CLEARLY CUT In Botswana, there is access to historical and geological information, a clear rule of sovereign law and the prospecting licence application process has clear rules and regulations, which make the country appealing to resource investors
Following the discovery of the second-largest diamond in Botswana since 2015, the country has received more attention, with investors wanting to invest more in mining projects in the region, says diamond exploration and project development company Botswana Diamonds MD James Campbell.He
adds that Botswana Diamonds is currently active in diamond exploration in the Kalahari region of Botswana. He believes that the region is one of the most underexplored areas in the Southern Africa region.
In Botswana, there is access to historical and geological information, a clear rule of sovereign law and the prospecting licence application process has clear rules and regulations, which make the country appealing to resource investors, Campbell asserts. In fact, it is unsurprising that Botswana is often called ‘the Switzerland of Africa’.
“The geopolitical risks in Botswana are low; therefore, early-stage investors may come to the country, instead of considering other countries, such as South Africa, which currently has higher country risks,” he says.
“Countries that are relatively underexplored, such as Botswana, also attract early-stage investors and prospectors.”
Campbell highlights that countries compete for investment in the same way that companies compete for capital, and this is achieved by making the country more attractive in the competition for capital. This is in part achieved by reducing the transaction and political risks. In this regard, Botswana ensured that the process that mining companies take to obtain licences is transparent and that there is compliance both from government and the mining companies.
Moreover, when junior companies engage in the application process, they are notified whether their application has been successful within a relatively quick, turnaround time.
Importantly, Botswana also requires mining houses to have technical and financial credibility to prevent fraudulent companies from entering the mining sector, which could result in legitimate companies being hampered from doing work that is required of them by shareholders.
Junior mining companies, such as Botswana Diamonds, chiefly market to early-stage exploration funds offshore to acquire risk capital for investment, as it is very difficult to raise risk capital in South Africa and Botswana.
“The market for exploration funding is tough and, sadly, nearly all the companies that are active in Southern Africa, including Botswana, have to raise money from international investors in Canada, the UK or Australia,” Campbell explains.
“These companies are generally not keen to invest in early-stage exploration as there is no guarantee of success.”
In his paper, titled ‘Financing Diamond Projects’, published in 2018 by the Southern African Institute of Mining and Metallurgy, Campbell highlights the various phases of the funding process for junior explorers.
During the first phase – the discovery phase – early investors may see substantial gains as early-stage results are announced, while during the resource development phase, a lack of news leads to share sell-offs by less patient investors. This is the so-called ‘orphan period’ as this project phase tends to be more costly than early-stage exploration and has less excitement attached to it, but it is a necessary and vital phase in ultimately developing a mining project.
Institutional investors and then banks only begin to enter the scene once a bankable feasibility study has been developed, when most of the risk has been taken out of the project.
“There is a dire need for project incubators,” Campbell asserts, emphasising that “traditional equity and debt financing are constrained by falling commodity prices and continued uncertainty.
Diamond exploration and resource development is a highly complex business with a high failure rate”.
It is more difficult to raise money now than it was ten years ago, says Campbell, pointing out that entrepreneurs with a following and isolated ‘junior incubators’ have been instrumental to the growth of certain diamond companies. If it was not for friends, family and fools (the so-called 3 F’s), the AK6 mine project would not have become the now famous Karowe mine. Early stage African Diamonds (where Campbell was also the MD), received a twenty-five times return on their investment through being one of the original developers of this mine.
He suggests that alternative funding sources are better suited for junior and midtier miners, as they attract investors with higher risk appetite and faster decision-making than banks.
Alternatives are often inaccessible to early-stage greenfield project developers.
Technology Trends and Projects
Campbell highlights technology as a significant development in the mining industry.
“There’s a famous saying in the exploration industry: Whenever there’s a breakthrough in exploration technology, the clock starts ticking again,” he says.
Campbell notes that the Karowe diamond mine, in Botswana, was originally considered small and subeconomic when it was discovered in 1969.
However, with the improvement of ground geophysical and drilling technology, the size of the pipe and grade of the diamonds have significantly increased, which has changed the “kimberlite from being forgotten to a mine that has produced the second-largest diamond in the world”, Campbell enthuses.
He adds that various mining projects are being developed in Botswana, such as the Debswana joint venture between the Botswana government and diamond major De Beers, which has been successful from a commercial perspective and is “a superb role model” for other operations worldwide.
Diamond exploration and mining company Lucara Diamond has operations in Karowe, which have been successful, while junior explorers have also been involved in exploration projects, specifically in the Orapa and Kalahari regions.
Botswana Diamonds is also developing the Thorny River project, in South Africa, close to the Marsfontein diamond mine. The company is exploring the kimberlite fissure complex surrounding that area. Botswana Diamonds has published a competent person’s report for the project and has completed an intensification drilling programme, in addition to bulk sampling.
There is increased exploration in Botswana and investors are looking to invest in exploration projects. Investors and Botswana’s economy will benefit from these developments in the mining industry, Campbell concludes.