Saturday, October 24, 2020

Cash flow crisis cripples BCL

Government has rejected a request by BCL copper and nickel mine in Selibe Phikwe for a P1.5 billion equity injection.

Government has instead told BCL leadership to go to the market and float a bond.

This has put BCL General Manager Dan Mahupela under immense financial pressure given the fact that the bond can at the earliest start floating around March.

Even then floating the bond also has its own set of problems.

Given the ongoing collapse of commodity prices, there are fears that the market may not have the requisite appetite for such a bond.

Last month BCL struggled to pay salaries for its staff and already the copper giant has been receiving a number of angry demand letters from key creditors for overdue payment.

BCL is 100 percent owned by the Government of Botswana. In turn BCL owns the Tati Nickel Mine in Francistown.

Of the P1.5 billion requested, P400 million was to go towards operations and the other P380 million towards paying creditors.

BCL insiders say while the collapse of commodity prices has played a major role in contributing towards BCL woes, internal governance lapses have also had their own share.

BCL troubles started when the mine management decided to divert money for operations towards fixing the smelter, the most significant component of the miner’s operations. The smelter repair was supposed to have been financed through a loan. But loan applications were not submitted on time leading to the diversion of money for the operations.

“While the smelter repairs were indeed long overdue, the situation was made all the worse by a failure by the finance department to prepare papers on time which would have sought credit facilities from commercial banks as ordered by the board,” an insider told Sunday Standard.

Even after such a decision, the smelter is not fully functional, with some pipe leakages reported this week.

Internally engineers are raising doubts over the amount of money paid towards the refurbishment of the smelter when in actual fact very little “modernization” has actually been effected.

Faced with a cash flow crisis in December 2015, BCL management took a decision not to pass money deducted for staff loans to creditors. The money was instead used to pay an instalment of the P25 million that the subsidiary Tati Nickel has accessed from Barclays Bank. The loan has been guaranteed by BCL.

This led to a number of staff receiving messages from banks warning them of their defaults in loans. The same also extended to such other third parties like medical aid schemes.

Incidentally, the Chairman of Tati Nickel is Jonathan Vegeer, the Finance Director at BCL, who many of the staff hold personally liable for some critical internal lapses and oversights that preceded BCL’s current financial meltdown.

The problems with the BCL Finance Department came to head recently when the Board, led by a renowned public servant, Dr Akolang Tombale declined to approve the BCL budget proposals for 2016. Questioning the inconsistencies in the figures contained in the budget proposals, the Board settled to approve the budget for three months while waiting corrections of the inconsistencies contained in the accounts.

In the meantime Government has written a “Letter of Comfort” allaying creditor fears. In the letter among other things Government says that as a shareholder it will ensure that BCL remains a going concern and that efforts will be taken to ensure that the company is properly managed.

The governance problems gripping BCL are compounded by a collapse in commodity prices and resultant falling demand from China which has for the last decade and a half been the prime consumer of commodities including copper and nickel.

In their response to the questions by Sunday Standard, BCL management said Government, through the Board of Directors is aware of the financial situation of the miner.

The executive responsible for public affairs, James Molosankwe however denied that BCL has not remitted third party payments. “We note, with regret the probe on third party payments, such as remitting loan repayments to Commercial Banks. Please note that, we have obliged to all our obligations with such remittances,” said Molosankwe.

He did not go into detail to say that money from such remittances had been diverted towards paying a Tati Nickel loan.

“As you may be aware by now, Tati Nickel Mine is a subsidiary of BCL Limited. As a parent company, we are fully aware of our obligations and we find it bizarre to suggest that a cashless transaction, in the form of a guarantee, can have an effect on the BCL cash flow.”

He also declined to address the issue of mishaps by BCL Finance department and the role such mishaps have played and contributed towards the company’s current troubles.

“Unfortunately, we do not discuss BCL employee matters, which include and not limited to performance with third parties. Otherwise, it is important to note that, BCL has a robust performance management system in place.”

He emphasized that as a 100 percent shareholder of BCL, the Government of Botswana is committed to ensure its survival and sustainability “especially under unforeseen market conditions.”

BCL is the economic mainstay of the town of Selibe Phikwe. There have always been fears that without BCL, Selibe Phikwe will descend into a ghost town.

It was also BCL through its POLARIS Project that had given hope that Selibe Phikwe would not be shutting down as it had been feared a few years ago. POLARIS aimed at diversifying the Selibe Phikwe economy through open new businesses.

Yet as we speak, Pula Steel which is one of the key components of POLARIS which is also owned by BCL is facing its own share of difficulties.

Pula Steel has requested P11 million in loan from BCL. This is over and above the P2.5 million facility recently given by BCL, which the steel company has not been able to pay back.

 

The current state of affairs at BCL does not only put into doubt the efficacy of POLARIS but also puts renewed pressure on Government to find new ways not just to save BCL but the entire mining town of Selibe Phikwe.

“As a shareholder, Government of Botswana, is aware of the current financial status of BCL and has granted the business a “going concern status”, and has committed to support refinancing options available to stabilise the business” says Molosankwe.

 

If world economy is anything to go by, turning the BCL around will neither be easy nor swift.

 

The International Monetary Fund has said it expects world commodity prices to be lower for much longer.

 

Speaking in Nigeria recently, the IMF Managing Director, Christine Largarde said developing countries had to adapt to a new phase of economic development where commodity prices remain lower than they traditionally have been.

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