• It has reported a widening loss position for the second time in six months, reaching US$6 million in the first half of the year
  • BNC is facing significant challenges due to a production quandary and unfavorable global metal prices, particularly a 42% drop in nickel prices year on year caused by oversupply in the market
  • The company's uncertain future is further compounded by the global economic slowdown, subdued demand for nickel, and its struggles with production performance

Harare- Bindura Nickel Corporation (BNC), a nickel miner listed on the Victoria Falls Stock Exchange, is currently facing significant challenges and a pessimistic outlook after remaining in a loss position for the second time in six months ended 30 September 2023. Despite expectations of a recovery in the full year 2024 following a record loss of US$18.4 million in 2023, BNC has reported a widening loss position in the first half of the year, increasing from US$5 million to US$6 million.

The primary reason for this bleak outlook is the company's production quandary, compounded by unfavourable global metal prices. Nickel prices have dropped by 42% year on year due to oversupply from major global producers in the commodity market. China and Indonesia have flooded the market with an excess supply of nickel, surpassing the current market demand and resulting in a surplus that has negatively impacted prices and quality.

According to the latest forecast from the International Nickel Study Group, the supply of nickel is expected to surpass demand by 223,000 metric tons in 2023, following a surplus of 104,000 metric tons in 2022. This oversupply situation further exacerbates the challenges faced by BNC and contributes to the company's uncertain future.

The global economic slowdown and the fragile recovery in China have resulted in subdued demand for nickel, leading to continued deflation in both consumer and factory-gate prices. As a result, nickel producing companies, including BNC, are compelled to increase production in order to offset losses caused by the poor price environment.

However, BNC is struggling with its production performance, which exacerbates its problems. The company's inability to improve production levels has hindered its efforts to reduce losses and liabilities. As of March 31, 2023, BNC's current liabilities exceeded its current assets by US$22.3 million, an increase from US$13.4 million. To ensure its continued operation, it is crucial for the company to enhance production and generate positive cash flows. The ability to increase production levels and generate sufficient cash inflows will determine the company's prospects as a going concern.

BNC is grappling with old and dilapidated machinery and plant, which frequently experience breakdowns. The continued failures of the plant, coupled with setbacks faced by the Vertical Rock Winder, contribute to the production quandary faced by the company. BNC is confronted with poor nickel quality, which further compounds the difficulties it faces.

Its future viability hinges on its ability to address its production issues, upgrade its machinery and plant, and improve the quality of its nickel output.

BNC has faced significant challenges over the past five years due to leadership, production and machinery setbacks. The change in ownership which, transitioning from Mwana Africa to ASA, then Sotic, now Kuvimba have had a noticeable impact on operational stability, particularly regarding cash flows. New owners often bring about changes in offtake agreements and adjustments to the mining plan, leading to operational disruptions and difficulties in establishing equilibrium.

The breakdowns in operations, challenges in offtake agreements, and issues related to ore quality all contribute to an unstable situation that necessitates sustainable capitalisation and proper management structures. Instead of investing in an asset that remains idle and vulnerable to price fluctuations, it may be wiser to consider restarting the smelter using the existing mining equipment.

There is a need for capitalization, considering the aging mining equipment. The breakdown in operations, challenges in offtake, and issues related to the quality of ore all indicate an unstable entity that requires sustainable capitalisation and proper management structures. Instead of investing in an asset that remains dormant and susceptible to price fluctuations, it may be more prudent to restart the smelter using present mining equipment.

It is crucial for the company to address these issues in order to enhance stability and long-term prospects. This may involve ensuring stable ownership and making investments in modernising equipment.

Operations review

Due to old-dilapidated machinery, the Group experienced a 23% decrease in the number of ore mined, with a total of 177,179 tonnes mined compared to 229,790 tonnes achieved during the same period last year. This decrease was due to the deterioration of the Sub-vertical Rock Winder bull gear, which led to a significant 70% decline in the SVR's hoisting capacity.

“As a result, the limited hoisting capacity prioritized the hoisting of ore over waste, which constrained the planned development work for the first half of FY2024,” said the Group in a statement.

However, the run-of-mine ore was affected by this decline in hoisting capacity, leading to lower production levels during the period.

Ore head grade, measuring 1.10% Nickel, was 13% lower compared to the 1.26% primarily due to a reduction in high-grade massive ore sources. The recovery rate of 73.3% was 13% lower than the 84.2% recorded in the previous year due to the lower head grade and breakdowns at the Concentrator Plant, which were caused by the deterioration of key components.

Consequently, the number of ore milled during the period was 163,674 tonnes, a 29% decrease compared to the 230,248 tonnes milled in the same period last year.

Nickel production in concentrate amounted to 1,314 tonnes, which was 31% lower than the 1,918 tonnes produced in the same period last year due to lower number of ore mined and milled during the period.

Resultantly, Nickel sales volume was 1,416 tonnes, 34% lower than last year’s sales of 2,146 tonnes emanating to the widening of the loss to US$6 million from US$5 million in the prior period.

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