HARARE- BNC’s latest financial results reveals that the company could possibly lose up to $5 million in impaired assets as a result of delays in the smelter restart.
The opinion is contained in an audit opinion by the company’s auditors Ernst & Young, which accompanied the results as per financial reporting standards requirements.
Referring to note 10.5 which described matters relating to the impairement of smelter assets, Ernst & Young highlighted that management has failed to provide for the expected loss arising from the delay in smelter completion despite having sunk a huge capital outlay.
“In our opinion due to this matter, the financial statements do not present fairly, in all material respects, the financial position of BNC as at 31 March 2019, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards” the auditors quipped.
In 2014 BNC undertook to raise capital earmarked for the smelter restart, through the issuance of a $20 million bond via private placement. The company pulled the remaining $6 million to complete the funding requirements targeted then at $26.5 million.
The issuance was highly subscribed as BNC took advantage of the bullish Nickel price outlook forecasted during that period. The company had also emerged from a period of poor performance as Trojan mine came back to life.
The sentiment around BNC as a counter was very bullish with most analysts placing undemanding valuations on the stock.
4 and half years after the funds have been raised BNC has not yet completed the smelter, which is presently at 83% completion. Likewise, the company has only managed to repay 25% of the redeemable bond.
In initial roadshows back in 2014 and early 2015, BNC had promised to fully armortise the bond in 5 years having been bullish on a 3 year armortisation which assumed nickel price could average $16,500 per tonne.
The company has however put blame on exogenous factors which it believes are beyond its control and these include lack of viable prices on the international market. In a repeated explanation to shareholders and bondholders alike, BNC emphasised the implication of weak prices.
“Your Board is of the view that for as long as the nickel market fundamentals have not driven the price to significantly higher levels than where it has been on a year on year basis, it will not make economic sense to continue injecting more capital into this project.
“Stakeholders are assured that as soon as price fundamentals have improved significantly enough, the Board will ensure that the Project is completed. The Nickel prices that obtained during the period under review, though better than the previous period, were not high enough to change the circumstances under which the Project can be resumed.” the company stressed. Other causatives put through include power tariff and low feed.
Auditors are however of the view that the smelter plant which has a carrying amount of $33.9 million should have been assessed for impairement and recorded at recoverable value, in line with IAS 36.
The auditors did not find sufficient proof from management that nickel prices could recover to levels near the threshold required for plant completion and restart.
At an analysts briefing held in Harare, BNC CE responded to a question asked in respect of the matter raised by the auditors to which he responded that management estimated the impairment cost to be between $3 million to $5 million.
Despite this recognition management did not provide for the expected loss as expected by the guiding financial standards.
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