A decline in global consumer demand for luxury goods such as diamonds due to the economic recession forced miners in Botswana to go on a production holiday in 2009.
The country’s production output plunged by 45 per cent as a result.
Frost & Sullivan now has some good news for the Botswana diamond industry, which had been struggling to come out of the recession mode.
It said Botswana’s diamond production output was forecast to rise from 22.97 million carats in 2010 to 30.83 million carats in 2014.
“A steady rise in consumer demand from China and India, and a modest improvement in demand from North America and Europe, are chief among the factors expected to contribute to the recovery of Botswana’s diamond mining sector,” said Frost & Sullivan’s IPC Industry analyst James Fungai Maposa.
The projected increase in diamond output also coincided with reports by the Bank of Botswana, which noted that the country had recorded a trade surplus of $427 million in the first quarter of the year from a $534 million deficit in the last three months.
The central bank said the increase was due to higher mineral exports, particularly diamonds.
Meanwhile, Frost & Sullivan said Debswana’s investment expenditure was also expected to increase considerably from $355 million in 2010 to $555 million in 2014.
Key projects expected to contribute to the increase in short-term capital spends included the Jwaneng Cut 8 expansion and the Morupule Colliery expansion.
The firm said the steady increase in global diamond demand was also expected to contribute to diamond prices gradually returning to the levels achieved during the first half of 2008 between 2012 and 2013.
“Mining companies in Botswana are however expected to continue to struggle to raise funds to start or expand operations during the short term,” said Maposa.
“Botswana’s mining industry consists mostly of multinational companies that rely on funding from international markets to expand or construct new mine operations.
With most international financing houses focusing on investing in low risk ventures, companies are going to find it difficult to develop their prospects to new mines.”
He said the combination of risk aversion and uncertainty of mineral commodity prices were expected to have a great impact on Botswana’s mining companies, particularly the smaller, emerging mining entities.
The Credit Suisse Bank said recently that due to the risk-averse nature of the investment industry, a delay in mining finance of $150 billion to $200 billion was forecast between 2011 and 2013.
Delays in obtaining funding were therefore expected to affect the mining industry between 2011 and 2014, it said.
“Despite the limited access to funding, the International Monetary Fund (IMF) predicts that Botswana’s diamond exports could reach between 80 and 85 percent of the levels reached prior to the recession in 2008, during the medium term of the forecast period,” said Maposa.
“This anticipated growth in global diamond demand could restore investor confidence and re-inject the needed capital for the successful implementation of planned expansion projects.”
Mathew Nyaungwa, Rough&Polished
