Dan Mahupela, CEO of BCL, takes you inside the transaction that transformed what was nearly a dying mining interest into a serious regional player, by whipping out P2.9 billion to buy all Norilsk Nickel African assets (three mines).
I am pleased to inform you that, BCL has acquired all Norilsk Nickel operations in Africa, including Tati Nickel Mine. BCL signed an agreement with Norilsk Nickel on October 17, in South Africa to formalise the acquisition of Norilsk Nickel’s African assets. Through this transaction Norilsk Nickel has sold to BCL its operations in Africa which include its 50% participation interest in the Nkomati Nickel and Chrome Mine in South Africa, and its 85% stake in Tati Nickel Mining Company in Botswana. On October 17, 2014 BCL Limited through its wholly owned subsidiary, BCL Investments (Pty) Ltd entered into a binding sale and purchase agreements with Norilsk Nickel Mauritius and other international Norilsk Nickel Group companies, for the acquisition of 100% of the issued share capital of Norilsk Nickel Africa (Pty) Ltd and Tati Nickel Mining Company (Pty) Ltd. NNAf owns a 50% participation interest in the Nkomati Nickel and Chrome Mine in Mpumalanga, South Africa. The NN Group Companies own 85% of Tati Nickel in Botswana.
In terms of the Transaction, BCL Investments will acquire 50% of Nkomati which is a joint venture between NNAf and African Rainbow Minerals Limited, a diversified South African Mining and Minerals Company. The Transaction also includes the 85% ordinary shareholding in Tati Nickel Mine.
OVERVIEW OF ASSETS
Nkomati Nickel Mine
Nkomati is the largest primary nickel and chrome mine in Africa, which has evolved from a small scale operation following two successful expansion programmes.The mine has a large resource base of 409Mt, which ranks amongst the largest nickel deposits in the world, with a life of mine to 2027. The Nkomati Nickel Mine is an operation with modern facilities, high quality infrastructure, largely mechanised operations and good access to national roads. Completion of Phase II expansion project, coupled with the succesful implementation of operational efficiencies across the mining operations resulted in improved recoveries and cost savings. The mine delivered a C1 nickel cash-cost, net of by-products of US4.81/lb and cash operating profit of R1.8 billion for the financial year ended June 2014. As the bulk of the mines expansionary capital expenditure has been completed, future capital spend will be focused on maintainence and replacement issues.
Tati Nickel Mine
Tati provides an excellent opportunity for BCL to exploit the current resource base of 424.5Mt by the possible expansion of Phoenix Mine through cuts 9 and 10. In addition, BCL will look to bring Selkirk back to production as an open pit operation. These expansion opportunities at Tati will have the potential extend the life of mine which is currently planned to the end of 2015. There are significant exploration opportunities within the mining lease area and adjacent prospecting licenses held by the company which will be considered.
BCL owns and operates a smelter with the capacity to treat one million tonnes of concentrate per annum but currently treats 850 000 tonnes per annum. The smelter is ranked amongst the lowest cost nickel copper smelters globally. Over 50% of the current smelter concentrate feed comes from BCL’s own mining production, whilst the balance is been sourced from third parties either as purchased material or on a tolling basis. Over recent years, the key suppliers of toll concentrate feed to BCL have been Tati, Nkomati, Bindura Nickel and Kevitsa (Finland).
Rationale for the acquisition
BCL has driven its diversification and internationalisation programme through its Polaris II Strategy. This programme aims to; Position BCL’s Smelter as a prime regional asset, with capacity and ability to treat nickel concentrates from regional producers; Exploit the significant mining and operational skills it has built up over a 40 year period, by entering into partnerships on top tier assets in Southern Africa; and Consolidate a stable operating base to build a regional company in the mining and treatment of base metals.
The Transaction represents a major milestone by BCL in the implementation of its Polaris II Strategy; Nkomati is a well-managed, highly cash generative asset, with a large reserve base and top tier partners in ARM; and BCL has executed a concentrate off-take agreement with Nkomati, subject to certain terms and conditions, where all of Nkomati’s concentrate will be treated by BCL’s smelter on a long term basis. BCL has historically treated this concentrate.
Attracting Nkomati’s concentrate to the smelter will enhance the capacity utilisation of the asset and deliver substantial value to the company.
The purchase consideration
The terms of the Acquisition provide that all risk and reward inherent in NNAf and Tati nickel will transfer to BCL Investments from 1 January 2014. BCL Investments has agreed a total purchase consideration, as at the Signature Date, of US$337Million or P2.9 Billion. The Purchase Consideration will be funded through a combination of BCL’s cash resources and debt.
The implementation of the Transaction is subject to the fulfilment of the following conditions precedent; The Competition Authorities in Botswana and South Africa conditionally or unconditionally approving the implementation of the Transaction in both jurisdictions; Consent by the Minister of Mineral Resources of South Africa for the Transaction being granted in terms of Section 11 of the Mineral and Petroleum Resources Development Act 28 of 2002; Approval of the Transaction by the Financial Surveillance Department of the South Africa Reserve Bank; and Approval of the Transaction by the Bank of Botswana.
BALANCE SHEET RESTRUCTURUNG
I am delighted to inform you that this transaction has been made possible by, among other things, the successful cleaning of the balance sheet. We are thankful to Botswana Government for its foresight in facilitating and supporting the restructuring of the BCL Balance sheet and this transaction as elaborated during the July press briefing by the board chairman. The debt was an impediment to deliver this strategy. Now with a clean balance sheet, we can face the future with a lot of optimism to attract investors and continue to implement its initiatives under Polaris II.
This transaction brings an opportunity for BCL to diversify its underground mines through incorporation of the large-scale open-pit operations at Nkomati. BCL will continue to search for high quality assets as it evolves into a regional mining company within the SADC region. We are pleased with the momentum gained by our Polaris II Strategy. Finally, I wish to acknowledge the manner in which you take your position as a partner in development especially by ensuring transparency and reporting on pertinent issues of this economy. You will agree with me that indeed this transaction re-affirms our optimism and belief in this business’ future through our Vision that is principled, assured and defiant. I can assure you BCL will be thriving even beyond 2020.