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BCL faces P3 billion lawsuit

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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Mowana Mine to open, pay employees millions

18th January 2022
Mowana Mine

Mowana Copper Mine in Dukwi will finally pay its former employees a total amount of P23, 789, 984.00 end of this month. For over three years Mowana Copper Mine has been under judicial management. Updating members, Botswana Mine Workers Union (BMWU) Executive Secretary Kitso Phiri this week said the High Court issued an order for the implementation of the compromise scheme of December 9, 2021 and this was to be done within 30 days after court order.

“Therefore payment of benefits under the scheme including those owed to Messina Copper Botswana employees should be effected sometime in January latest end of January 2022,” Kitso said. Kitso also explained that cash settlement will be 30 percent of the total Messina Copper Botswana estate and negotiated estate is $3,233,000 (about P35, 563,000).

Messina Copper was placed under liquidation and was thereafter acquired by Leboam Holdings to operate Mowana Mine. Leboam Holdings struck a deal with the Messina Copper’s liquidator who became a shareholder of Leboam Holdings. Leboam Holdings could not service its debts and its creditors placed it under provisional judicial management on December 18, 2018 and in judicial management on February 28, 2019.

A new company Max Power expressed interest to acquire the mining operations. It offered to take over the Mowana Mine from Leboam Holdings, however, the company had to pay the debts of Leboam including monies owed to Messina Copper, being employees benefits and other debts owed to other creditors.

The monies, were agreed to be paid through a scheme of compromise proposed by Max Power, being a negotiated payment schedule, which was subject to the financial ability of the new owners. “On December 9, 2021, Messina Copper liquidator, called a meeting of creditors, which the BMWU on behalf of its members (former Messina Copper employees) attended, to seek mandate from creditors to proceed with a proposed settlement for Messina Copper on the scheme of compromise. It is important to note that employee benefits are regarded as preferential credit, meaning once a scheme is approved they are paid first.”

Negotiated estate is P35, 563,000

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Councilors’ benefits debacle-savingram reveals detail

18th January 2022

A savingram the Ministry of Local Government and Rural Development sent to Town Clerks and Council Secretaries explaining why councilors across the country should not have access to their terminal benefits before end of their term has been revealed.

The contents of the savingram came out in the wake of a war of words between counselors and the Ministry of Local Government and Rural Development. The councilors through the Botswana Association of Local Authorities (BALA) accuse the Ministry of refusing to allow them to have access to their terminal benefits before end of their term.

This has since been denied by the Ministry.  In the savingram to town councils and council secretaries across the country, Permanent Secretary in the Ministry of Local Government and Rural Development Molefi Keaja states that, “Kindly be advised that the terminal benefits budget is made during the final year of term of office for Honorable Councilors.”  Keaja reminded town clerks and council secretaries that, “The nominal budget Councils make each and every financial year is to cater for events where a Councilor’s term of office ends before the statutory time due to death, resignation or any other reason.”

The savingram also goes into detail about why the government had in the past allowed councilors to have access to their terminal benefits before the end of their term.  “Regarding the special dispensation made in the 2014-2019, it should be noted that the advance was granted because at that time there was an approved budget for terminal benefits during the financial year,” explained Keaja.  He added that, “Town Clerks/Council Secretaries made discretions depending on the liquidity position of Councils which attracted a lot of audit queries.”

Keaja also revealed that councils across the country were struggling financially and therefore if they were to grant councilors access to their terminal benefits, this could leave their in a dire financial situation.  Given the fact that Local Authorities currently have cash flow problems and budgetary constraints, it is not advisable to grant terminal benefits advance as it would only serve to compound the liquidity problems of councils.

It is understood that the Ministry was inundated with calls from some Councils as they sought clarification regarding access to their terminal benefits. The Ministry fears that should councils pay out the terminal benefits this would affect their coffers as the government spends a lot on councilors salaries.

Reports show that apart from elected councilors, the government spends at least P6, 577, 746, 00 on nominated councilors across the country as their monthly salaries. Former Assistant Minister of Local Government and Rural Development, Botlogile Tshireletso once told Parliament that in total there are 113 nominated councilors and their salaries per a year add up to P78, 933,16.00. She added that their projected gratuity is P9, 866,646.00.

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Households spending to drive economic recovery

17th January 2022

A surge in consumer spending is expected to be a key driver of Botswana’s economic recovery, according to recent projections by Fitch Solutions. Fitch Solutions said it forecasts household spending in Botswana to grow by a real rate of 5.9% in 2022.

