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Home » News » General » BCL faces P3 billion lawsuit

BCL faces P3 billion lawsuit

Publishing Date : 24 October, 2016

Author : THABO BAGWASI

The embattled BCL mine now faces legal action over an acquisition deal worth 3 billion Pula that it initiated in South Africa but has now failed to see through.

For a period of two years since 2014, BCL was locked in the process of acquiring a 50% ownership of Nkomati mine in South Africa. The transaction was finally given the green light by South Africa’s Mineral Resources Minister, Mosebenzi Zwane, in August this year.

After going through all the necessary processes for acquiring the stake, BCL then failed to trigger the final process of the exchange of shares and the P3 billion payment because it simply did not have the money.

BCL said that at the time it negotiated the acquisition the market was still profitable but when it finally came to fruition, it had become unprofitable.

“The reality of the matter regarding Nkomati is that even though the transfer was approved by the Mineral Resources Minister in South Africa, BCL was simply not in a position to pay, so we never got the ownership of that company,” Permanent Secretary in the Ministry of Minerals, Green Technology and Energy Kgomotso Abi stated.

“Clearly they have their legal options that they can exercise and at this juncture I am not willing to speculate on what action they will be taking,” Abi added.

The move to acquire the South African asset was made after the Polaris II strategy that put the remaining years of life for BCL at 10 and forced management to look elsewhere to continue business by smelting ore at BCL.

Chairman of BCL’s now dissolved board of directors, Dr Khaulani Fichani stated that the South Africans have indicated that they will indeed sue for the P3 billion and that there has been a flurry of communication between BCL’s legal minds and that of Nkomati owners, Norsirlk Africa.

“Now when you get the ministerial approval from South Africa, that they call the section 11 approval, that is a share transfer, now that means that that agreement has now been completed, in other words when that share transfer was approved, BCL owes Norisikl Africa an amount close to P3 billion. It’s the kind of situation we are in, where is that money going to come from? We could either wait for the letter of demand that says listen, we are now following this agreement we signed and according to the agreement, you owe us P3 billion, and we don’t have P3 billion, so that’s when we seek the protection of the courts,” Fichani related.

He further continued: “They promised us that they reserve their legal right, which means that they are going to sue for the P3 billion and this was the real danger because if they came and sued they would control the liquidation process.’’

“There was concern that they would not have the same interests as us because with individual creditors, they would indicate what they want to attach, then sell and leave, but if you do it yourself, as we have done it with a provisional liquidation, we ask ourselves, what can be done?” said Fichani.

Fichani further indicated of the deal with the South Africans: “that agreement was started in 2014 and we got the ministerial approval in August. That meant that we now actually had to make good on our intention to acquire that asset. But the sad thing is that when we talk about the mining business...the prices are cyclical so when the deal was concluded, it was concluded at a time when metal prices were healthy...and at the time of conclusion the metal prices had taken a 180 degree turn and there was no longer a business case for us to do that.’’

“So, our ability to actually follow through with that became a serious liability,’’ he further added.

Furthermore Fichani revealed that between the two options of being liquidated by a creditor or actual liquidation by themselves, they chose the latter as it gave them some level of protection. “In trying to understand why we are here today, in this situation we are in, if you are not able to meet your obligations really, you need some form of protection and the route that was chosen was to seek compulsory liquidation by the shareholder,” Fichani said

He also said that the Nkomati deal had gone through a robust acquisition process that involved both legal and financial transactional advisors. “Just to give the assurance that when you do a deal such as the Nkomati it is not just one individual involved, you are involving the lawyers, and you’re involving the banks, so all of those processes were ticked, it’s not one individual, the banks do their due diligence…we then got our team to do our due diligence as well. All of these steps were done,” Fichani said.

The BCL mine has now been put under the curatorship of Nigel Warren Dickson of audit firm KPMG. Dickson was appointed by the High Court on Sunday to determine the way forward for the mine and in his hands and mind, lies and weighs heavily, the fate of 5000 miners.

However, Abi also stated that at present the liquidator is now in charge of the mine and by extension its future. He further said that the liquidator will determine whether the mine’s assets can be salvaged such as several shafts in Selibe Phikwe which he said “can be worth a profit’’.

“What I wish to say now in terms of who is in charge, it’s the liquidator who can make decisions regarding the of the future of the mine but obviously he has not been part of the BCL situation so in fact he will be in consultation with the shareholder being government and BCL management so that whatever he decides, he will have the relevant information to make the rightful decisions,” Abi declared.

Fichani also stated that among other options, the liquidator will also be charged with assessing whether BCL cannot find a partner so that, “this is not a 100% government owned mining company”.

Dickson is expected to finish his job in a period of four months and thereafter hand in his report back to the High Court. Among a raft of options on the table includes the final liquidation of the mining company, restructuring BCL to operate in a different form or closure of the BCL mines.

He further said that the cost of extracting a pound of nickel at BCL had been exorbitant peaked at $8 while the price for the same pound was only $4. “This then means that for each pound we were producing there was a deficit of $4 per pound,” Fichani said.

He also stated that the liquidator will also have to look at what is to be done to change the current production costs at BCL, something he said the board had battled with for some time.

Fichani further stated that the Polaris II strategy has in fact not failed. “Instead it has presented an opportunity that even the liquidator, considering the business case of BCL now, that part of its centre of gravity clearly is shifting towards Tati. Remember we are saying that, the mines that we have at BCL are old mines, deep mines, we are talking about mining more than 2 kilometres underground. That is a challenge on its own, so our centre of gravity is being helped by the fact that we have Tati on board,” Fichani stated.

He further said that government’s injection of funds and Polaris strategy was beneficial because it cleaned the balance sheet of BCL making it attractive to investors. He also said that even the Nkomati deal materialised because of the company’s clean balance sheet. “There was no way we were going to get a partner if the company’s balance sheet declared that there were huge debts there.”

In terms of the quality of the leadership of BCL, Abi said: “Regarding the competence of the management or the board, hindsight is such a good teacher, anybody with the benefit of hindsight can say we could have done this differently and so forth.”

“Obviously there are things that we could have done better…At the core of things is: if you sell a product at $4 while your operational cost was $8, can you make a profit?”

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