Sunday, March 7, 2021

Are BCL woes caused by cash flow or profitability problems?

During the last sitting of the just ended parliamentary session, Gaborone Bonnington South Member of Parliament Ndaba Gaolatlhe posed a question to minerals minister, Kitso Mokaila: “Is BCL facing cash flow problems or profitability problems?”

Mokaila’s response was that the company has both cash flow and profitability problems. Gaolatlhe’s question came at a time when the BCL top brass had been making frequent visits to government enclave, cap in hand and with a begging bowl, seeking for government to once again bail out the fledging copper and nickel miner. These frequent trips were a bitter reminder of the ever present threat of Selebi Phikwe turning into a ghost town with no economic prospects once BCL eventually goes down. Still with limited options, government will once again dig deep into the treasury to issue more bail out cheques to BCL.

In 2002, BCL approached government with a request for funding to the tune of P700 million; they managed to get P440 million from the treasury. The interest on this money then ballooned the amount to P990 million. At the time, many believed government was on a futile exercise as it was pumping money into a loss making entity that had no prospects of recovery. Botswana Mine Workers Union (BMWU) was one of the critics, especially after it was revealed that former General Manager, Montwedi Mphathi was getting a hefty salary package. Still during Mphathi’s tenure, BCL made headlines when it wrote a $65 million cheque to government. The company also settled its debts with the Industrial Development Corporation (IDC) and KFW of Germany.

After opting not to close down the mine when copper/nickel prices hit a slump, government decided to keep BCL afloat, and the move proved worthwhile as the copper miner started paying dividends to the shareholder. In 2007, riding high on the crest wave of peak commodity prices and the growing demand for copper and nickel in Asia, BCL started cashing in and was able to clear most of its debts, embark on a restructuring exercise and save some cash reserves for the inevitable rainy day. Sadly, BCL’s cash reserves are no more; they are depleted.

Fast forward to 2015, the dark skies have returned to BCL as commodity prices have once again hit a downward spiral. The world copper price is currently at a six year low; and the last time copper prices fell below US$6,000/tonne was in 2009. Available market figures show that copper price is at $2.30 per pound whilst during the same period 12 months ago the copper price was at $3.12 per pound.

As a result, BCL is reported to have once again returned to its messiah, knocking on the doors of the government enclave seeking yet another rescue. Although Mokaila links the cash flow problem to the most recent smelter shutdown, figures show that the company has been struggling for a while. It has a list of creditors amongst them Botswana Power Corporation (BPC) and Kenz Electrical. In June this year, BCL General Manager Dan Mahupela confirmed that government had converted part of the debt that it was owed by BCL Limited into equity. Available figures show that by close of the 2013/14 financial year, the copper-nickel producing company owed government at least P3billion. BCL has since paid a total of P1billion in cash to government while a balance of P2.67 billion has been converted into equity.

“BCL’s balance sheet shows that the company is in sound financial position as it is now debt free following the successful conclusion of a restructuring exercise embarked on in collaboration with the Botswana government,” Mahupela said.

Initially, the government held 35 percent, Norilsk 25 percent while Botswana RST Ltd held 40 percent. Although BCL accounts for only 1% of the world nickel production, it runs a big underground mining operation comprising four shafts. It treats three million tonnes of ore per annum from its three underground mines, namely Phikwe Central, South East Extension, Selebi and Selebi North. The company employs around 6,000 people.

Its financial statements show that it recorded a turnover growth of 4% in 2014 compared to the previous year as a result of firmer pricing and weaker Pula exchange rates with the US Dollar. The company also attributes the one digit growth to ‘cost containment measurers’ executed during the financial year under review. Throughout 2014, BCL continued to invest in the development and expansion of its business to ensure future sustainability, with a majority of its expenditure diverted towards mining capital development as well as other diversification related projects within the sub region. Mahupela says although BCL remains a marginal operation with considerable sensitivity to nickel and copper pricing, the various cost containment, productivity and efficiency projects under execution have begun to bear positive results as evidenced by the improved 2014 financial performance. Despite the tough times bedeviling BCL and the copper mining town of Selebi Phikwe, Mokaila maintains that the intention is to make sure that the mining outfit stays afloat.

“We are hoping that in two years time, prices will come up again. In the meantime we will have to go to the Minister of Finance to guarantee loans that BCL would want to take,” Mokaila said while responding to Gaolatlhe in parliament.

While waiting for prices to recover, it is yet to be seen how the BCL mine executives, with the help of the shareholder will go about in reigniting the company’s cash flow.

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