Thursday, October 28, 2021

BCL challenges started before the commodity slump

Cash troubled copper producer, BCL appears to have landed itself in trouble some time before the commodity prices slowdown was upon its shores. 

A trace of events to date shows that BCL seems to have seethed in the confinement of the mine gates before it was realised that a much bigger crisis lurked ahead. It would later appear as though the current commodity slump was the instigator when it only inflamed the distress that had already clawed itself in BCL, a mine known to many as the flagship of the town of Selibe Phikwe. 

The commodity slump may be news but it should certainly not be a surprise especially to BCL. As history may tell, it seems what is happening now is simply the shadow of events that took place in the wake of the 2008/09 economic meltdown. 

During that time the then Minister of Minerals, Energy and Water Resources Dr. Ponatshego Kedikilwe recounted the impact of the challenges that faced BCL and Tati Nickel Mining saying: “Nickel price declined from an average high of US$ 14/lb in March 2008 to a low of US$4/lb in the last quarter of 2008 and first quarter of 2009. The two companies are not able to meet their financial obligations from their metal sales. No curtailment of production is envisaged from the two mines. 285 jobs at BCL and 105 at Tati will be made redundant.” 

Fast forward to 2015 and into 2016, the insistent commodity slump has re-written the script. Evidently at pains delivering the current state of business to the media on Wednesday last week in Gaborone BCL Managing Director Dan Mahupela reported that the mine is anticipating redundancies from the current workforce, which he termed “manpower rationalisation” to which he however could not articulate specific numbers on the basis that the process is still ongoing. 

Mahupela expounded that the prices of Nickel plunged from a 10 year average of US$9.2/lb to US$4/lb representing a significant loss of 57 percent in value. At US$4 the price falls gravely below the breakeven cost of production which he cited at US$16/lb. Adding to the woes was the company’s failure to reach its 2015 production target. 

Mahupela said Wednesday that the underground operations recorded an 85 percent production level failing to achieve target production due to difficult operating conditions and undercapitalisation of infrastructure and equipment. Mahupela’s narration mirrors the aftermath of the 2008/09 crisis. 

At the time of crisis, Kedikilwe cited government’s unyielding commitment to protect the country from the crisis as well as keeping operations going but in the same breathe urged the mining sector to find innovative ways to serve the needs of the economy amid constrained revenues. Drawing back on his statements, the view still holds in the current situation. 

From his presentation, it became quite clear that commodity decline severely starved the BCL mine of its expected revenue, the result of which constrained it to execute its bold growth plan. 

Mahupela however avoided speaking on whether prior to the unrelenting decline BCL took necessary measures to practice financial discipline particularly given the knowledge of the cyclical nature of the environment it operates in. 

In addition to the below budget production from underground operations, the smelter shutdown funding issues were pronounced. The BCL smelter, from which base metals are produced from their concentrates, had been overrun past the normal operational period of 8 years. To maximise throughput and output the smelter has to undergo periodic shutdowns so as to prolong its furnace life. Run at 11 years the smelter posed a danger to the workers in terms of its reliability and safety. 

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