May Day Workers’ Summit

1. May Day Workers’ Summit • “Challenges faced by mining companies in Botswana in the current economic crisis and the impact on the workers’ job security” • Hon Minister of Minerals, Energy and Water Resources, Dr P.H.K. Kedikilwe

2. Introduction Global financial crisis • Started with developed countries particularly in USA, banks lending without due regard to the ability to repay the commitments “sub-prime lending”. • Low global demand for mineral commodities resulted in sharp decline in prices during the second half of 2008. • Mining Companies experienced a sudden decline in revenue leading to marginal mines closing globally. The most affected mines are; • Base metals (Copper, nickel), and diamonds

3. Introduction cont. Global financial crisis • Botswana as an open economy heavily reliant on diamond exports, is severely impacted by the decline in demand from the jewelry manufacturers in USA. • USA contributed 41% of he global diamond jewelry sales • Diamonds contribute about 50% of government revenue

4. Impact on Botswana Government • Mineral revenue to the Government is expected to decline by 50% during 2009, • the diamond sales for 2009 have been worse than predicted • Government drastically cutting expenditure to minimise the budget deficit.

5. Impact on Botswana Mining Companies • African Copper (Mowana Mine) • Ceased production at the end of 2008 and now on care and maintenance. • The mine’s first commercial sale coincided with depressed copper prices, therefore could not generate operational cash. • 384 jobs lost (including contractors) and only 190 people are currently employed. • New investors in the process of concluding an agreement to take over the company. MMEWR’s role was to facilitate the negotiations between two potential investors, one from Australia and the other from Switzerland and Botswana Bond holders.

6. Impact on Botswana Mining Companies • DiamonEx Botswana(Lerala Mine) • DiamonEx’s first disappointing sale in October 2008, the price realised was 35% below the value of the diamonds. • The Company has secured a P10 million loan facility from Stanbic Bank, guaranteed by the Government of Botswana, to fund its operating costs. • Company put under Judicial Management in February 2009 because of difficulty to meet financial commitments. Production at the mine suspended indefinitely –about 284 jobs lost • The Botswana Bond holders led by Fleming Assert Management in the process of concluding an agreement to acquire the majority shareholding in the mine and restructure the company debt. MMEWR, again, played a facilitation role during this debt restructuring process.

7. Impact on Botswana Mining Companies • Debswana Diamond Company • Production suspended from 29 December 2008 to 25 January 2009 and 25 February to 14 April 2009 to conserve cash. • Production at Damtshaa Mine and Orapa Plant No 2 will remain suspended until the end of 2009, while the rest of the operations commenced production as planned after the 14 April 2009. • During 2009 diamond sales are anticipated to be reduced from 27.6 million carats in 2008 to 19 million carats during 2009. • Production will be reduced accordingly to match with demand/sales.

8. Impact on Botswana Mining Companies • Debswana Diamond Company – Cont. • Closure of Damtshaa Mine and Orapa No. 2 plant will affect 580 employees. Various options are in place to keep the employees engaged, this include redeployments, extended leaves, working shorter cycle times. RETRENCHMENTS WILL BE AVOIDED AS MUCH AS POSSIBLE • If the recession is short (less than 2 years as predicted by the market observers) it will be critical for Debswana to be ready to react to any upturn “operational readiness” • This requires employees who are ready to produce whenever there is an upturn.

9. Impact on Botswana Mining Companies • Diamond Cutting factories • 15 of the 16 licensed factories prior to the economic crises had reached a peak employment level of 3267. • As at end of March 2009 the diamond cutting and polishing had decreased to 2308, a decline of 29% from the peak employment level in 2008. • Two factories are currently under care and maintenance.

10. Impact on Botswana Mining Companies • BCL & Tati Nickel Mining Company. • Nickel price declined from an average high of US$ 14/lb in March 2008 to a low of US$4/lb in the last quarter of 2008 and first quarter of 2009. • The two companies are not able to meet their financial obligations from their metal sales. • No curtailment of production is envisaged from the two mines. • 285 jobs at BCL and 105 at Tati will be made redundant

11. Impact on Botswana Mining Companies • Morupule, Botswana Ash and Mupane Gold Mine. • Production from this mines not significantly affected by the global crisis. • No Job Loses is expected as a result of the global financial crisis.

12. Intervention • MMEWR engaged experts to conduct a strategic review of the mining industry and advise government on suitable short and long term strategies to safe guard the Industry (to be completed in May 2009) • In the mean time companies are assisted on a case by case basis and they include: DiamonEx P10 million loan guarantee by Government. • Facilitation to restructure Lerala and Mowana Mine and introduction of new capital investment. • Facilitation in labour disputes between Debswana management and Employee representatives (Botswana Mine Workers Union). • Participating in issuing shareholder loans together with other private partners in entities where Government is a shareholder. • Now considering new requests to defer payments due to Government from some mining companies.

13. Intervention cont.. • careful monitoring of the situation and fine tuning strategies to minimise any adverse domestic consequences. • Prudent financial management with regard for the future, whilst ensuring that any negative impact on the private sector is minimised. • Borrowing and drawing down on foreign exchange reserves to sustain government spending in the face of a short-term revenue downturn. • Basic considerations are cost containment, employee welfare and maintenance of the company’s readiness to restart when a turn around occurs.

14. Conclusion • The mining industry has to find innovative ways of addressing developmental needs within the limited expected revenues. • Exercising more Financial restraint and discipline. • Government fully committed to ensuring that investment in the country is protected from the crisis and all the operations survive. • Employees remain the critical assert of the mining industry and should be treated as such, “I have urged all companies to ensure that all measures are pursued to conserve cash and retrenchments should always be the last resort”. • Government will continue to assist companies on a case-by-case, while we develop a long term strategy. • Thank you

15. Annexure – Additional charts on Employment

16. 2008 employment 11% higher than 2007 mainly due to: • BCL due to the smelter shutdown • Construction of the new DMS plant and Botswana Metals Refinery at Tati Nickel • startup of new mining operations such as Messina Copper and DiamonEx

17. The employment figures include the mine establishment, Outside contractors employed by the mines and trainees

18. Care & Maintenance