The impossibility of selling BCL Mine
| Friday November 10, 2017 15:48
The thousands of workers axed from BCL Mine still hold out hope for a miracle. One fine day soon, they hope, an announcement will be made that a new investor has emerged, willing to buy and restart BCL Mine. In no time, they pray, notices to return will be issued, the mineshaft cages will start running again and the smelter will be fired up.
That faith is one of the many reasons why more than 600 families are staying put in BCL houses around Selebi Phikwe, under a new deal with the government that lasts through to March 2019.
However, weighing against the workers’ hopes are billions of reasons why BCL Mine will not re-open and instead will be sold off piecemeal. In fact, there are at least 8.3 billion reasons:
Rehab riddle = P3.2 billion
The major reason standing between BCL Mine and a willing buyer is a previously overlooked environmental rehabilitation and reclamation obligation. In 2015, according to a liquidators report and multiple accounts from former workers, BCL management blew through funds that had been set aside for the mine’s rehabilitation obligations.
As operational capital dried up from a combination of low metal prices and weak production, management tapped into the rehabilitation fund. Under the Mines and Minerals Act, holders of mineral concessions are duty bound to make “adequate ongoing financial provision for compliance with obligations,” under rehabilitation and reclamation.
BCL Mine liquidator, Nigel Dixon-Warren, who is presently its licence holder, estimates that the funds required to be set aside for environmental rehabilitation are about P3.2 billion, an obligation few buyers would be willing to accept given the present value on site at BCL.
Over the four decades it operated in Selebi-Phikwe, BCL Mine had a disastrous impact on the town and its environment, covering vegetation, formerly arable land and water bodies with huge amounts of sulphur dioxide and other chemicals.
Even though Dixon-Warren expects the figure will be ‘significantly’ reduced, it will still be a considerable disincentive to any buyer willing to overlook the mine’s other drawbacks, which include the billions more required to restart mining at the few economically viable shafts.
“We need a solution to minimise environmental rehabilitation costs,” Dixon-Warren reportedly told an informal creditors meeting last week in Selebi Phikwe.
“The approved management plan demands that the environment should be rehabilitated back to its original state and that will cost a significant amount.”
At the first creditors’ meeting on Monday in Gaborone, Dixon-Warren resisted a suggestion by some that the rehabilitation issue be ignored “just as government, BCL’s shareholder, also ignored it before liquidation”.
“The licence holder is obligated to do the rehabilitation. I am the licence holder now and have the obligation to do what I need to, under the Act.
“If I don’t, I am personally liable and that’s not a risk I am willing to take.”
Russian risk = P2.9 billion
Both in the Selebi-Phikwe and Gaborone creditors’ meeting, the elephant in the room was the Russian base metal giant, Norilsk Nickel. Norilsk Nickel, formerly an equity holder in BCL Mine, among other African holdings, decided to exit the continent in 2014 and entered into a deal with BCL.
The deal was driven under BCL Investments, a wholly-owned unit of the mine formed to lead a multi-billion pula investment drive to diversify away from a dependence on the waning resources in Selebi Phikwe.
Under the deal, BCL snapped up Tati Nickel and Norilsk’s 50% stake in Mpumalanga Province mine, Nkomati Nickel, for approximately $337 million. After last October’s liquidation, the Russians instituted a $270 million suit against BCL claiming violation of the equity deal and in the months since, the suits have piled up in South Africa, London and Botswana.
While no Norilsk officials or their representatives were visibly present at the creditors’ meetings, the $270 million claim is another strong deterrent for any buyer looking at BCL.
The new buyer would be on the hook for BCL’s liabilities, which would include the possible granting of the suit in favour of the Russians. If a buyer turned up at BCL’s gates today, they would need to continue pursuing the defences the miner has put up against Norilsk at their cost.
Experts agree that factoring in a possible loss to Norilsk in BCL’s sale price would result in the purchase price likely being a handshake, but even then few investors would take that risk, particularly given the other liabilities and low in situ value.
Receiver’s responsibility
= P2.2 billion
While Dixon-Warren has a responsibility to recover as much of the amounts owed to creditors as possible, the liquidator this week was very clear about the chances involved.
“There is not likely to be payment of any claims for sometime to come and this could be years. Even then, there may be no money to pay because of the financial situation of BCL when it went into liquidation. There’s no promises around this,” he told creditors.
In fact, rather than expect recovery of their debts, creditors who successfully prove claims against BCL may be asked to contribute to the administration costs of the liquidation, potentially helping to shore up the rehabilitation funds. The obligation falls under a rarely used section of the Companies Act.
While those contributions are refundable at the end of the liquidation, there is no guarantee creditors will get full or partial refunds.
The P2.2 billion owed to creditors is yet smear on the face of efforts to dolly up BCL for buyers, as any investor would inherit the liability even as he inherits the assets.
Ringing reality
The weight of deterrents against an outright sale of BCL are obvious to the market. As at September 1, 2017 70-plus potential buyers were said to have submitted expressions interest to buy the mine. The number consequently narrowed to three. Now, there is not a single buyer waiting in the wings. Instead, Dixon-Warren has been given the go-ahead to begin auctioning assets.