Thousands of citizens living in the Selibe-Phikwe region are sitting on a ticking time bomb and were exposed to harmful pollution after the closure of BCL mine due to wrong handing-over information submitted to the provisional liquidator by management. It has also emerged that prior to liquidation no responsible environmental management had been practiced at BCL operations and none of the pollution control facilities are lined. As a result, there is no evidence of storm and surface water management infrastructure; and there has been no attempt to separate the clean and dirty water being pumped from the mines. The shocking revelation is made by the provisional liquidator of BCL mine, Nigel Dixon-Warren, after engaging top notch mining experts from South Africa – Min Corp consultants – to assess the status of the asset and advice on its potential to be disposed as a going concern. Warren told creditors ahead of their first meeting in Gaborone tomorrow (November 6, 2017) that the environmental rehabilitation obligation submitted by management was considered to be understated and therefore creates a major challenge in trying to lure investors to come on board. Based on the work undertaken as part of the Status Assessment Report, the value provided for in the financial statements is considered to be significantly understated. This is in part due to the failure to account for environmental impacts beyond the immediate vicinity of the mines, such as the sulphur dioxide contamination from the smelter. The total closure liability estimated for BCL is set at P3.052 billion if these factors are taken in to account and as per BCL’s own Environmental Management Plan requirements which includes sale of steel assets and demolition of buildings and rehabilitation of landforms. This liability could be reduced to P2.727 billion assuming a post closure usage for cement and brick surface infrastructure and sale of steel assets and landforms such as slag dump and waste rock dumps. It is estimated that 80% of the cost would be spent in the first five years. Management had estimated the value per the Statement of Affairs of the Environmental rehabilitation obligation at P1, 040,756,755, but the provisional liquidator warned that it is considered to be significantly more (up to three times the amount provided for based on an-updated and amended EMP). "The issue of the rehabilitation obligation and its impact of the options for disposal of assets is a key consideration in the winding up process," warns Warren, adding that ensuring on-going rehabilitation is therefore not an easy task and the challenges for ultimate reclamation significant.
Warren advises the creditors that while the mineral concession is considered to be an asset of BCL if it is sold to a third party the rehabilitation obligation “follows” the licence. This is highly significant, as it is not considered likely that any investor will assume that liability especially considering the overall inadequacy of the historic environmental mitigation strategies employed by BCL, the liquidator pointed out. Therefore, he said, the rehabilitation obligation and environmental issues significantly impact the options available for disposal of the assets. BCL board had in 2015, either out of ignorance or deliberately approved utilisation of the cash funds set aside for rehabilitation to fund operating expenditure. The board, in collusion with management took the decision exploiting the laxity or non-existence of a regulatory environment that is meant to provide environmental and societal protection. The lack of rehabilitation plan was identified as one of the most severe and significant impacts of the resultant environmental damage caused by the BCL operation and smelter on the Selebi-Phikwe region. The other issue that makes the disposal of the BCL mine certainly as a going concern problematic, as noted by Warren, is the failure of management to undertake the necessary work to convert the mineral resources into measured reserves, despite that there are inferred resources available insufficient work has been done to convert them to a measured reserve. This means that any potential purchaser would have to assume significant risk and cost in order to confirm that the resources are indeed reserves. This negatively affects the value of the mining asset. This, coupled with the rehabilitation obligation makes the BCL assets or the BCL Sale Assets a challenge to sell. The liquidator says while there have been efforts, which are on-going, to determine the interest in the BCL Sale Assets, the value of the assets may in fact be in piecemeal disposal and where possible, capitalising on the mineral licence and surface rights that are in the name of BCL. However even in this scenario it will be necessary to mitigate the rehabilitation obligation. In order to be able to do this and develop a proper closure plan (in mining terms), identify post-closure usage and ultimately dispose of the assets it has become clear from work done that studies and assessments need to be conducted prior to the development of this plan and disposal. The first phase of pre-closure assessment (PCA) has been concluded, while the second phase has commenced. These various possible disposal options are part of the broader LES. The development of a closure plan does not preclude the possibility of some of the mining operations continuing as it may well be that there is interest by a party in buying these shafts but not all of the rest of the assets. Work has commenced to identify how the assets can be broken up should it not be possible to find a buyer for the BCL Sale Assets.
