Gov�t seeks compromise deal with Russians
Brian Benza | Wednesday July 26, 2017 18:00
Norilsk Nickel has sued the government over a failed deal in which BCL Mine was to buy the Russian company’s 50% stake in the Nkomati Mine.
The Mineral Resources, Green Technology and Energy security Minister Sadique Kebonang told Parliament on Monday that government has initiated action to solve the Nkomati Share Purchase Agreement (SPA) issue amicably. “Due diligence and valuation exercises are being carried out to establish the value of the Nkomati assets as a basis for negotiating a commercially acceptable solution to the parties involved,” he said.
The due diligence and valuation are expected to conclude by August 15, 2017 and negotiations with Norilsk Nickel will follow thereafter.
While the government has previously expressed willingness to pay off Norilsk Nickel with proceeds of the BCL’s sale to Emirati Investment House (EIH), the $272 million price tag has always been a sticking point.
At the time the Nkomati stake was first negotiated, the parties had a more positive view of nickel prices than most analysts have at the moment. Government is now of the view that the $272 million demanded by Norilsk Nickel for half of Nkomati Mine is too steep, with some resource analysts in South Africa estimating the value of the stake around the $130 million ballpark. “The valuation of the Nkomati stake is a difficult calculation. On its own, its value would fluctuate dramatically depending on the nickel price. However, investments in mining are not just made on the daily price of a commodity as most mines have a lifespan of well over 20 years. The value of a mine therefore is more about how one sees commodity prices well into the future.
“Whatever was finally negotiated with Norilsk might now be seen to be too high in view of the current nickel prices and therefore the need to extract BCL from the Nkomati SPA. Accounting rules require that an investment be given a market value each year. African Rainbow Minerals (ARM), which owns the other half of Nkomati, reported in its most recent annual financial report that its 50% is worth R2.051 billion or about $130 million,” said an analyst who declined to be named.
However, the expert believes that the current accounting valuation does not mean ARM would sell its stake at that price as the company would also see the value of its stake based on its understanding of the future prices of nickel.
“What is clear is that a nickel price of close to $8/pound, the Nkomati asset is very valuable on an NPV basis. The question therefore is whether nickel prices will recover to previous levels and if they do, how long will it take?” he said.
Meanwhile, the liquidator of BCL, Nigel Dixon-Warren has opened bidding for the piecemeal sale of the assets with deadline for submission of offers set for September 1, 2017. In a statement, Dixon-Warren of KPMG said government seeks to dispose of the BCL group’s assets preferably as a whole to an interested party who is able to commence operations and return the group to profitability.
“Whilst preference will be given to parties interested in the BCL group as a whole, parties who are interested in certain constituent assets are invited to submit offers in line with their interest,” said Dixon-Warren.
The BCL Mine assets comprise four underground shafts, a concentrator and a 900 kilo-tonne per annum (ktpa) flash smelting furnace. In addition to its mining and processing assets, BCL estate include about 2,000 residential properties and related infrastructure including a hospital and a farm.
In a bid to assist interested investors with information, Dixon-Warren said a data room would be open on August 7, following which an indicative offer should be submitted by September 1, 2017.