The dispute between Russia’s Norilsk Nickel and the Botswana government and other parties over the commitment made by BCL – now in provisional liquidation – in 2014 to purchase Norilsk’s African assets seems to be developing into one of the messiest disagreements over mining assets yet seen in the Southern African region. According to Norilsk, it even threatens Botswana’s reputation as being one of the best mining ‘destinations’ in Africa.
Michael Marriott, CEO of Norilsk Nickel Africa.
Norilsk maintains that the Botswana government, the ultimate owner of BCL, has deliberately walked away from a 2014 deal in terms of which BCL agreed to purchase Norilsk’s 85 %-owned Tati Nickel operation east of Francistown, as well as Norilsk’s 50 % share in South Africa’s Nkomati nickel mine in the Barberton area. As part of the deal, BCL also undertook to smelt concentrate from Nkomati in its smelter at Selebi-Phikwe.
BCL’s motivation for concluding the deal was the clear synergies between its operations centered on the town of Selebi-Phikwe, which include an underground nickel/copper mine and the smelter (neither now functioning), and Norilsk’s operations at Tati Nickel and Nkomati. The proposed acquisition formed part of its ‘Polaris II’ diversification and investment strategy designed to secure the long-term future of the company.
For its part, Norilsk was keen to sell Tati Nickel and Nkomati following a decision by its management in 2012 that the group would withdraw from all its foreign investments (with the exception of an enterprise in Finland) and focus on its core Russian operations.
Tati Phoenix PitThe Phoenix pit at Tati Nickel, one of the assets transferred to BCL as a result of the deal. The mine is no longer operational.
Commenting on the turn of events since the transaction was agreed in 2014, Michael Marriott, Norilsk Nickel Africa’s CEO, says the deal appeared to be proceeding according to plan until the second half of 2016. “We thought the deal was in the bag and indeed BCL, prior to its being put into liquidation in October last year, had already taken occupation of the Tati Nickel mine and, at least for a period, continued mining and processing operations as normal. In August last year the final approvals necessary for the agreement to become unconditional were received from the Department of Mineral Resources (DMR) in South Africa and we were confident that the sale process had effectively been concluded,” he states.
“In September we asked for payment from BCL, citing the terms of the Sales and Purchase Agreement (SPA), but this was not forthcoming and then in October we heard via the media that the government had decided to liquidate BCL. Since then, despite repeated contact with the various parties involved with the transaction, including the liquidator, Nigel Dixon-Warren, and the authorities in Botswana, all our attempts to resolve the matter have been unsuccessful.”
The amount that Norilsk claims it is owed is substantial. The purchase price agreed to by BCL in 2014 was US$337 million (the bulk of it for the Nkomati shareholding) although this was later renegotiated downwards to approximately US$277 million – a concession made by Norilsk at the urging of BCL and the Botswana government.
In December last year Norilsk filed an application with the Gaborone High Court seeking leave to have its claim in terms of the SPA to be referred to arbitration and to prevent any final liquidation order being made final until the conclusion of such arbitration. Under the terms of the Sales and Purchase Agreement, all disputes between the parties are to be referred to the London Court of International Arbitration.
The results of this legal process are still pending. In the meantime, the liquidator of BCL has filed in the South African courts for a judicial review of the South African government’s approval of the SPA on the grounds that such authorisation should not have been granted as BCL did not fulfil the requirements to be a shareholder in the Nkomati mine. Norilsk, for its part, has served notice that it intends to sue the Government of Botswana in the Botswanan courts for its involvement in the “reckless trading” of BCL.
To complicate matters even further, the liquidator has received offers for BCL’s assets from at least two parties – one being Emirates Investment House (EIH), an Abu Dhabi-based group, and the other, according to the media in Botswana, an unnamed company from within the SADC region.
Marriott says the conduct of the liquidator has given Norilsk cause for concern. “In theory, the liquidator should be protecting the interests of creditors. We are BCL’s biggest creditor but we most certainly don’t believe that the liquidator is looking after our interests.”
The BCL assets potentially have considerable life left in them. The underground nickel/copper mine at Selebi-Phikwe still has exploitable reserves and would probably be viable at a higher nickel price while the BCL smelter in the town is an extremely valuable, regionally significant asset, the more so since it was recently refurbished at a cost of around 700 million Pula.
“This, incidentally, is another puzzling feature of this whole affair,” comments Marriott. “Why was this major refurbishment programme undertaken if BCL was in financial trouble? Indeed, the fact that it did proceed, presumably with the approval of the Government of Botswana, was one of the things that led us to believe – right until the point that BCL was put into liquidation – that we had a sound deal in place with BCL.”
He adds that throughout the process – from 2014 on – Norilsk’s understanding has been that the Government of Botswana was fully supportive of the transaction and was the de facto guarantor of it.
Marriott also points out that the Tati Nickel assets are in good shape. “The Phoenix pit needs a cutback to continue on a long-term basis but the Tati Nickel property also hosts the Selkirk orebody, which represents a major open-pit resource, as well as some valuable exploration targets that could add to the overall resource basis. In addition, the mine has a superb processing plant which includes a modern DMS pre-concentrator.”
BCL initiated a full Bankable Feasibility Study (BFS) on the Selkirk orebody in February 2016. Selkirk was originally the site of an underground mine, which started up in 1989. The high-grade massive sulphide orebody was exhausted by 2002 and in 2002 Selkirk was closed. The purpose of the BFS was to examine a restart of operations based on the open-pit mining of the disseminated sulphides which were not exploited by the underground mine.
As regards Nkomati, Marriott says that operations there have been unaffected by the liquidation of BCL. “In the absence of the BCL deal being concluded, our 50:50 joint venture with ARM remains in place and the mine continues to perform very efficiently, although it is challenged by the current nickel price. It’s a fine asset, although we remain committed to selling our stake.”
Summing up, Marriott says the entire saga has been extremely disappointing for Norilsk, which only invested in Botswana because it regarded the country as a sound mining jurisdiction. “Botswana has long been regarded as one of Africa’s most desirable mining destinations and over the years it has consistently scored very highly in the Fraser Institute survey, which ranks countries around the world in terms of their attractiveness to mining investors,” he observes. “I fear, however, that this reputation, based on Norilsk’s experience over the past few months, is very much at risk. We nevertheless remain hopeful that a positive outcome can be achieved and we are certainly open to constructive negotiations with the Government of Botswana and other interested parties.”