Care and Maintenance
One of the main reasons for keeping the mine under care and maintenance following an initial assessment of the companies (Tati Nickel, BCL and BCLI) was because of serious environmental risk as well as potential damage to the plant and equipment caused by an uncontrolled shutdown. The shutdown would have entailed to cease all activities on the mines notably the dewatering of the shafts and treatment of water used in the process. Secondly, it was necessary to conduct an assessment as to whether it was possible or practical to resuscitate the business and if not what were the viable options are for disposal of the assets. Without the care and maintenance activities the shafts and mines would flood making any suggestion of restarting operations and/or selling the shafts, if not impossible, very difficult. A request was made by the liquidator to management to put together a care and maintenance (C&M) team for the period from 1 November 2016. The plan put together by management was rejected by the liquidator as not suitable, practical or realistic and despite numerous attempts to have them modify the plan it soon became apparent that management did not have the capability to do so. As a consequence the liquidator engaged an independent technical advisor, The Mineral Corporation Consultancy (Proprietary) Limited (“Min Corp”), a mining consultancy firm who had assisted BCL with its optimisation plan in 2014-15 as well as other work prior to liquidation, to help develop a care and maintenance plan and identify a team. An interim C&M Manager was appointed from within Min Corp while efforts were made to identify a suitable local candidate. Due to lack of competence no members of management were considered for the position and none was retained as part of the C&M team.
I has also emerged from the liquidator's report that some of BCL assets, which are currently considered liabilities as they are associated with the rehabilitation obligation, has attracted interest from some investors. These include a tailings dam, slag dump and other dumps on site associated with mining activities. Interest from potential investors has created an opportunity to dispose of them and either reduce the liability or alternatively derive value for the estate. As part of the overall LES the possible mechanism to achieve this is being investigated, the liquidator reported. Apart from those, BCL's key assets include among others Mining Operations (including mineral resources); Processing Operations (including Smelter and Concentrator); Other property and equipment including fabrication workshop and laboratory; a Hospital; Residential Housing (+/- 1600 properties valued to be P492,820,000 in June 2016); a Farm (210 hectares); an Aircraft (sold); and shareholding in subsidiary companies. The net amount realised from the sale of the aircraft was US$ 491,171 (or P 4,813,881). The liquidator found that BCL has shareholdings in a number of subsidiary joint venture companies whose shareholding has been incorrectly allocated to BCLI. He advises that the shareholding needs to be corrected and the financial position revised for both BCL and BCLI. The majority of these companies were found to be in possession of prospecting licences, which the Minister of MMEG in accordance with the Mines Act has suspended.
In an attempt to dispose mine stores and spares the provisional liquidator is in the process of negotiating with a buyer for the disposal of stock on site, consisting of 450 dry metric tonnes (DMT) of matte as well as concentrate and reverts. However the liquidator is facing challenges trying to recover matte in transit (and in the possession of three transport / warehousing companies) in South Africa at the date of liquidation consisting of 26 DMT at port in Durban, unloaded from shipment due to damaged container; 124 DMT at a logistics depot in Durban and 180 DMT at a transport company in Johannesburg. All three companies have indicated they are exercising a lien over goods in their possession at date of liquidation for unpaid storage costs, a claim which the liquidator is investigating. The transport company is also asserting that it has a pledge from BCL dated 24 June 2016 over the matte and for goods delivered by suppliers immediately prior to and after liquidation. It assets that this is tacit agreement of pledge concluded on or about 24 June 2016. Again, the legality of this is being investigated.It is also being investigated how, if it all, the liens are affected by the deeds of hypothecation the secured creditors have over these assets and what are the implications given that the goods are cross-border. The liquidator also revealed that suppliers are claiming ownership of items that were delivered to the transport company post-liquidation. The terms and conditions of the delivery of these supplies needs to be determined to confirm if the ownership of the assets has passed to BCL. If this is the case then these are assets of the estate and the supplier has a claim against the estate.In a surprising twist, the transport company has submitted an application to challenge the granting of the final order recognising the liquidator as provisional liquidator in South Africa asserting that the terms of the final order are prejudicial to its rights as a “secured” Botswana creditor. The liquidator has been advised by his legal representatives that there is no merit in this assertion. The court order being sought follows the standard wording used within South Africa to recognise a foreign liquidator in South Africa.The liquidator has therefore proposed that his preferred solution would be to dispose of the matte and other goods as appropriate and hold the funds in trust until such time as the legal issues are resolved.There was also concentrate delivered to site by MTO under a tolling contract. This had not been processed as at the date of liquidation. This is not considered to be an asset of BCL.
