The bright star that turned BCL�s wine into water
Mbongeni Mguni | Friday October 28, 2016 16:04
From his first day in office, Mahupela stepped into big shoes. From 2003 to 2010, his predecessor, Montwedi ‘Monty’ Mphathi had heroically steered the ship away from the rocks, keeping BCL afloat through turbulent periods that included the global financial recession.
Mphathi’s strategy of saving cash reserves during boom years, and cutting costs while raising production during bust years, had left a healthy treasure chest of approximately P3.6 billion in BCL mine’s bank books when Mahupela arrived on the scene.
Just three short years after joining BCL in 2008 and having spent a period in various executive roles, Mahupela was catapulted to the helm of the country’s oldest mine, in terms of concessions. He stood on the precipice of history and fully felt the weight of his responsibilities, which included the livelihoods of more than 50,000 ‘Phikweans’.
He was resolved. Where his predecessor had valiantly kept the mine going through its darkest years, Mahupela would ensure it lived longer than its expected lifespan and in the process, transform it into a diversified, profitable business group that would support the town, its surrounding and contribute more to the national economy.
Where his predecessor was unloved by the unions, having fired 181 striking workers in 2005 as well as several managers later, Mahupela looked forward to easier relationships, unstressed by the difficult operating conditions which forced Mphathi to take tough conditions.
With the billions in cash reserves, Mahupela enjoyed fair skies for the first few years of his tenure, with copper and nickel prices averaging about $4.5 per pound and $13 per pound in 2012 respectively.
The board also approved the Polaris II strategy, the diversification and expansion initiative that would seal Mahupela’s legacy, make good on his responsibility towards the town and, in his words, “build BCL industry up to 2022 and beyond”. Polaris, a celestial body more commonly known as the North Star, was the bright star BCL and Phikwe would aim for, through prudent investment in life-prolonging businesses.
Today, Mahupela, with the rest of Phikwe and the 6,000 workers under his care, watch as their beloved mine is taken over by a liquidator and the visions of wild success beyond 2022 seem but a pipe dream.
Documents in hand suggest that while Polaris II achieved a measure of success in its three short years, an effort by management to continue funding it even while operational capital for the main BCL mine slid, could have contributed to the eventual crisis at the mine.
Priority projects under Polaris II included the purchase of Norilsk Nickel’s stakes in Tati Nickel and Nkomati and the subsequent processing of concentrate from those operations. Other priorities included studies for a sulphuric acid/fertiliser plant, slag iron project and the Maibwe Diamond Project, which as late as September was undergoing bulk sampling. Another Polaris II project was the Maibele Nickel project and the investment in Pula Steel.
In an internal brief to workers in September 2016, BCL divisional manager (Corporate Strategy) Mack William said BCL Ltd was forging ahead with securing funding for the projects, specifying that the funding for the sulphuric acid and slag iron projects would be sourced externally.
At the same time, the mine was operating at about 50% of its fleet availability, with suppliers and contractors of spares unpaid and therefore in the wind. Salaries were frequently delayed, while basic inputs such as diesel and even puncture kits for tyres were problematic.
“Every organisation would like to grow its business and I believe Polaris II was viable, but the execution was very poor,” says Botswana Mineworkers Union (BMWU) national executive committee member, Western Ebepile.
“If you want to diversify your business, you must start by reserving the cash for that. It was unwise to start piling pressure on the business when the money was not enough.”
By March 2016, BCL Ltd had reportedly spent P179 million on various Polaris II activities, although insiders close to the “bright star” initiative say the figures are understated.
Those in charge of Polaris II felt the expenditure was justified as revenues from smelting the Nkomati concentrate alone were $23 million in 2015, while the concentrate from Tati’s Phoenix mine was another $20 million. In addition, Maibwe Diamond project had in situ value of $1.9 billion and Maibele P1.9 billion.
In April, Mahupela told the media in Gaborone that funding for Maibele Nickel, Maibwe Diamonds, the development of Tati Nickel’s Selkirk Mine and the sulphuric and fertiliser projects would continue in 2016.
“People say Polaris was a waste of money and we have thrown cash away. That could not be further from the truth. There are benefits we have derived from it. The current benefits are Nkomati concentrate and Tati concentrate.
“If you look at what we have spent on Polaris and the value we are getting today, it’s a ‘laugh’ in the park. The value we see today is about 10 to 15% of the real value. The real value is sitting under the water; we cannot see it with the naked eye.
“If I had a choice today, I would go into Polaris and ditch BCL. BCL should transform itself through Polaris.”
A few months after the media conference, cash flows were tightening at BCL, due to low prices. Polaris’ investments, far from being the bright star Mahupela had painted, were beginning to lose their lustre. Pula Steel closed temporarily on production problems, while the concentrate from Tati melted away after Phoenix closed and its stockpiles were drained. When the P1 billion Barclays Bank loan kicked in, at least P200 million of this went to Tati Nickel for debts and other costs.
While the concentrate continued flowing from Nkomati, Norilsk Nickel in September began demanding that BCL Ltd pay the P3 billion price tag for the equity sale as agreed in a binding sale agreement of 2014.
“Polaris was a good initiative but it now started competing for finance with others which is now where you think, ‘was that wise,’’ says Sonnyboy Kruger, chairperson of the BCL Citizen Senior Staff Union.
“We needed the BCL main to run for any of those Polaris II projects to be realised. Instead, our main operations stumbled and we ended up with nothing.”
BCL’s liquidator, Nigel Dixon-Warren will be looking closely at the investments under Polaris, with a view to seeing which could free up capital for the financial quagmire BCL main finds itself in. Mahupela’s bright star, the one he “could even ditch BCL for,” is ebbing further away into space.