As a result of increased nickel and copper prices, Zambian copper output is expected to rise to over 1 million tonnes in 2018 with expected good performance of Multi-National companies such as Vedanta Resource through its subsidiary Konkola Copper Mines, First Quantum Minerals, Barrick Gold and Glencore Plc. BCL could be making money like copper companies in Zambia, South Africa and DRC etc. the rise in prices was predicted by former BCL management. Pundits predicted greater performance of copper to do well in 2018 and beyond in part because of the demand for the mineral for construction and manufacturing of among others hybrid and electric cars. At the time of closure in 2016, BCL had sufficient mineral reserves/resources to last well in the future and these reserves can be mined commercially to end of mine life; Official BCL resources stood at 25 million tonnes at grades of 0.66%Ni and 0.77Cu, 2.7million tonnes measured resources at 0.86%Ni and 0.98%Cu. Therefore, adequate mineral resources remain at BCL and Selkirk; it has become unanimously accepted that there are technically feasible, and economically mineable mineral resources, remaining at these mines. These mineral resources have been deemed adequate to support a reasonable mine life, especially as it applies to Selebi mine shafts. Moreover, and more importantly, feasibility for Tati Nickel’s Selkirk deposit has also been confirmed. With the projected positive market conditions for the base metals complex, it will be a massive opportunity lost to the country to leave these resources unexploited, making it a compelling case to reconsider reopening the mines. This is more possible considering that Nkomati deal and Polaris II entrapments have been resolved.
BCL model is that of Nickel and credits. The truth is that BCL mine can be opened immediately, provided that it is removed from liquidation into say judicial management. Government has an option of giving mineral resources to a mining company on a lease basis, if a company can’t demonstrate capacity to own a mining license, government can simply take back the resource by terminating the lease. Mineral resources belong to the state and that’s why government has to give permission for transfer of mineral rights from one company to another. The Government should just get back resources from BCL under liquidations, as it has no financial capacity to maintain a mining license. It can then re-issue the license to another entity to restart BCL possibly initially funded by government, then sold off. This is far much better that the P1,5 billion already spent without in the liquidation process. I have in the past few weeks explained that two of the BCL mines (shafts) and one from Selkirk can be opened immediately? We have a fully developed and well defined orebody at these areas and these are high grade high tonnage areas. The idea can be to mine, concentrate and sell.
This would generate revenue that could be used to resuscitate the smelter because we warned that the smelter will need high capital to restart. The base metal industry in Zimbabwe is doing well with the same model of mining, concentrating and selling without smelting. Even Nkomati in South Africa is doing the same thing of mining, concentrating and selling-the smelting is done somewhere in the Scandinavia. We know this model can work. I am reliably informed that some copper mines in the DRC are interested in sending their concentrate to Phikwe for smelting; mines such as Kisenda Copper Mine, Frontier Mine, Kipoya Mine etcetera-they are currently smelting in Zambia which can’t keep up with their volumes. We are aware that investors have been scared away by the Liquidator who is profiting heftily from the process by asking prospective buyers to assume the P2.8 billion environmental rehabilitation liability. First, this figure could be exaggerated, second it shouldn’t really matter on the reopening of the mine. I am informed that serious investors such as Eurasian Resources Group, Glencore and others have shown interest in BCL. I have also presented another alternative of government that it can set up BCL Environmental Rehabilitation Liability Trust in which government can contribute some money into and divert a certain amount of both taxes and royalties from any investor running the BCL mine for future rehabilitation purpose in a cost-sharing kind of way.
Prospects for the future: Nickel and Credits Beneficiation
The dream that Selebi-Phikwe can be an industrial or metallurgical hub with smelting for various metals, nickel, copper, chrome, iron (pula steel) is not a pipe dream. After the smelter is resuscitated either by an investor or trough government funding or assistance, a second copper smelter different from the one in place can be built and then a refinery can also be constructed. Power, water and other infrastructure are in place. In addition to BCL shafts, Selkirk and possibly Toteng Mine and Nkomati, we can in the future capture concentrates from DRC and Zambia and elsewhere. The importance of Smelters and the refinery is that they can carry on for many years beyond resources. Many things didn’t go well with BCL but its management was right with the US$4 per/pound plan. The Smoking Gun in the Murder of BCL Right from the start there was a strong developmental role for BCL identified by government and from the outset, the government has been the custodian of BCL’s financial security. BCL was never formally a parastatals or public enterprise. But even when there were significant private sector shareholders in the early years, the government structured BCL in such a way to set it up as a recipient of government funds or funds raised by the government indirectly for the entity. The company was never set up as a normal commercial enterprise, with the flexibility necessary to be able to raise other money and determine its own financial fate. It was an immensely complicated financial structuring, enshrining BCL as a unique entity, and a bulwark of the country’s economy and the mainstay of the Phikwe town’s economy. In exchange for the implicit and explicit backing of government – the government never showed any intention other than to roll over BCL’s debts to the state – BCL became dedicated to providing a functioning operation that provided 5000 jobs directly and 10 000 indirectly.
