Thursday, October 28, 2021

Cabinet’s BCL decisions based on wrong information – report

All Cabinet ministers who met to discuss the future of BCL mine were clueless about the goings on at the copper and nickel mine and their decisions were based
on wrong information ÔÇô the recently released liquidator’s report has revealed.

A year into his appointment as Provisional Liquidator, Nigel Dixon Warren has submitted his statutory report to creditors with the High Court in compliance with the Court Orders of his appointment and statutory obligations under the Companies Act.

It has also emerged from the report that a year after Cabinet decided to liquidate BCL, not a single Cabinet minister has any idea about the true worth of the company and the information they presented to the High Court when applying for the liquidation was factually incorrect. This was not an isolated incident, but was part of a pattern. For a period of at least five years, Cabinet met on a number of occasions to discuss the future of BCL although not a single minister had a clue about what was going on at the mine.

Warren Dixon has found that the position stated in the Court papers filed in support of the liquidation proceedings and subsequent statutory filings, were factually incorrect, “As is demonstrated in the Asset and Liability section above these figures were not a true reflection of the company’s financial position. In fact, the position was materially worse.”

In 2016, shortly before the liquidation, President Khama established a Cabinet Sub-Committee to look into the feasibility of BCL. The sub Committee with Vice President Mokgweetsi Masisi as its head included Minister of Mineral Resources, Green Technology and Energy, Sadique Kebonang, Minister of Investment, Trade and Industry Vincent Seretse, Minister of Infrastructure and Housing Development Nonofo Molefhi and The Minister of Transport and Communications, Kitso Mokaila. The subcommittee, after concluding its process recommended to cabinet that, contrary to the recommendations the Board of its investment company, the Mineral Development Company, the sole shareholder in BCL, it was in the national interest to liquidate the mine, a decision that destroyed the Selebi-Phikwe economy and threatens to turn it into a ghost town. The decision, it now transpires, was made without proper consideration, due to lack of information and records, and the sub-committee’s failure to investigate the rampant maladministration at BCL.

Over a period of five years Cabinet approved financial bailouts and stood surety for the embattled company for amounts in excess of a 3 billion pula. Four months before October 2016, the date of provisional liquidation, Cabinet resolved to guarantee a loan from Barclays in the amount of P1 Billion.

Standard legal and commercial practice requires that a Due Diligence would have to have been conducted prior to such a guarantee being issued to protect government from unnecessary financial risk.

“A Due Diligence on the scale of this guarantee ought to have been conducted and certified by the transacting lawyers and audit firms. It is an investigation into a potential investment to confirm all facts that may affect the security of the guarantee, such as reviewing all financial records and assets of the target entity.
Importantly the process refers to the care a “reasonable person” would take before entering into an agreement or a financial transaction with another party” states a lawyer approached by Sunday Standard for comment.

The Dixon-Warrren Report reveals that twelve months into the liquidation incomplete company documents, unsigned Board Minutes and a wholly inadequate set of financial and asset statements going back over a period of five years have prevented him from fully fulfilling his mandate. The lack of records predates the guarantee given by government to Barclays.

The lack of documentation, erroneous recording of company shareholding in ventures, inadequate security for loans, coupled with gross mismanagement and lack of expertise notes the Report, is indicative that “The board appears to have had neither the capacity nor the commercial expertise to provide appropriate governance and guidance to the management team. This is not just in recent years. Many of the issues identified as being the root causes for the company’s failure date back four or five years more likely longer prior to liquidation”.

The revelations of mismanagement and maladministration within the BCL Group had not been previously exposed to Cabinet who, according to Court papers, based their decision to liquidate solely of the financial implications of continued investment and financial liability in the operations of BCL.

The Cabinet Sub-Committee’s recommendations to Cabinet and consequently Cabinets resolution to liquidate the mine were based on the inability by BCL to pay its debts. No investigations were conducted as to why this inability existed; leaving it to the liquidator to make recommendations that investigations into potential criminal wrong doing should be initiated. Dixon- Warren has found that the position stated in the Court papers filed in support of the liquidation proceedings and subsequent statutory filings, were factually incorrect, “As is demonstrated in the Asset and Liability section above these figures were not a true reflection of the company’s financial position. In fact, the position was materially worse.”

It is clear from the provisional liquidators report that BCL was unable to meet its financial obligations and was as a result legally insolvent in the short term. The focus by BCL on the Polaris II project and the Norilsk Nickel purchase are highlighted as areas of concern in respect of capital investment. The 2015, P700 million refurbishment of the smelter caused BCL to run out of operating capital which in turn necessitated the P1 Billion capital injection from Barclays. In the long term, the report notes, the overall mismanagement and lack of understanding of governance resulted in BCL failing to “to sink a shaft at SEE, despite it having the highest ore grades of the BCL shafts, and the overall lack of understanding as to why the capital investment at the outset would reap longer term savings demonstrates that the failings at BCL have not arisen in the shortterm they have been endemic for a significant period.” Despite the internally low commodity prices, the exploitation of ore rich deposits would have increased profitability rendering the mine more feasible in the long term.

Cabinet failed to exercise its oversight functions, as the sole shareholder at BCL via its investment arm and though its relevant ministries’, by not demanding the required annual audit of BCL, an audit had not been conducted since 2014. An earlier assessment of BCL, conducted by Min Corp had highlighted the extent of mismanagement and lack of corporate governance.

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