With its largest market being North America, the diamond sector has been hit hard by the global recession. Botswana, by far the world’s largest supplier of diamonds, has not emerged unscathed with Debswana having shut down all four of its mines this year for varying lengths of time.

Mining accounts for over 80% of Botswana’s export earnings, some 40% of government revenue and a third of the country’s gross domestic product. Botswana has spent the past decade working to diversify its mining sector, but remains greatly reliant on its diamond production. It produced over 33 million carats of diamonds in 2007 and its output over the whole of 2008 was only slightly down on that at about 32.8 million carats. Thus when diamond sales drastically decreased from November 2008 onwards, Botswana, which is ranked by the Canadian based research organisation, the Fraser Institute, as Africa’s most attractive mining investment destination, was always going to feel the crunch.

However, Botswana’s minister of minerals, energy and water resources Ponatshego Kedikilwe says in an interview with Mining Review Africa, thanks to the cautious and sensible fiscal approach taken by the country it has been relatively well placed to weather the storm.

“Even though two diamond projects have been delayed and diamond mines and plants have been put on care and maintenance, government projects to build infrastructure are being funded from reserves built up over the years.

“Because we did not squander the foreign exchange earnings during the good years our social and infrastructure development investment will continue,” Kedikilwe says.

Botswana is investing in some sizable infrastructure projects including the expansion of its Morupule coal fired power station. And Botswana is building a 400 km water pipeline to transport water to the more arid southern part of the country from the more water rich northern parts.

However, even Botswana, with its fiscal prudence and its rating as the continent’s best managed country, won’t be able to come through an extended downturn in the diamond sector unscathed.

Debswana announced in February that it would shut Orapa No 2 plant and Damtshaa mine for the rest of 2009, while its other operations, including the Letlhakane and Jwaneng mines, only resumed in April 2009, having not been mining since Christmas 2008. “We are looking at leave arrangements, voluntary retrenchment and seeing who wants to retire.”

Kedikilwe dismisses the idea that Debswana may be acting as a swing producer in the diamond market. “The diamond market is too big for anyone to control. It comes down to the fact that at some of the mines the diamond prices are below the cost of production in the current market and continuing with production is not economically viable at the prevailing prices.”

Debswana is the country’s largest employer after government with some 5,000 people having been employed at its four mines. Overall Botswana’s mining industry employs some 13,000 people. This includes the country’s long standing soda ash producer, Botash, which produces some 300,000 tonnes of soda ash a year.

There is the Mopani gold operation owned by Iamgold which performed well in 2008 to produce 100,000 ounces and has reduced costs from US$600/oz to below US$400/oz. Mopani is expected to produce some 80,000 ounces this year, and continue at the same rate into the future.

In base metals Botswana was on the brink of adding the Dukwe copper project to its long established Selibe-Phikwe copper-nickel producer, operated by Bamangwato Concessions, and the Tati nickel operation where Anglo American and LionOre are the main shareholders. But the fall in the copper price stalled the Dukwe project.

Selibe-Phikwe itself only has a few years of life remaining with production expected to continue to 2011 or 2012 based on current reserves. Kedikilwe is optimistic, though, that exploration will extend its life.

However, it is in Botswana’s estimated 200 billion tonnes of coal resources where he sees the greatest potential for expanding the mining sector. He has been working hard to try and help fulfill CIC’s vision for a coal producing complex at Mmamabula. Kedikilwe is particularly keen to see CIC’s power station plan come into being, and in December 2007 the country’s law was changed to accommodate potential Independent Power Producers (IPPs).

CIC initially planned for a 2,400 MW power station, but the anticipated cost escalated from US$6 billion to US$16 billion and the project’s envisaged size has been downscaled to 1,320 MW to fit it into the original capital cost profile. The preferred engineering procurement and construction contractor, Shanghai Electric Group, has said there are risks associated with the project. The government of Botswana, while highly supportive, is not in a position to underwrite the guarantees to offset the project risks. “An inter-utility memorandum of understanding was signed between Botswana Power Corporation and Eskom,” Kedikilwe says.

“A key to the project is a power purchase agreement with Eskom and that utility will only purchase power if it fits in with its own pricing structures. The CIC chairman has met with potential financiers such as Rothschild for funding, but the challenge is to produce a project that is economically viable for the IPP.” If the regulator in South Africa can come up with a pricing formula that works for both it and the IPP, a major hurdle will have been removed from the project’s path.

Kedikilwe would like to see Mmamabula deliver an IPP project by 2013. “The region is short of power, and in all I am gingerly optimistic about the CIC project.”

Further, a trans-Kalahari rail line that could transport coal to Walvis Bay or Luderitz in Namibia is not a new concept, having first been discussed as far back as the 1970s and 80s. However, regional and international coal markets have changed since then and such a project if it went ahead could make Botswana into a coal exporter.

Botswana deserves credit for being one of the countries that resisted the temptation to fiddle with its fiscal mining legislation during the time of commodities upsurge. “We appreciate the need for investors to make an attractive return, and try to be careful not to kill the geese that lay the golden eggs,” Kedikilwe says.

The result is that Botswana remains an attractive destination for explorers and developers, with Kedikilwe having issued over 800 exploration licences over the past two years. “These have covered diamonds, lead-zinc, uranium, copper and coal including coal-bed methane potential.”