Harare- Mining firm listed on the Victoria Falls Stock Exchange (VFEX) Bindura Nickel Corporation (BNC) is set to bounce back to profitmaking in FY2024 after incurring a net loss of US$18.5 million in FY2023. The company succumbed to a busload of headwinds which resulted in the plunge of production. These included factors within the internal environment, at macro-economic level and across the borders.

The full-year results for 2023 published by the company shows that power outages, supply chain disruptions, machine breakdown and unexpected changes in the ore body played a critical role in plummeting productivity.

SVR Breakdown

“During the second half of the year ended 31 March 2023, the Company experienced additional operational challenges which exacerbated the situation including the Sub-vertical Rock Winder (SVR) breakdown, which was declared a force majeure event, resulting in the loss of October and November 2022 production months,” said the company’s chairperson, Muchadeyi Masunda.

A Sub-vertical Rock (SVR) winder is a specialised piece of equipment used in underground mining operations. It is typically used for hoisting mined ore and waste rock vertically up a shaft within the mine, and it is designed to handle heavy loads of rock and equipment. It plays a critical role in transporting ore and waste from underground mining operations to the surface for processing and disposal. The breakdown of the Sub-vertical Rock Winder (SVR) resulted in the loss of October and November 2022 production months. This means that the company was unable to produce any nickel during these two months, leading to a decline in overall production.

The replacement of the damaged bull gear is expected to take place in August 2023. Until then, the SVR Winder can only run at 60% of its capacity, which will continue to impact nickel production negatively. This also posses a bad picture for the first quarter and or second quarter of the year.

Masunda said the SVR breakdown was declared a force majeure event, which means that the company may not be held liable for any losses resulting from the event. However, it also means that the company may have to pay penalties for not being able to deliver nickel to customers as per their contracts. This inflates operating costs.

Unexpected change in the ore body

“Production was also negatively impacted by an unexpected change in the ore body, leading to a severe decline in the high grade massives resource footprint.”

“This change requires a rapid transition in the mining model from a low-volume, high-grade strategy to a low-grade, high-volume strategy. Unfortunately, the transition is behind schedule due to the delays in the delivery of the new underground mining mobile equipment which is a prerequisite to the realization of the new mining strategy,” said Masunda.

An unexpected change in the ore body at BNC means that the composition and characteristics of the ore deposit being mined underwent an unforeseen alteration. This change may have resulted in a reduction in the amount or quality of the ore that can be extracted from the mine, or it may have made it more difficult or expensive to extract the ore.

This unexpected change in the ore body had a negative impact on production at the mine. The change required a rapid transition in the mining model from a low-volume, high-grade strategy to a low-grade, high-volume strategy. This transition was behind schedule due to delays in the delivery of new underground mining mobile equipment, which was necessary to realize the new mining strategy.

The unexpected change in the ore body at BNC affected production in several ways. The change in the ore body reduced the grade of the ore being mined, which means that there was a lower concentration of valuable minerals in the ore. This led to a reduction in the amount of nickel extracted from each tonne of ore, which ultimately translates to lower production levels.

The change in the ore body caused delays and disruptions in the mining operations. For instance, the mining methods that were previously used may no longer be effective, and new methods may need to be developed and tested. This can result in delays in the mining schedule and ultimately lower production levels.

Thus, the unexpected change in the ore body at BNC can had significant negative impacts on production, including reduced ore grades, increased costs, delays and disruptions, and uncertainty. These impacts led to lower production levels and requires the company to revise its mining strategy to adapt to the new conditions.

Global Supply Chain Disruptions

The company, it was affected by global supply chains. The Company said it was adversely affected by low underground mining mobile equipment availability due to obsolescence. This, it managed to serve through acquiring four new LHDs, in addition to face rigs, support rigs, and production long-hole rigs during the course of the year. The disruptions to global supply chains delayed the delivery of the four new LHDs, in addition to face rigs, support rigs, and production long-hole rigs, which were necessary to improve underground mining mobile equipment availability. This delay impacted the company's ability to mine efficiently and meet production targets.

Besides, the delay in equipment delivery also resulted in increased costs for the company, as they had to continue using old and outdated equipment that required more maintenance and repairs. Cost of sales increased by 18% to US$60.5 million, compared to US$51.4 million for the prior year. Cost of sales were partly affected by high maintenance of aged equipment. The disruptions to global supply chains further created uncertainty for the company, as it became difficult to predict when the equipment would be delivered. This uncertainty made it difficult for the company to plan and make decisions regarding their production targets and mining strategy.

National grid failure

The protracted electrical power outages and general grid instability beginning in February 2023 resulted in severe direct production losses. Without electricity, the company was unable to run their equipment and mine nickel efficiently, leading to a decline in production. The power outages also resulted in equipment damage, as the sudden loss of power can cause damage to sensitive equipment. This damage further impacted production, as the company had to repair or replace the damaged equipment before they could resume mining.

The power outages also created recovery inefficiencies, as the company was unable to process the mined nickel efficiently without electricity. This inefficiency further impacted production, as the company was unable to recover as much nickel as they would have been able to if they had access to electricity. Recovery efficiency dropped to 77.9% from 85.0% last year.

Operations Review

Against the backdrop of the above factors, ore hoisted for the year decreased by 11% to 418,587 tonnes from previous year’s 463,338 tonnes. Tonnes ore milled were 9% lower at 418,020 from 461,130 last year in tandem with the lower tonnage hoisted while head grade declined to 0.96% from 1.30% for the prior year with recovery efficiency dropping to 77.9% versus 85.0% for last year.

