BMI View: Botswana's mining sector will continue to attract global mining investment due to the country's strong regulation and attrac tive business environment. However, we note that a lack of d iversity remains the country's weak spot , with Botswana vulnerable to growing competition from other diamond-producing countries in the region.
Ongoing electricity and water shortages will weigh on economic growth in 2015, pushing real GDP down to 4.1%, from 4.4% in 2014. It is also unlikely that the bumper upswing in diamond production witnessed in 2014 will be repeated as base effects wear off, impeding net exports ( see: 'Electricity & Water Shortages To Impede Growth' July 1). Despite this, we maintain a constructive outlook for Botswana's mining sector over our forecast period to 2019. For instance African Energy Resources is considering doubling its investment at the Sese power project. Current plans are for a 300 megawatt coal-fired plant with an estimated cost of USD750mn.
Diamonds will remain the key revenue source for Botswana's mining sector, boosted by new projects planned by Debswana, Gem Diamonds and Lucara Diamond Corp and with significant exploration activity also taking place across the country. In addition, we expect coal will become an increasingly prominent component of the wider mining sector and forecast production will accelerate in the years ahead. In total we forecast the country's mining industry value will see average annual growth of 4.0% to 2019, reaching a value of USD3.7bn by 2019.
|Coal Production To Ramp Up|
|Botswana - Select Minerals Production|
|e/f = BMI estimate/forecast. Source: National Sources, BMI|
Diversity A Key Goal
Slow economic recovery in the US and Europe, two of the main export markets for Botswana's diamond production, has prevented more rapid growth in the country over the past few years. Therefore, the government is keen to reduce reliance on diamond revenue and is also wary of increased competition following growth in mining production in neighbouring states, including Zimbabwe and Angola. These factors are reflected in Botswana remaining in second place, in BMI's Africa Mining Risk/Reward Index in Q415, which is largely on account of the country's reduced score for industry rewards.
We highlight strong growth potential for the country's coal sector in particular, an area which remains significantly undeveloped, despite Botswana's coal reserves being the largest in Africa. Fast growth from a low base will be driven by companies including Anglo American, Exxaro, African Energy & CIC Energy, with output forecast to increase at double-digit rates over our 2015-2019 outlook period. Botswana has also been stepping up efforts to diversify its mining sector, with the government aiming to develop production of non-core minerals, including copper, gold and nickel. Looking ahead, however, we caution that weakness in global metal prices will mean that diversification will continue to prove difficult. Consequently, we expect diamond production to remain the mainstay of the country's mining sector, supported by strong growth in coal over the long term.
Exploration In Full Swing
The government of Botswana's readiness to support further mining sector expansion is shown by its continued willingness to award new licences for prospecting and exploration. In April 2015, the government awarded three new prospecting licences to Ireland-based Botswana Diamonds through its subsidiary, Sunland Minerals, which is a joint venture (JV) with Russian miner Alrosa. The three licences cover Botswana's Orapa region. In the same month, Botswana Metals provided a maiden JORC inferred resource estimate for its Maibele North project in Botswana. The resource consists of 2.38mn tonnes at 0.72% nickel, 0.21% copper and 0.63 grams per tonne 4 platinum group elements and gold using a 0.3% nickel cut-off grade. The data from 39 diamond drill holes that were completed in 2014 was used to calculate the resource. The company revealed that its expenditure for the first year totalled about AUD2mn (USD1.6mn). Botswana Metals is required to invest a further AUD4mn (USD3.2mn) over the next two years to secure a 40% interest in the project.