A letter of demand for BCL Mine to pay P3 billion to Norilsk Nickel Africa to fulfil a 2014 agreement to buy a 50% stake in the Russian companyâ€™s Nkomati Mine in South Africa, has emerged as the key factor that forced government to â€˜hurriedlyâ€™ place the miner under provisional liquidation.
As part of the 2014 deal, BCL entered into a binding agreement to buy the stake in Nkomati from Norilsk Nickel Africa pending regulatory approvals in South Africa. BCL Mine entered into the deal as part of its Polaris II strategy to invest into alternative sources of ore, in light of the declining grades and reserves in Selebi-Phikwe.
In August 2016, South Africa’s Department of Minerals gave its final approval and the Russians, in line with the binding agreement, moved in to collect.
However, BCL had fallen on hard times, its incremental losses over the decades worsened by record low base metal prices, where the Mine was losing US$4 for every pound of nickel.
“Norilsk now wants its money and they have even threatened to take BCL and the Botswana government to court. If they were the ones to had applied for liquidation, it would have meant government losing control of the mine as the liquidator would then be serving the interests of the creditors and not the shareholder as it is the case now.
“Government could not afford to run the risk of the Mine’s assets being stripped to pay off creditors, especially the prized smelter which cost close to a billion pula to refurbish just last year,” said an impeccable source close to the latest developments.
On Tuesday, BCL Ltd chair, Khaulani Fichani hinted that the decision to enter into provisional liquidation was a strategic one aimed at protecting the Mine from a possible lawsuit from the Russians. “When we got the approval from South Africa, it meant the agreement was now done,” Fichani said in response to questions. “When the share transfer was approved, BCL was now owing Norilsk Nickel an amount close to P3 billion.
“The kind of situation that we are in, where’s that money going to come from. You can either wait for the letter of demand to come saying you owe us P3 billion, or you can ask for the protection of the courts to say I’m not able to pay.
“If a creditor comes and forces you into provisional liquidation, they have the powers to supervise the process. The way we have done it is to give that power to the provisional liquidator and look at the options of revising the business.
“We would not have that option if the creditor was in control.” Mineral Resources permanent secretary, Kgomotso Abi said government was prepared for the Russians’ legal offensive. According to the agreement, the price for the equity was to be reviewed according to the price of nickel prevailing when the final regulatory approvals were granted.
“At some point we tried to renegotiate the price down as metal prices have softened, but that was not successful,” Abi said.
“As of now, BCL in no longer viable and is therefore not in a position to pay that amount and we have informed Norilsk.
“They have their legal options that they can exercise and I’m not willing to speculate what action they will take.” According to Fichani, Norilsk is at the head of a queue of creditors whose amounts owed reportedly run into billions of Pula.
“It’s not just Norilsk. There are other companies that BCL owes money,” Fichani said.
In a statement released on Wednesday, Norilsk said they have initiated legal action against BCL while also expressing their disappointment at only finding out about the liquidation of BCL through the media.
“We provided the buyer with additional time to close the transaction; however, BCL Investments made no effort to fulfill its obligations. On 8 October 2016, the Company learned from the media that BCL had been put into provisional liquidation. “Following these developments the Company has decided to defend its interests under the transaction in courts with jurisdiction over the matter,’” said Norilsk.
Due to its low cash reserves, BCL Mine has for years survived on credit lines from suppliers, frequently returning to its sole shareholder, government, for guarantees to access larger debt. It is expected that the newly appointed liquidator, Nigel Dixon-Warren will have his hands full when he begins assessing the amounts owed to external parties, while government will be forced to make good on its guarantees.
One of the guarantees was one for US$100 million issued earlier this year to Barclays Bank Botswana. The local bank issued a word of encourage to investors this week.
“Following the recent announcement of the impending provisional liquidation of the BCL Group, Barclays Bank of Botswana Limited would like to advise stakeholders that all the corporate exposures to the BCL Group are fully secured,” the statement reads.