The bullish Fitch Solutions noted that “This is a considerable deceleration from 9.4% growth estimated in 2021, it comes mainly from the base effects of the contraction of 2.5% recorded in 2020,” adding that, “We project total household spending (in real terms) to reach BWP59.9bn (USD8.8bn) in 2022, increasing from BWP56.5bn (USD8.3bn) in 2021.”  According to Fitch Solutions, this is higher than the pre-Covid-19 total household spending (in real terms) of P53.0 billion (USD7.8bn) in 2019 and it indicates a full recovery in consumer spending.

“We forecast real household spending to grow by 5.9% in 2022, decelerating from the estimated growth of 9.4% in 2021. We note that the Covid-19 pandemic and the related restrictions on economic activity resulted in real household spending contracting by 2.5% in 2020, creating a lower base for spending to grow from in 2021 and 2022,” Fitch Solutions says.

Total household spending (in real terms), the agency says, will increase in 2022 when compared to 2021. In 2021 and 2022, total household spending (in real terms) will be above the pre-Covid-19 levels in 2019, indicating a full recovery in consumer spending, says Fitch Solutions.  It says as of December 6 2021 (latest data available), 38.4% of people in Botswana have received at least one vaccine dose, while this is relatively low it is higher than Africa average of 11.3%.

“The emergence of new Covid-19 variants such as Omicron, which was first detected in the country in November 2021, poses a downside risk to our outlook for consumer spending, particularly as a large proportion of the country’s population is unvaccinated and this could result in stricter measures being implemented once again,” says Fitch Solutions.

Growth will ease in 2022, Fitch Solution says. “Our forecast for an improvement in consumer spending in Botswana in 2022 is in line with our Country Risk team’s forecast that the economy will grow by a real rate of 5.3% over 2022, from an estimated 12.5% growth in 2021 as the low base effects from 2020 dissipate,” it says.

Fitch Solutions notes that “Our Country Risk team expects private consumption to be the main driver of Botswana’s economic growth in 2022, as disposable incomes and the labour market continue to recover from the impacts of the Covid-19 pandemic.”
It says Botswana’s tourism sector has been negatively impacted by the Covid-19 pandemic and the related travel restrictions.

According to Fitch Solutions, “The emergence of the Omicron variant, which was first detected in November 2021, has resulted in travel bans being implemented on Southern African countries such as South Africa, Botswana, Lesotho, Namibia, Zimbabwe and Eswatini. This will further delay the recovery of Botswana’s tourism sector in 2021 and early 2022.”  Fitch Solutions, therefore, forecasts Botswana’s tourist arrivals to grow by 81.2% in 2022, from an estimated contraction of 40.3% in 2021.

It notes that the 72.4% contraction in 2020 has created a low base for tourist arrivals to grow from.  “The rollout of vaccines in South Africa and its key source markets will aid the recovery of the tourism sector over the coming months and this bodes well for the employment and incomes of people employed in the hospitality industry, particularly restaurants and hotels as well as recreation and culture businesses,” the report says.

Fitch Solutions further notes that with economies reopening, consumers are demanding products that they had little access to over the previous year. However, manufacturers are facing several problems.  It says supply chain issues and bottlenecks are resulting in consumer goods shortages, feeding through into supply-side inflation.  Fitch Solutions believes the global semiconductor shortage will continue into 2022, putting the pressure on the supply of several consumer goods.

It says the spread of the Delta variant is upending factory production in Asia, disrupting shipping and posing more shocks to the world economy. Similarly, manufacturers are facing shortages of key components and higher raw materials costs, the report says adding that while this is somewhat restricted to consumer goods, there is a high risk that this feeds through into more consumer services over the 2022 year.

“Our global view for a notable recovery in consumer spending relies on the ability of authorities to vaccinate a large enough proportion of their populations and thereby experience a notable drop in Covid-19 infections and a decline in hospitalisation rates,” says Fitch Solutions.
Both these factors, it says, will lead to governments gradually lifting restrictions, which will boost consumer confidence and retail sales.

“As of December 6 2021, 38.4% of people in Botswana have received at least one vaccine dose. While this is low, it is higher than the Africa average of 11.3%. The vaccines being administered in Botswana include Pfizer-BioNTech, Sinovac and Johnson & Johnson. We believe that a successful vaccine rollout will aid the country’s consumer spending recovery,” says Fitch Solutions.  Therefore, the agency says, “Our forecasts account for risks that are highly likely to play out in 2022, including the easing of government support. However, if other risks start to play out, this may lead to forecast revisions.”

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