Mphathi speaks as critics slam ‘smelterless’ revival for BCL
Former BCL boss, Montwedi Mphathi is spearheading an effort to revive Selebi-Phikwe’s sleeping giant. Concerns have been raised about the bidder’s ability and the fact that the smelter isn’t part of their plans, but Mphathi and his team are unfazed. Staff Writer, MBONGENI MGUNI writes
Ever since the Ministry of Mineral Resources, Green Technology and Energy Security confirmed that Premium Nickel Resources Corporation (PNR) had been chosen as the preferred bidder for BCL Mine’s revival, scepticism has mounted against the relatively unknown Canadian mineral investor’s plans for the Phikwe mine.
Insiders apparently privy to the process taken to select PNR, have questioned how the Canadian company was chosen from a field of three bidders and whether it will have the financial resources to lift the 65-year old mine from its deathbed.
PNR is a three-year old minerals investor backed in part by North American Nickel, a Toronto Stock Exchange-listed junior miner with projects in Canada, Greenland and Morocco. North American Nickel holds about 11% in PNR, with other investors including banks.
According to the agreement with the liquidator and public notices, the Canadian firm has six months to conduct a due diligence exercise on the mines before making an offer for the outright purchase of the BCL Ltd assets it wants. PNR meanwhile has committed to make a “substantial contribution to the care and maintenance costs” during the due diligence period, a cost government and other creditors have been shouldering with the former carrying the lion’s share.
The Canadian firm has already raised an initial amount of US$3.8 million to fund the exclusivity period.
More funds will be raised for the next stages as the due diligence progresses with a better understanding of the remaining resources which is the main determinant of the size of investment that can be made.
Various studies associated will then follow culminating in raising funding to bring the mine infrastructure up to commissioning stage estimated at $400 million.
Information circulating around the bid show that questions are being asked about the level of due diligence PNR did prior to winning the bid, consultants’ experience with BCL, the mining method proposed and whether the Canadian outfit will even be able to gather enough information within the six month exclusivity period to make a reasonable offer to the liquidator.
A competing investor who lost out on the bidding for BCL has indicated that they have ready cash for studies needed to update BCL’s resource and even more for restarting sustainable operations at the Selebi-Phikwe giant.
BCL Ltd liquidator, Trevor Glaum who oversaw the bidding process in South Africa, is not willing to discuss what is rapidly becoming a hot potato.
“I have received dozens of calls from media on the liquidation and I have always said I am not willing to comment. What we have said is what has been issued via notices and that is all we are prepared to say,” he said this week in a terse response.
PNR’s trump card in the whole debate, however, is the technical team anchoring the bid including the point man leading the charge.
Montwedi Mphathi is a former BCL general manager whose tour of duty between 2003 and 2010, earned him praise from most corners, including the hard to please unions, after he steered the ship away from the rocks, keeping BCL afloat through turbulent periods that included the global financial recession.
Mphathi’s strategy of saving cash reserves during boom years, and cutting costs while raising production during bust years, meant he left a healthy treasure chest of approximately P3.7 billion cash in BCL mine’s books when he left.
“The entire team is based on high quality expertise,” he told Mmegi this week.
“We have people with world class experience and expertise in exploration, those who have built plants before, raised funds in various markets, experts in pre and post construction, experts in extending mine life and operations.
“These guys can run a proper operation. On the contrary we understand some of the local representatives of the bidder touted to have deep pockets contributed to the closure of the mine and could not raise funding to keep the mine open.”
During his years in Selebi-Phikwe, Mphathi earned a reputation as the man who could keep BCL running. In
2008/09, during the global financial crisis, his strategy, known as ‘Survival 225’ carried BCL through the steepest drop in prices recorded by then. He often made unpopular, tough decisions with workers, but with the Mine collapsing in 2016 and burying Phikwe’s economy with it just six years after his departure, Mphathi has become a folk hero in the north-eastern town.
As PNR prepares to ramp up its fundraising, the track record and expertise of the team on the ground as well as its backer’s financial resources will be worth their weight in gold.
“It’s not just about how much you have, it’s also about the group with the experience and expertise that can rebuild that mine,” Mphathi says.
“We put in our bid with all the investors we have backing the project, including publicly listed companies, North American Nickel, Three D Capital and other shareholders including high net worth individuals as well as the backing of investment banks.