The debts were more akin to grants, thus entrenching the reality in the minds of the company, the government, phikwe residents and Batswana, that BCL occupied a special, protected place in the Botswana economy. From 2002 onwards, government increased its influence to complete control and ownership of the company, which crystallized with 100% control in 2008 after the departure of all external funders (they received about 5% of the nominal value of the debt owed to them – effectively, a full write-off). In the years that metal prices were high BCL managed to build up some cash. In the days when there was more private sector influence at BCL, these proceeds from the good times were used to invest in the company. This practice, built up over almost half a century, changed radically in 2014. It is important to note, that contrary to popular perception, BCL was in fact not given any money by government from 2002 onwards – all the debts dated before then. The company had not been an active drain on the fiscus for 14 years when it was put into liquidation in 2016. By 2014, after the preceding price boom years, BCL built up its cash reserves. It should have been allowed to use this money to invest in the business, for the inevitable downturn in prices – like it had before. Instead, after decades of treating BCL as a ward of the State – and structuring it so that it could not raise money on its own – the government switched to treating BCL as a “normal company”. The decision coincided with a shutdown of the smelter, which had to be refurbished at a cost of more than 700 million Pula. The combination of the shutdown and the depleted cash reserves, which government had drained, was fatal. By timing its arrangements like that, the government ended up benefitting considerably more than the private sector shareholders who wrote off their debt before exiting, the last of which 6 years earlier (the government received 27% of its nominal debt). The logic given by government in 2014 was that it had taken the cash from BCL on the basis that it had forgiven its debts in the restructuring which was supposed to put the company in a position that it could raise commercial funding itself. This was in line with its diversification strategy, Polaris II, the idea being that BCL could make money with a broader range of activities. These turned out to be largely whimsical, and distracted management’s and government’s attention from core operations.
In short, government changed the rules of the game – from treating BCL as a special hybrid, rooted in the government’s socio-economic program anchored on its developmental state economic model, to a normal company. To trace the extent of this extraordinary, sudden reversal in strategy, we should to delve back to the series of restructuring agreements for BCL which government signed over the years. The most important, and most recent were in 1985, 1993 and 2007. These agreements reflected the government’s incrementally greater financial, managerial and custodial responsibility for BCL – in parallel with a decreasing involvement from the private sector shareholders. From 1985 Fourth Restructuring, BCL ceased to have any pretense of being a normal commercial enterprise. Loans provided on repayment terms were only to be repaid according to a waterfall if available funds existed. (Emergency Funding first). In this way, loans became like grant funding. But loans, together with all accrued interest remained on balance sheet. The reason for this was to keep the status of all creditors in relation to each other the same; As a result, BCL became a stakeholder enterprise, akin to a non-profit operated for the benefit of wider socio-economic objectives of Selebi-Phikwe and the wider region as well as the country.
While BCL operations were under-capitalized, in periods of high Nickel and Copper prices, instead of increasing cash for distribution, BCL’s management used as much available cash to recapitalize the operations, buy new equipment and doing the required refurbishments (even if ahead of schedule) to prepare the business for the leaner years that would inevitably follow. The 1993 Fifth Restructuring made the above position even stronger by adding the employee fund as an additional obligation and formalizing the central role of government as the sole guarantor of any new funding required. It was the start of the final departure of outside/commercial shareholders; The 2002 Shareholders’ Agreement with LionOre put government in sole control over this “social enterprise” and made it the only source of additional funding if it was required. In 2002, the government did inject funding and LionOre did not have to. Despite the outstanding loans (effectively made grants) not being repayable, their presence (and especially the accrued interest) made the balance sheet impossible for the raising of new funding from non-government sources. Government funding was only provided on a contingency basis (as was the position in 2002) and not according to a proper funding plan. BCL remained under-capitalized as it always was and limped on.
Cleaning up the balance sheet in 2014 required BCL to use some of its own cash reserves to pay some amounts as was the case in 2006, especially 2008 and in 2010 with the Sismin (EU) loan. There was some resistance to even paying these amounts as it took cash from the company which would have remained within the company if these unpayable loans simply remained on the balance sheet. From a day to day financial management point of view, the restructurings put BCL behind – even if on the face of it they looked to benefit BCL. The 2014 restructuring repeated the same patterns. All indebtedness (remember, unpayable, legally, according to the Fourth/Fifth Restructuring) was owed to the government in various ways. Senior debt, accrued interest on repaid Emergency funding etc. Yet after the 2014 restructuring, BCL effectively repaid P1 billion in cash to the government. Put another way, previous grants were converted to a hard cash benefit that the government would otherwise not have received. Government therefore stripped the cash that was much needed in 2015 from the company rendering BCL an insolvent entity. Seen in this way, the Barclay’s loan can be seen as simply replacing the cash that should never have been taken away in the first place. The Barclays loan came too late and should have been in addition to what BCL should not have repaid to the government; The placement of BCL under MDBC, notionally to have it operate as if it were a normal investment (according to MDBC’s own mandate), ignored the obvious fact that BCL operated as a social enterprise. In effect, the government changed the rules of the game in mid match, and the result was fatal for BCL. |
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