Harare – Listed nickel miner BNC has said its solvency levels is improving after reducing the technical insolvency levels by over half in the 6 months period to September.
The company’s working capital position as at September was -$4.7 million. This however represents an improvement from a worse off position at $10.6 million as at March 2018.
An adverse outturn typically represents a misconfigured or higher gearing position and reduced cashflow generation among other factors.
Sustained insolvency threatens the going concern status of a company while curtailing growth prospects.
Bindura Nickel Corporation Limited is a Zimbabwe-based company, which is engaged in Nickel production at Trojan Mine.
In a wide-ranging interview with Equity Axis, Managing Director, Batsirai Manhando said there was significant improvement on the solvency of the Group, year on year, and in spite of a technical insolvency, BNC was still able to honour its obligations to bondholders during the course of both 2017 and 2018.
“There are some liabilities, which though reported under current liabilities, are not strictly on demand. These include amounts owed to Related Parties, Litigations and Leave provisions and Legacy Housing Scheme of Arrangement with Employees” Manhando said.
“On paper, these liabilities worsen the technical insolvency situation. However, they will not ordinarily be demanded in the normal course of business. If these are excluded, the company would be technically solvent.
That explains why the Company has been able to meet the previous bond repayments regardless of that position. Accordingly, the Directors are confident that the Company will be able to continue meeting its current obligations as they fall due,” said Manhando.
Responding to why the Smelter Restart project, currently at 83 percent completion stage which has been put on hold for some time is not being completed, Manhando said it would not make economic sense to inject any more capital into the project to achieve completion, because, at current nickel prices, the Smelter would lose money, rather than make money.
Briefing analysts last year, the Group said payment for a bond which was floated a few years ago for the restart of a smelter by Bindura Nickel Corporation (BNC) is weighing down on the company’s capital requirements after it spent US$5 million in capital repayments plus interest in 2017.
Manhando revealed that the smelter was not yet contributing to the repayments and it would only become viable to pursue smelting at a nickel price of at least US$16 200 per tonne.
“In the Information Memorandum (“IM”) that was issued as part of BNC’s effort towards raising $20 million in the form of the Smelter Restart Bond, it was assumed that nickel prices of US$16 250 per tonne and above were assumed in the cash flow model. However, as the outturn has shown, nickel prices have never reached these levels.
“Of the $26.5 million estimated total project cost, $6.5 million was going to be raised internally from BNC’s cash flow generation capacity. Given the unfavourable performance of the nickel price since the IM assumptions were made, BNC has not been able to finance the project on a sustainable basis, due to cash flow constraints which were caused by the under-performance of the nickel price.
“Further, at current nickel prices, it would not make economic sense to inject any more capital into the Smelter Restart project to achieve completion. This is because, at current nickel prices, the Smelter would lose money, rather than make money,” he said.
Manhando also said the Trojan Mine plant’s current capacity is at 50 percent utilization, a performance target that is deliberately based on BNC’s mining strategy, whereby the focus is on the extraction of high ore grade, rather than high volume and it would otherwise not make economic sense for BNC to increase its operating capacity at current nickel prices
Going forward, Manhando said the Company has put in place operational and financial measures that will keep it going.
“These include recapitalization, in terms of which two new LHD units have been bought during the second quarter of the year. Plans are afoot to ramp up production and continue to reduce our all-in sustaining costs so as to improve our cash flow generation. The new investment in equipment will assist in increasing production and in reducing operating costs.
“On the other hand, Nickel Prices in the world market are performing better than the previous year. It is expected that they will continue to stabilise at the current levels or even do better due to demand and supply fundamentals in the world market.”
Meanwhile, according to Norilsk, world supply of nickel increased by 7pc last year to about 2.19mn t, but demand increased by 8pc to 2.33mn t, widening the deficit to 147,000t, from 131,000t in 2017.
Global players are suggesting that higher nickel prices are required to incentivise supply of nickel sulphate for electric vehicle (EV) batteries, particularly given lower cobalt prices.
The battery sector accounted for 124,000t of consumption last year, and while overall nickel demand is expected to increase at a compound annual growth rate (CAGR) of 5pc to 2025, demand from the battery sector is estimated to climb at a CAGR of 18pc over the same period.
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