Botswana Mining Report Q2 2008

Exploitation of rich mineral reserves, especially diamonds, has been a significant driver behind Botswana's rapid economic growth. Notably, the mining sector of Botswana contributes in double digits to the country's gross domestic product (GDP). Diamonds, along with copper and nickel, are the major focus areas in metal and mineral exploration in Botswana and earn more than three-fourths of the country's export revenues.

Botswana has a strong and well-managed mineral economy. Coupled with a long record of political and macroeconomic stability, the nation provides mining companies many lucrative opportunities for growth. However, mineral exploration in Botswana is difficult. The geology of most of Botswana is poorly understood and information is based largely on drilling. On the positive side, the potential for coal mining, a relatively unleveraged sector in the nation, has heightened with the increase in demand for coal from the emerging economies of the world. Another factor working in favour of Botswana is its membership in the Southern African Customs Union (SACU), which allows preferential access to the EU market under a free trade agreement (FTA).

Mineral exploration and mining are regulated by the Geological Surveys Department and the Department of Mines, respectively. As in many other countries, three basic types of mining licences are granted in Botswana: the reconnaissance permit, the prospecting licence and the mining lease. To ease the licensing process, the government did away with the 1977 legislation regarding mining in 1999.

Thus, to a large extent, it can be said that the Botswana government adheres to transparent policies and maintains effective laws to foster competition.

Asenjo Energy said in January that it intended to develop a coal mine and power station at Mmamabula-West, designed to help resolve Southern Africa's emerging electricity supply shortages.

Asenjo is a 50-50 venture between Aquila Resources of Australia and Jonah Coal. It intends to launch an IPO to raise capital for the project. The coal mine is believed to have reserves of up to an estimated 4.5bn tons. It is around 30kms away from another proposed coalmine and power plant, also in Mmamabula, to be built by CIC Energy. Both CIC Energy and Asenjo Energy are proposing to generate power and produce liquid fuel as well as to export coal. Asenjo's chief operating office Malcolm Campbell said he believed the CIC Energy power station would come onstream in 2012, with Asenjo's Mmamabula-West following one year later in 2013. Industry observers said that a key issue for both coalmines was transport infrastructure. For exports to be viable, they would require construction of a freight rail link either westwards to the Namibian port of Walvis Bay, or eastwards to link up with an existing railway reaching South Africa's export port of Richards Bay. Botswana is estimated to have total coal resources of 212bn tonnes, similar in volume to South Africa, but unlike South Africa, Botswana's remain largely unexploited.

Industry Forecast Despite efforts by the government of Botswana to diversify to non-mining sectors, diamond mining as a source of revenue remains the backbone of the economy. The sharp rise in global prices of gems and metals leaves little possibility of any major deviation from this trend in the medium term. However, to sustain the economy in the long term, Botswana needs to explore the potential of its other sectors such as tourism. BMI forecasts an average growth rate of 7.7% for the Botswana mining industry over 2008- 12 and expects that the industry value would reach an estimated US$6.53bn by 2012.