copper. Plans for a Pre-Feasibility Study are underway.

For its part, the higher nickel prices enabled TNMC to allocate P12 million for exploration around its existing concessions. If successful, the exploration will extend the 25-year-old mine's lifespan beyond 2016, securing employment for Batswana and revenues for the government.

New producer, African Copper, pumped out 1, 790 tonnes of the base metal between January and September 2010, taking full advantage of the recovering prices to post half-year revenues of US$8.1 million. For October and November, African Copper's Mowana and Thakadu operations produced an additional 782 tonnes. Processing improvements mean African Copper is able to produce 5, 000 tonnes of concentrate a day.

In the west, Discovery Metals Limited marked a major milestone late in the year, receiving a mining licence for the Boseto Copper Project. Following six years of development, 2010 was frenetic for DML, with its board approving a Bankable Feasibility Study and the Government of Botswana awarding the mining licence. Armed with the 15-year licence and rising copper prices, DML plans to commission Boseto in the first half of 2012 with annual production of 35, 000 tonnes of copper and one million ounces of silver. At that rate, Boseto will overtake BCL Mine as Botswana's biggest copper producer.

CoalThe country's sole coal producer, Morupule Colliery, emerged unscathed from the 2009 recession owing largely to its watertight supply contracts and shareholder protection. The Central District-based operation focused on kick-starting a multi-billion pula expansion programme designed to triple production and support the expanding adjacent power station. To this end, in October, six local and South African banks teamed up to provide the P1.4 billion required for the expansion of Morupule Colliery. The Colliery expects expanded production by June 2011 and major works are already underway with a view to ensuring coordination with the power station's ongoing expansion.

Coal mine developers, CIC Energy and Aviva, suffered major setbacks during the year after the South African government essentially excluded their projects from a 20-year power plan. The move opened CIC Energy to suitors, one of whom successfully bid at P49 per share. By press time, CIC Energy shareholders were due to start taking up the offer.

For its part, Aviva's Mmamantswe project hangs in limbo while the Australian junior miner re-strategises. With a large coal resource of 1.3 billion tonnes, including a probable reserve of 895 million tonnes, Aviva could explore a coal export project instead of the original 1, 000MW integrated power station.

Also in 2010, government stepped up the development of the Trans-Kalahari Railway and dry port at Walvis Bay in Namibia, with 50 international bidders jostling to submit expressions of interest. The railway is expected to largely serve the burgeoning coal export industry to the benefit of players such as CIC Energy, the expanded Morupule Colliery and Aviva. During the year, the government also inched forward on the Coal Roadmap, a strategic document on how the country will manage and derive optimum benefits from the estimated 212 billion tonnes of coal. During 2010, the government and the World Bank prepared terms of reference to be used to retain a consultancy for the development of the roadmap. It is expected that the consultancy will be engaged and on the ground early next year.

Gold and Uranium The country's sole gold mine, Mupane Gold, strode confidently through 2009 unfazed by the recession and instead seeing higher prices for the precious metals as investors sought it out as a safe-haven. The gold producer continued its robust performance in 2010, producing 13,  000 ounces in the first quarter, 13, 000 in the second and 16, 000 in the third. While the first and second quarter production figures were below levels for the corresponding periods in 2009, Mupane bounced back in the third quarter, pumping out 5, 000 more ounces than in the third quarter of 2009. However, cash costs per ounce of gold were higher in the third quarter of 2010 compared to 2009 due to higher costs of mining as resources deepened, higher energy costs and higher royalties on increasing gold prices. In uranium, the two most active explorers, A-Cap and Impact Minerals, resuscitated activities following a 'freeze' imposed by the recession of 2009. A-Cap's latest exploration indicates good grade and thickness of ore, which the Australian company plans to continue probing throughout 2011. During the year, A-Cap conducted several successful fundraising activities, including a P62.4-million placement in November and a share purchase plan in December. Funds have largely been directed to the ongoing exploration programme.

For its part, Impact Minerals continued its two-year drilling programme in the central district while clinching a joint venture in the Xade area to investigate the possibility of platinum, nickel and copper.

PricesPrices across Botswana's major mineral exports rebounded in 2010 from their depressed positions in 2009. By the end of the year, experts estimated that diamonds had recovered by as much as 20 percent above their pre-recession levels, driven by demand from the recovering middle class in countries such as Japan, India and China as well as traditional consumers in the US.

At press time, copper prices were at an all-time high of US$9, 300 per tonne after an accident halted production in Chile's largest mines, Chinese imports rose and fears of retaliation from North Korea on the back of military exercises by South Korea receded. Similarly, nickel prices firmed throughout the year and by late December were US$11.10 per pound, almost 39 percent higher than the same time last year. For its part, gold rose remarkably throughout 2010, smashing past the psychological US$1, 400 per ounce barrier in early November and inching towards US$1, 450 by year-end. The gold price is now at its highest since 1974, being the year when online records are available. The precious metal began the year at US$1, 100 per ounce and rose on investor concerns about the world economy and the need to hedge in a traditionally safe instrument such as gold. Already, experts believe the yellow metal's price could break past US$1, 500 per ounce next year.