BCL debts; as Polaris II backfires

SHARE   |   Monday, 17 October 2016   |   By Ditiro Motlhabane & Phillimon Mmeso
DEAD END; BCL MD, Dan Mahupela DEAD END; BCL MD, Dan Mahupela

Graft busters from Directorate on Corruption and Economic Crime (DCEC) and Intelligence agents form DIS are swooping over systems at BCL mine, investigating reports of widespread reckless spending and controversial transactions. Sources say the primary target for the investigation is to establish how management of the mine squandered assets in excess of P3 billion in just two years. Employees of the defunct mine, all point an accusing finger at BCL executive management led by Dan Mahupela, for mismanagement which led to its closure last Friday. BCL mine closure shocked the population and left a trail of heartache and huge debts running into billions of pula, while instantly rendering 5 000 workers jobless.

Insiders say the wheels started coming off when less than two years at the helm Mahupela appointed a new EXCO, promoting some managers who had worked for years under his predecessor to executive management. Mahupela promoted David Keitshokile - Metals Production, Van zyl Harold - Resource Planning and Mack William - Corporate Strategy, who was later moved to Ore Production. He has since been replaced by Modise Gaowetse (not in EXCO). Mahupela also appointed Director- Asset Management, Director -Finance (dismissed last year) -currently Tobokani Mosetlha is acting in the position, Motsile Sibanda - Human Resources. The new EXCO found reserves in excess of P3 billion after Mphathi left. Mphathi had rejected Polaris II strategy as not viable, insisting that BCL should focus on mining. The Polaris II strategy was premised on acquisitions of new assets in Nkomati Nickel, Tati Nickel, shareholding at Pula Steel, Exploration Join Ventures in Gantsi, Tswapong with a company called Mokgweetsi and other exploration companies with prospecting licenses around the country. At that stage, BCL was all over the show, on a massive shopping spree spending millions in assets that have failed to deliver return on investment.

None of the exploration projects acquired under Polaris II have delivered any results so far. The man driving Polaris II was the Director Corporate Strategy, a qualified Mining Engineer.  A source at BCL said the P1 billion loan from Barclays was gobbled by the questionable acquisition of two Dump trucks acquired from BELL at the beginning of 2016. The dump trucks - which do not meet specifications for BCL shafts - are currently lying idle at Selebi and Selebi North Shafts because they are too big to fit into underground channels (also known as developments). Curiously the dump trucks have been acquired on a rent-to-buy arrangement, under which BCL pays the contractor approximately P1 million in monthly rentals despite that the total cost of each trump is approximately P5 million. Allegations are that equipment used for exploration under Polaris II was diverted for personal use by some in management, drilling boreholes for some in their private properties.

BCL closure
The closure of BCL mine last Friday comes exactly 24 months after agreeing to buy Nkomati Nickel and Tati Nickel for $337m in cash as well as assume responsibility for all outstanding debt and environmental and rehabilitation liabilities. Nkomati was previously owned by Norilsk Nickel 50% and SA’s African Rainbow Minerals in Mpumalanga. The insolvency of BCL has long been predicted after the company embarked on a dangerously ambitious strategy to diversify its offerings while copper prices hit record low. Allegations are that although POLARIS II had potential to turnaround BCL fortunes it was used by some to milk money out of the company. A former manager at BCL said the challenge with the strategy was that it was not focused but rather wanted to penetrate a lot of markets at the same time without considering budget implications. Former BCL General Manager Montwedi Mphathi has been credited with successful implementation of Are Chencheng strategy which turned business around, leading to the mine settling a subordinated debt of P430 million in 2008 given in US dollars (US$65 million) and paying P12 million to the government.

Mahupela took over in 2011 and wanted to shift the focus of the mine from purely mining but into an enterprise. Encouraged by their ability to have settled P3.3 billion to make good indebtedness to government through a combination of P1 billion in cash and P2.3 billion balance as a way of issuance of shares, BCL Limited came with a more ambitious strategy. POLARIS II Strategy was hatched – a name derived from the brightest star in constellation Ursa Minor. The star is called the guiding star and has been used by travellers because of its allure. Consequently, Polaris II was to see the company becoming a well-diversified enterprise. It was designed to further prolong the life span of the mine as well as diversify the mine activities from reducing reliance on nickel and copper making BCL to be a robust mining giant in the region and world, just like Anglo American. POLARIS II was divided into six thematic areas being to expand and sustain nickel, copper, develop iron, chemical and by-products, coal beneficiation, and precious metals and other mineral production circuits.

