Russians sue BCL over P3bn deal
Mpho Mokwape | Friday December 2, 2016 18:00
Norilsk Nickel and BCL Ltd entered into a $337 million (P3.6 billion) binding agreement in October 2014, for the sale of the Russian group’s 50% stake in South Africa’s Nkomati Mine and its 85% stake in Tati Nickel Mining Company (TNMC). BCL began smelting concentrate from both mines, earning revenues of P466 million per annum.
However, a drop in nickel prices, a P754 million smelter refurbishment and steep cash crunch, saw BCL Ltd battling for survival, with government applying for provisional liquidation in October. Government is the BCL Ltd’s sole shareholder.
In a fiery statement yesterday morning, Norilsk Nickel CEO, Michael Marriott, slammed what he called BCL’s “deplorable” behaviour, saying the local group’s failure to complete the deal was “unacceptable”.
“The failure of BCL to abide by its obligations under the sale agreement is unacceptable in any business transaction. Botswana has an excellent reputation internationally as a country with a sound investment climate.
“These actions by BCL could jeopardise that reputation.
“Throughout the process, Norilsk has acted in good faith, and given BCL repeated opportunities and offers of assistance to complete the transaction, including concessions to significantly reduce the sale price.
“Norilsk has done everything possible to support BCL in its endeavours to secure its long-term future, and therefore sees no other option but to defend its interests in courts with jurisdiction over the matter,” he said.
At noon on Wednesday, Marriot filed a motion and affidavit before Judge Gaolapelwe Ketlogetswe asking that the share deal be declared unconditional and BCL be ordered to pay $271 million (approx P3 billion). Norilsk simultaneously filed a suit in London’s Court of International Arbitration. The respondent in the suits is BCL’s liquidator, Nigel Dixon-Warren.
“In material breach of the share sale agreement, BCL failed to perform their obligations to purchase the shares,” the affidavit reads.
“In September 2016, shortly before the liquidator’s appointment, BCL sought to suggest in a short letter and without any proper basis, that they did not accept that the share sale had become unconditional and therefore refuted liability.
“It is the applicant’s position that it cannot be sensibly argued that the share sale agreement did not become unconditional. As BCL well knows, the documents showing the fulfilment of the conditions are clear.
“While the applicant’s claims are disputed, it appears paradoxical that the applicant’s claims are the principal reason for BCL’s provisional liquidation.”
Marriot said BCL has had sufficient time to consider Norilsk’s claims and as the Russian group was the largest of the creditors, it was unacceptable that Dixon-Warren could still say he was not in a position to provide a view on Norilsk’s claims.
Specifically, Norilsk is asking Ketlogetswe to determine that the share sale is unconditional and if so, determine the relief Norilsk is entitled to. If BCL elects to abandon the share sale, Norilsk wants Ketlogetswe to determine the damages.
The Russian group also wants Dixon-Warren interdicted from disposing of any whole or part of BCL without Norilsk’s prior approval, until the London arbitration is finalised. Also Norilsk is asking that any decision requiring the approval of creditors should not be taken without Norilsk’s prior approval. The Russians also want costs against Dixon-Warren, should he oppose the application.
Yesterday, Minerals deputy permanent secretary, Nchidzi Mmolawa told Mmegi that government was unaware of the lawsuit.
“If anything, they would have served the provisional liquidator, who would then advise us,” he said while denying knowledge.
Dixon-Warren was unavailable for comment yesterday. By press time, BCL was yet to respond to the papers filed in court.
Meanwhile, in a telephone interview from London, Norilsk Nickel spokesperson, Stuart Leasor told Mmegi the Russian firm had bent over backwards to accommodate BCL Mine. “The original price of the transaction was $337m and if you look at the amount we are trying to recover, that's less by $60m (P648m). There has been a negotiation and Norilsk was prepared to cut the price.
“While the failed transaction has little material impact on Norilsk, which is world's biggest nickel producer, anyone would agree the amount involved is quite significant,” he said.
Government applied for BCL’s provisional liquidation early in October, citing poor base metal prices and steep capital injection requirements. However, shortly after the application, it emerged the move was designed to outfox Norilsk, which had already made a demand for cash in line with the binding agreement.
Already, several offers have been made for BCL Ltd’s assets, although offers will only be put before creditors in February next year.
Timeline to a collision
October 2013: Norilsk Nickel announces a change in strategy to exit African assets, which include holdings in Tati Nickel and Nkomati Mine (South Africa). Group says the assets are ‘non-Tier-1 operations’.
November 2013: Botswana officially informs Norilsk Nickel of its interest in the 50% stake in Nkomati and 85% in Tati Nickel.
June 2014: A Cabinet meeting officially approves the purchase of the shares, paving way for finalisation of negotiations with Norilsk
October 2014: BCL and Norilsk Nickel enter into a binding agreement under which the local group will purchase the Russian’s interest in Nkomati and Tati for $337m (P3.6b). The deal also includes supply of concentrate from Nkomati and Tati to the BCL smelter, and states that after regulatory approvals, the deals become unconditional and payment is due
Sept – Dec 2015: The deal is renegotiated due to declining nickel prices and Norilsk agrees to reduce the price by $60 million.
August 2016: Authorities in South Africa grant the final approvals needed for the share sale to take place, meaning the agreement has become unconditional.
September 2016: Norilsk demands payment from BCL Ltd, citing the terms of the agreement. No payment is forthcoming.
October 2016: BCL Ltd is placed under provisional liquidation after a marathon Cabinet meeting. At least 6,000 direct jobs are cut, with 400 left for care and maintenance, at BCL Mine and Tati.
November 2016: Norilsk files papers in the Gaborone High Court demanding that BCL adhere to the original deal or pay appropriate damages.