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Botswana

Introduction

Formerly the British protectorate of Bechuanaland, Botswana adopted its new name upon independence in 1966. Since gaining its independence, it has become one of the richest and most stable African countries. It is called the ‘Switzerland of Africa' The economy, one of the most robust on the continent, is dominated by diamond mining. Botswana has maintained one of the world's highestgrowth rates since independence in 1966.Through fiscal discipline and sound management, Botswana has transformed itself from one of the poorest countries in the world to a middle-income country with a per capita GDP of $7,800 in 2001.

Diamonds are by far the most important source of income for Botswana. The discovery of diamonds in 1967, after a protracted search of twelve years, dramatically changed the pace of development in Botswana. There are four diamond mines, Jwaneng in the southern Kalahari, Orapa, Damshaa and Lethlakane in the central Kalahari, whose combined earnings have accounted for 77 percent of the total export earnings and 45 percent of the GDP. The De Beers mining company and the Botswana government jointly own these mines. Annual output is in the order of 25 million carats. Only Australia beats this, but their total production is only worth less than half of the production by the Orapa mine alone. The Mines and Minerals Act of 1999 govern exploration activities. The act sets out guidelines for prospecting and mining licenses, environmental protection measures, royalties and mining taxation.

Botswana Diamonds

Rocks of the Kaapvaal craton underlie over 40 per cent of Botswana. Nowhere in the world is this matched in terms of the number of known kimberlites, and in particular diamondiferous kimberlites. The Kaapvaal craton is also richly endowed with other minerals including gold and platinum, base metals and industrial minerals. This craton has, since the discovery of diamonds in South Africa in 1867, produced significantly more diamonds than any of the worlds other cratons. Desert sand covers about 70 %of Botswana and this, together with underlying Karroo lavas, has meant that diamond exploration programs have previously faced technical difficulties in the detection of buried kimberlites.

There are 4 large operating diamond mines in Botswana:

• Botswana is the largest producer of diamonds (by value) in the world
• The Orapa mine, producing 17M carats a year, is the second largest diamond mine in the world
• Jwaneng is the richest mine of any type in the world, with a profit margin of 88%.

Diamond mining presently occurs in three locations in Botswana at Jwaneng (in the Jwaneng cluster),at Orapa, Damshaa and Lethlakane in the Orapa cluster. These are extremely rich kimberlite pipes. However other economical pipes are also found with these clusters.

The Orapa and Jwaneng pipes are of exceptional size and as a consequence these mines host ore reserves and resources that would support these operations at present mining rates for a period in excess of 40 years. Operating cost run at around $16 per ton due to the ability to operate an open pit, ideal climatic conditions and the readily available power supplies.

The Jwaneng mine is currently the world most profitable kimberlite pipe with an operating margin of about $130 per ton making it one of the highest margin mines in all commodities. The Jwaneng mine produces about 19%of the worlds diamonds by value and the recently expanded Orapa mine, in conjunction with the adjacent richer Lethlakane mine, produces about 9%of the worlds diamond production by value.

Prospecting Licences

African Diamonds has an interest in 11 prospecting licences covering 3,966 square kilometers in three areas of northern Botswana through its partnership in the Boteti joint venture with Debot. Six of these licences are in the Orapa area, four in Serowe and one in the far east of the country at Shashe.

In addition, African Diamonds has a 100% interest in prospecting licence 50/2004 through its wholly-owned Botswana subsidiary, Kukama Mining and Exploration (Pty) Limited. Prospecting licences in Botswana are valid for seven years, though 50% reductions in area are made at the third and fifth anniversaries.

African Diamonds continues to practice a highly selective policy towards acquiring new ground, with the onus on specific areas of demonstrated prospectivity but where, for various reasons, past exploration has not necessarily been of the standard that can be achieved at the present time. The ground situation in Botswana is tight, but African Diamonds will continue to acquire prospective ground as and when it is released by other parties. The company has a number of applications for prospecting licences outstanding at the present time but competitor concerns preclude a disclosure of these.