Pula Steel Casting and Manufacturing Plant
2014 was the beginning of the BCL Limited insolvency as demonstrated in the buying of 50 per cent shares at the value of P20 million in Pula Steel Casting and manufacturing owned by the textile producers Verma Family and former Botswana Democratic Party (BDP) Secretary General Mpho Balopi and former BEDIA Manager Brian Mosenene through their company Wealth Generations. The Phase I of the plant was supposed to take six months to complete but ended up taking more than a year to be commissioned. Red flags were raised when the company gobbled P38 million even before construction could even start. BCL pumped in another P53 million into the project while some of the shareholders including Citizen Economic Development Agency (CEDA) pulled out of the deal.
BCL had to use more than P183 million on a project which initially was budgeted for P40million. The plant was recently closed after it failed to meet some of the environmental obligations by the department of Pollution and Waste Management. This year BCL, as the major shareholder, fired Ranvir Vermaas as the Chief Executive Officer when the company failed to perform to expectations. With the collapse of big steel plant in the world due to production of cheap steel by China, Pula Steel’s survival is now in doubt.

AFI’s advisory role in Norilsk deal
Some in the management and Board of BCL questioned the appointment of the South African company AFI - a financial advisory firm focusing on project finance, mergers and acquisition, capital raising and corporate restructuring – as financial advisor in the acquisition of Norilsk interests. There are allegations that the right procurement procedures were not followed when appointing the company and this caused a rift in the BCL management. The frequent trips by the team appointed to negotiate the deal on behalf of BCL to South Africa is said to have unsettled the board and Managing Director Dan Mahupela. At one stage one member of the team requested the financial manager to deposit P20 000 on his account while in South Africa and the money has not been accounted for. As part of their advice to BCL on the P3.3 billion deal, AFI has pocketed P20 million and were expecting more if the deal was completed.

The Smelter blunder
As part of turning around the fortunes of BCL and ensuring that the mine operates beyond the lifespan of the copper and nickel, BCL awarded Outotec a contract for modernising the nickel flash smelting furnace at Euro 177 million. BCL's original nickel smelter was built in the 1970s using Outotec® Flash Smelting technology. The scope of Outotec's modernisation work included the redesign of the flash smelting furnace, delivery of new advanced cooling elements and integrating them into the furnace. The service level agreement included installation and commissioning supervision services, preventive maintenance planning, equipment maintenance and spare parts. The company then outsourced the service to a South African engineering firm, Kentz (PTY) Ltd who carried out the maintenance which exceeded to P728 million and completed months after scheduled date. BCL is yet to clear off its debt to Kentz for renovating the smelter. Though the company didn’t have enough money to pay for the maintenance of the smelter, they made a proposal to the Board of Directors which agreed to release P400 million with the management instructed to source P300 million from financial institutions. At the time the copper prices were doing well and BCL’s purse was in a stable position but the finance department sat on the advice from the board to approach financial institutions for funding. When they approached the banks, it was too late and the copper prices had collapsed to as low as $5 an ounce and hence BCL was no longer attractive to do business with. The panicking BCL management was forced to use operational budget of P300 million to cover the remaining balance, which landed the company further into financial crisis.

P1 billion Barclays loan
Meanwhile, when banks turned them down it forced Government to come to their aid by guaranteeing their US100 million loan from Barclays bank. The Minister of Finance and Development Planning Kenneth Matambo warned then that 6000 people directly and over 10 000 indirectly employed run the risk of losing out if Parliament refused to approve the guarantee. He blamed poor trading conditions arising from depressed commodity prizes - anticipated to prevail until 2018 – for BCL’s poor financial position. “The BCL Group has been aggressively pursuing the implementation of the restructuring project which encompasses a long term strategy (Polaris 11 strategy) whose push is to improve business efficiency and create an enabling environment that would result in long term sustainability,” he said. Matambo said the loan is intended to serve as an interim measure to avoid disruption to the business, saying the facility’s maturity period is 15 months and the guarantee will cover the same period. And now as things stand – Government has to pay back this debt alongside many others accrued by BCL.