Wednesday, October 27, 2021

Creative accounting’ miner gets 13 coal bed methane concessions

A mining company that Gaborone Bonnington North MP, Ndaba Gaolathe, has faulted for having engaged in “creative accounting” is still interested in Botswana.

In 2015, Discovery Metals shut down its Boseto copper mine in Toteng following what its country manager, Mokwena Morulane, described as a negative internal review.

“The review has determined that the prevailing high strip ratio open pits result in a high cost operating environment which is not sufficiently cash-flow positive in light of the prevailing copper price,” Morulane told Mmegi in December 2014. “The review concluded that the current outlook for copper pricing on world commodity markets is expected to remain soft in the short to medium term and hence a recovery in the profitability of the Boseto open pit operations is unlikely in the near future.”

However, Gaolathe, would refute the assertion that the company was in any sort of trouble when addressing parliament on the issue of the closure of its mine. Taking the floor, the MP told the house that he happened to have had the privilege to go through the financial accounts of the company “and I can assure you I am not all that bad when it comes to studying very analytically the financials of any company.” A former CEO at Bifm Private Equity Managers, Gaolathe holds an MBA in Finance from the Wharton School of the University of Pennsylvania in the United States. This MBA programme is consistently ranked the best in the world.

Gaolathe said that what he made of Boseto’s financials was that while they gave the impression that the mine was doing poorly, the opposite was actually the case. He attributed this to “creative accounting” which masked the fact that Boseto had a lot of potential. 

“It is a type of mine that I would buy if I was a businessman,” he said addressing the Minister of Finance and Economic Development, Kenneth Matambo. “I would buy and I would do well. What I am trying to suggest to you Honourable Minister is that you are going to be facing over the next few years, an influx of people coming into this country not so much to mine for the long term, but an influx of people coming into this country to do what is called mining arbitrage.”

In a follow-up interview with Sunday Standard, Gaolathe described mining arbitrage as a situation when people come into a country with no intention to develop mines. Instead, they want to make a “quick, once-off profit” by establishing a mining business and selling it when conditions are favourable for them to do so. He said that he developed interest in Boseto’s financials when he learnt of the company’s intention to retrench 380 workers. He wanted to understand the circumstances of the mining company and sought to develop an insight as to what could be done to avert the bleak possibility of mine workers losing their jobs. In expounding on the modus operandi of mining arbitrage, Gaolathe stated the following: “Companies adopt accounting practices to achieve different objectives. In some cases, companies seek to overstate their financial position in order to be in a state to find new investors more easily or secure additional funding with little effort. At times, companies may creatively account to minimise tax obligations or even to minimise potential demands from internal stakeholders such as workers or minority shareholders.”

Despite its Boseto experience, Discovery Metals is sticking around and the latest edition (August 31, 2017) of the mineral concession map of energy shows that the company has been awarded 18 concessions by the Department of Mines to prospect for coal and coal bed methane in Botswana.

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