Nickel in concentrate production declined by 37% to 3,180 tonnes from the previous year’s 5,082 tonnes. Unit cash cost of production (C1) increased by 70% to US$18,269 per tonne while the all-in-sustaining cost of production increased by 76% from US$12,410 per tonne for the prior year, to US$21,841 per tonne.

Masunda attributed the increase in unit production cost mainly due to the decrease in Nickel production, the high cost of maintaining the old and obsolete underground mining mobile equipment and the increase in power tariffs during the year.

He further made reference to the disparity between the official auction and parallel market rates which continued to widen during the year with local suppliers using the parallel market rates rather than the auction rates in their pricing models. The discrepancy in the two rates had an adverse impact on the Company’s costs of local inputs.

With dampened production, the Company recorded Nickel sales volume of 3,095 tonnes which were 34% lower than the prior year’s sales of 4,720 tonnes, in line with the lower Nickel production.

However, the average LME Nickel price achieved during the year was US$25,628 per tonne, compared to US$20,602 per tonne achieved in the previous year. The 24% increase in the average Nickel price reflected the global increase in the demand for the metal.

As a result, revenue was US$49.5 million from US$74.2 million in the prior year. The decrease was in line with reduced sales volume which was attributable to the lower production as detailed above. Cost of sales increased by 18% to US$60.5 million, compared to US$51.4 million for the prior year. Cost of sales were heavily impacted by increases in power costs, high maintenance of aged equipment and the effect of exchange rate disparity.

 A gross loss of US$11 million was realised in the year under review, compared to a gross profit of US$22.8 million in the previous year, mainly due to the reduced sales volume emanating from the lower production while an operating loss of US$21.8 million was realised, from the operating profit of US$11.9 million in FY2022.

The Company incurred losses before and after taxation of US$24.2 million and US$18.5 million respectively, which represented a decrease of 320% and 329% respectively, year-on-year. Total equity of US$41.6 million decreased by 31% from US$60.1 million as a result of the loss incurred for the year. The Company closed with a net liabilities position of US$13.4 million (2022: net current assets of US$8.4 million) due to operational challenges alluded to above. In addition, the Company increased its current borrowings by US$4.5 million from the comparable financial year.

Total capital expenditure for the year amounted to US$8.3 million (FY2022: US$6.5 million). This was driven by the programme to replace the old and unreliable underground mining mobile equipment and was being funded from bank loans and internal cash flows.

The Revamp campaigns

Expediting the transition in the mining model from a low-volume, high-grade strategy to a high-volume, low-grade strategy

By transitioning to a high-volume, low-grade strategy, the mine can increase its overall production levels. This is because the focus is on extracting a larger quantity of lower-grade ore, rather than a smaller quantity of higher-grade ore. This approach can help to offset the negative impact of the unexpected change in the ore body, which reduced the high-grade massives resource footprint.

Also, the transition to a high-volume, low-grade strategy may require the deployment of additional equipment to achieve the necessary production levels. This can improve overall equipment utilisation, as the new equipment will be put to use more frequently, reducing downtime and increasing productivity.

The high-volume, low-grade strategy can also help to reduce costs, as the cost per tonne of ore extracted may be lower with this approach. This can be achieved through economies of scale, as the mine is producing a larger quantity of ore.

Replacement of the damaged SVR bull gear in August 2023

The replacement of the damaged SVR bull gear will help to restore the hoisting capacity of the Sub-vertical Rock Winder to its full capacity. This will improve the mine's ability to transport ore and waste rock vertically up the shaft, which will help to increase production levels. In turn, the replacement of the damaged bull gear will also reduce the downtime associated with the limited hoisting capacity. This will help to improve overall equipment utilisation and increase productivity.

Also, the damaged bull gear can pose a safety risk to workers, and its replacement will help to improve the safety of the mining operations. During the period under review, a new record of 3.7 million fatality-free shifts was achieved with the last fatality having been recorded in June 2015. Three Lost Time Injuries were recorded in the year, versus two in the prior year.

The same goes with ensuring consistent equipment availability and accelerating underground development using the acquired new and rented equipment. The consistent availability of equipment, including the newly acquired equipment, will help to improve the mine's ability to extract ore and waste rock efficiently. This will increase production levels and help to offset the negative impact of the unexpected change in the ore body.

Further, the new and rented equipment will help to improve overall equipment utilisation, as the equipment can be put to use more frequently, reducing downtime and increasing productivity. This will likely require less maintenance and repair, which can help to reduce maintenance costs. This will also help to improve equipment utilisation and increase productivity.

Implementing various cost containment and cash-saving initiatives to ensure the business remains cost-effective

This is another measure the company said it will take.  The cost containment and cash-saving initiatives can help to reduce costs across the mining operations, which can help to improve the mine's profitability. This can include reducing non-essential expenses, optimizing processes, and streamlining operations.

The cost containment and cash-saving initiatives can also help to improve the efficiency of the mining operations. By optimising processes and streamlining operations, the mine can extract more ore and waste rock with fewer resources, which can increase productivity.

Ultimately, by ensuring that the business remains cost-effective, the mine can improve its financial stability and reduce the risk of financial distress. This can help to ensure that the mine can continue to operate and invest in the necessary equipment and resources to maintain and increase production levels.

Conclusion

Therefore, the replacement of the damaged SVR bull gear in August 2023, as well as the delivery of new equipment, are expected to improve equipment utilization and increase production levels. The implementation of cost containment and cash-saving initiatives will help to improve efficiency and reduce costs, which can improve the mine's financial stability. Therefore, BNC will need to continue to adapt to the changing conditions and develop new strategies to maintain and increase production levels. The mine will also need to remain flexible and responsive to potential future disruptions, such as global supply chain disruptions, surrender portions, exchange rate volatility and power outages.