BCLgate: The plot

It was a perfect deal, too good to be true, but somehow it collapsed and suddenly Botswana must contend with a multibillion lawsuit from the Russian multilateral company. Norilsk Nickel Africa (NNA) - the target company that BCL was buying- had confirmed cash resources of US$25 million in its balance sheet, being money that would have belonged to BCL and would have been used for the upfront payment to the Russians had the negotiations succeeded.

The agreement by BCL to buy the Nkomati mine at a purchase of US$271.3m (P2.8 billion) inclusive of damages and other costs was signed in October 2014 for 50 percent interest in the Nkomati nickel mine in Mpumulanga, South Africa. Sources involved in the transaction have confirmed that Norilsk had agreed to pay BCL at least US$130 per tonne to smelt Nkomati concentrate on its behalf.

This would have generated P300 million annually in revenue for BCL from the Nkomati deal, indeed a major financial benefit. Part of the money would have been used to pay the mine’s costs and the other to pay Norilsk Nickel, on a deferred basis. It said that taken together, the aggregate benefits to BCL from Nkomati would have been at least P300m in revenues from the tolling contract that had been negotiated with Norilsk, in a five-year renewable contract. And most importantly, this would have been a fixed amount, payable to BCL irrespective of the Nickel price!

Sources say that government through its investment company – Minerals Development Company Botswana (MDCB) led by Paul Smith - is to blame for pushing Norilsk to take legal action against its will. Smith has unlimited access to cabinet in his capacity as Chief Executive Officer of MDCB. He allegedly convinced cabinet to liquidate BCL in order to avoid a looming lawsuit by Norilsk Nickel.

Throughout the Nkomati sale negotiations, sources aver that Norilsk has never changed its position. They had agreed to a significant reduction in the purchase price and were willing to negotiate further and to reduce the price by up to 70 percent with part of the purchase price paid from cash inside the target company – NNA.
This meant that the maximum upfront cash payable by BCL would have been US$50million.

Nkomati profitable
Nkomati is currently making money and would have be paying for the purchase price especially that Norilsk had agreed to a five-year deal to pay BCL to treat the Nkomati. In October 2014 when BCL signed the agreement with Norilsk, the nickel prices were over US$8 per pound. Over the subsequent year, the price rapidly deteriorated until it hit a low of under US$4 per pound. However, at a time when MDCB frustrated the deal, it was obvious that the nickel price was on an upward trend. In fact, by the time BCL was liquidated, allegedly to avoid the Norilsk legal action, the nickel price had gone up by 30 percent to over US$5 per pound.

African Rainbow Minerals
Investigations by Botswana Guardian have revealed that at a prices of over US$5 per pound, Nkomati is in a positive cash position as its latest annual report, shows. African Rainbow Minerals (ARM), the 50 percent owner of Nkomati, reported that Nkomati’s cash costs are now US$4.18 per pound. This means that unlike previously, Nkomati would not need any cash support from its shareholders (GRAPH NICKLE C1).

Lawsuit and MoU
It is not clear how Smith and his MDCB could not have seen that by frustrating the deal, they were triggering a potential lawsuit even from a hesitant company like Norilsk which didn’t harbour such intentions at the time. Legal sources say he could have been depending on the fact that the parties had signed a well-crafted non-binding Memorandum of Understanding (MoU) codenamed ‘Project Tungsten,’ on 17 th October 2014 and amended almost a year later, on 17 September 2015. The parties involved were Norilsk Nickel African Proprietary Limited (NNAF), Metal Trade Overseas AG (MTO) and BCL.

Under the restructured transaction price sub heading, the MoU provides that, “Due to changes in the overall market environment, Norilsk Nickel and BCL have already hereby agreed that the new cash price consideration payable for the sale of NNAF and Tati will be US$305.9 million, subject to the deferred consideration. “No equity interest is or will be payable”.

The conditions of the deferred consideration were that, both parties “Have agreed that US$30.6 million of the new cash consideration amount will be contingent on the nickel price. The amount of contingent purchase price will be determined and due on 1st January 2018 using a ratio based on the leverage LME Nickel settlement price over calendar years 2016- 17”.However, on 1st December 2016, Norilsk Nickel Mauritius (NNM) and Norilsk Nickel Africa (NNA) let the cat loose by instituting a lawsuit against BCL mine in the Botswana courts and the London Court of International Arbitration for BCL’s abandonment of the Nkomati Transaction seeking to recover the purchase price originally-agreed.

Norilsk Nickel Africa CEO Michael Marriott argues in the court papers that, BCL has failed to honour its obligations under the sale agreement concluded in October 2014 and calls this failure by BCL to abide by its obligations under the sale agreement “unacceptable” in any business transaction. He argued that this “deplorable conduct” has resulted in the BCL smelting and mining operations being placed into provisional liquidation.

The closure of BCL, he says, will have a devastating effect on the livelihoods of thousands of people, and a negative impact on the regional economies which rely on the BCL smelter to beneficiate nickel, copper and PGM concentrates.  “It is disappointing to note that the Government of Botswana recently invested in refurbishing the BCL smelter, at an estimated cost of P700 million, giving hope to the people of Botswana that BCL had a good future with Nkomati able to supply the bulk of concentrates for beneficiation.”He fears that these actions by BCL could jeopardise Botswana’s excellent reputation internationally as a country with a sound investment climate. “Throughout the process, Norilsk has acted in good faith, and given BCL repeated opportunities and offers of assistance to complete the transaction, including concessions to significantly reduce the sale price.

“Norilsk has done everything possible to support BCL in its endeavours to secure its long-term future, and therefore sees no other option but to defend its interests in courts with jurisdiction over the matter.” Contacted for comment, Smith could not field questions from this publication, fearing to run afoul of the sub judice rule since. “The matter is now before the courts, and as such, I unfortunately am not able to make a comment,” he said.