Trade and other receivables
The total funds contributed to Pula Steel are P 106,657,738 plus P2, 334,584 interest on a loan. The P106,657,738 comprises of P50, 511,488 which is in respect of a loan guarantee for P45 million issued by BCL to First National Bank of Botswana Limited (“FNBB”) on behalf of Pula Steel. FNBB enforced this guarantee in June 2016 following non-payment of the loan by Pula Steel. The amount of BWP50, 511,488 includes interest. BCL did not have any security in place over the assets of Pula Steel with respect to this loan.The balance of BWP56, 146,250 relates to the equity contributions made to Pula Steel.There is also an amount due of BWP6, 5 million due arising from a contract between BCL and Pula Steel for the sale of scrap. This amount is included under ‘Staff and Other Receivables’. Pula Steel has been placed under judicial management and an application was recently made by the PL to have the company wound up as the company is not operating and has insufficient funds to pay the judicial management costs. This application was successful and Pula Steel is now in provisional liquidation. As a consequence the recoverability of these amounts is not known. The decision to invest in Pula Steel and the subsequent relationship including the enforcement of BCL’s rights under the contract for sale of scrap is one of the items recommended for further investigation.
Historically BCL had entered in to various matte purchase agreements with RioZim for the supply and purchase of matte. The monies owing under these agreements dates back to 2014. The amount owed is approximately US$30 million in respect of shipments of matte that were delivered, but not paid for. Based on a review of documentation it appears that BCL tried to recover a portion of this debt by making an offer to purchase a refinery owned by RioZIm in Zimbabwe. The consideration per the non-binding offer was US$25 million which was to be off-set against the amounts due. There is no evidence this deal was ever concluded. The provisional liquidator has commenced proceedings for the recovery of these funds in Zimbabwe. This requires him to be recognised as the provisional liquidator in the High Court there. This application is being drafted. RioZim has disputed that any monies are due to BCL.
There is a significant legal dispute between Norilsk, on the one hand, and BCL and BCLI, on the other. This is with respect to a SPA in terms of which BCLI was to acquire an interest in the Nkomati mine in South Africa. The amount claimed by Norilsk in terms of this contract is US$271 million. Prior to liquidation BCL and BCLI had taken the position that the agreement had failed for want of fulfilment of conditions precedent. The provisional liquidator has taken legal advice and has continued to assert that the agreement had failed for want of fulfilment of conditions precedent. There are legal cases pending in Botswana, England and South Africa with respect to this agreement.
Having reviewed the books and records of the company it is has been established that the assets and liabilities per the Statement of Affairs are incorrect and substantial work, which is still on-going, has had to be done to update and correct the financial records of BCL. The Statement of Financial Position has been revised by the liquidator from that submitted by the directors with the Statement of Affairs to the Master as the one submitted was found to be inaccurate. Based on the revised Statement of Financial Position as of 9 October 2016, the total assets are P611, 525,906. This is against total liabilities, excluding the rehabilitation obligation, of P2, 139, 472, 004. Two secured creditors both hold deeds of hypothecation over certain assets. The estimated value of their security is P70 million. Environmental rehabilitation obligation is cited in the report as one of the key liabilities that were understated alongside trade and other creditors as the amount reflected excludes any damages claims from creditors for breach or termination of contract.
At the time of liquidation BCL had overdraft facilities comprises of three amounts owed to three different banks being Barclays P34, 375,554, FNBB P34, 905,862 and Standard Chartered Bank P33, 566,726.Based on an investigation by the liquidator to date Barclays has a registered deed of hypothecation, registered on 10 November 2015. The deed covers the nickel and copper concentrate and all other moveable assets. BCL is bound under the deed of hypothecation for the sum of US$20 million together with an additional sum of US$4 million and interest at LIBOR plus 3.5%.SCBB has a registered deed of hypothecation number, registered on 28 June 2016. The deed covers metals and matte. BCL is bound under the deed of hypothecation for the sum of P 35 million and interest at prime rate plus 1%, as well as for an additional sum of P7 million. Barclays and SCBB signed an agreement dated 4 November 2015 under which it was agreed that any rights, title and interests in the property and assets of BCL are held for the benefit and security of Barclays and SCBB on a pari-passu basis. FNBB holds no security.