North American Nickel which has been heavily criticised in the local media as not having the financial muscle to restart the mine, has CATL as a majority shareholder which has $70 billion market capitalisation. This information is publicly available hence this disclosure.
“It’s about trust. People put money into projects driven by people they trust. As an example, Sol Kerzner, with a string of successful tourism ventures, will attract funding easily if he’s putting up a development in Botswana and needs investors.
“If you see a bank backing in such a risky environment, when at that point you are not sure you can get your money back, what does that say?”
The former BCL GM has been following the concerns around PNR’s bid and is naturally unimpressed.
“What’s surprising with these reports is that they are saying there are people with money but no one is mentioning their names,” Mphathi says.
“There are so many mining projects in the world, but you have these people sitting on huge monies just for BCL?
“It is a huge risk to go in there without a lot of information which says can you mine, at what rate and for how long and whether you will be able to maintain that rate.
“Through the due diligence work we have to do, we can reduce that risk and say this is the size of resource which can be mined profitably at this rate, this is the life of mine and the investment required is this much.
“You can’t just say ‘maybe we will find something’. No investor will give you money based on the hope you might find something.
“You have to spend money in the early stages to be sure of what you are buying, then you negotiate the price.
“At the moment, there’s nothing tangible. The mine closed because it was not a going concern.
“The approach to such a distressed asset is like starting at exploration stage and going through many project gates if it is to be successful. Otherwise you risk closing the mine again while there is still a resource in the ground.”
Mphathi says the criticism around the level of due diligence PNR did prior to winning the bid, is unfounded. Critics have questioned what onsite due diligence was done to determine the state of BCL’s underground resources and said any further due diligence after being selected as preferred bidder adds “an unacceptable risk to the transaction”.
“The full due diligence, including drilling and others, could not be done at the competitive stage.
“You need that period of exclusivity as a preferred bidder because no one wants to spend money to acquire more detailed information only for the asset to be taken by someone else.
“With the full due diligence, you look at the geology, work the ground, then geophysics, going deeper seeing the signature of the mineral, then drilling, then how to separate the valuable minerals and off-take agreements.
“Look at Cupric Canyon. They bought Boseto some five years ago, but they did not open the next day and it’s only now that it may return to production having taken the project through various stages successfully.
“Mines take a long time and you need more and more information about the resource so that you can be very sure how you are going to mine profitably.
“Getting more information is about reducing the risk. One drilled hole does not make a mine.
“Some of the comments people are making, you can see they don’t know what they are talking about.”
But how about PNR’s stated plans that it will not reopen the smelter? The smelter, with its iconic chimney stack, employed hundreds prior to BCL’s closure and represented one of the country’s first efforts at value addition. Under PNR’s plans, BCL will strictly mine concentrate.
Mphathi says there are many risks, for example the foundations at the Mine are more than 50 years old and cannot be trusted to take the business smoothly over the next 10 to 20 years without extensive analysis. For example, the reinforcing may have rusted such that a critical piece of equipment will bring production down resulting in failure to deliver metal to the customers.
“Before closure that smelter was pushing sulphur dioxide into the air and that is not attractive to any investor anywhere in this era,” he says.
“There would be a requirement to finance a sulphur capture plant and you would need to invest in an acid plant, which would require massive amounts of money and a guaranteed offtake arrangement to avoid stopping production or letting the sulphur dioxide up the stack when the storage is full. “Each part of the project must pay for itself.
“PNR looked at rebuilding the smelter, but you cannot operate it like before without sulphur capture, which in turn is an added capital expense and which does not justify being spent based on the current size of the resource.” Amidst the criticisms, the former GM’s focus at the moment is gaining access that will enable PNR to go on site and begin its work. The questions being asked around the bid are of concern to him, however.
“A lot of information that is coming out is inside information that people are not supposed to have,” he says.
“When we submitted our bid in June last year, it was an online register and we had no idea who the other bidders were or how many they were.
“We did a comprehensive job with a 300 page bid and explained what we wanted to do.
“The adjudication was not even done by government and instead, the liquidator got third party experts to do the assessment.”
In the next few months, residents of Selebi-Phikwe will find out whether PNR’s due diligence show that BCL Mine can be resuscitated.
If the studies confirm that it can, an offer will be made through the liquidator, to government as the major creditor. Focus will then shift to pre-feasibility followed by a bankable feasibility study and putting up infrastructure, securing markets and restarting production. The smoke that was associated with Selebi-Phikwe, however, will not return.