Dark skies return to BCL Mine
Onalenna Kelebeile | Friday October 23, 2015 14:36
Seven years ago, BCL Mine executives gathered in Gaborone and handed government a cheque for approximately P30 million, being the first dividend paid after years of financial stress caused mainly by poor global base metal prices.
Montwedi Mphathi, the then general manager, could afford a smile on that occasion, having steered the mine through a trying period of operational losses, during which he became every unionist’s number one enemy.
Mphathi’s tenure at BCL Mine, which ran from 2003 to 2010, was characterised by his tough response to the near collapse of the business due to plummeting copper prices. He reined in costs and made tough decisions that included the dismissal of 181 striking workers in 2005, several managerial departures and other unpopular moves.
Labour leaders relentlessly called for Mphathi’s head, churning out a near-endless litany of allegations that essentially claimed that he had created a fiefdom where he unfairly wielded unchallenged power.
Standing in the gardens at the Gaborone International Convention Centre in 2009, Mphathi basked in the glory of his efforts, having turned the company around, built a substantial reserve and repaid most of mine’s debts.
During Mphathi’s tenure as general manager copper and nickel prices hovered at 10-year lows, and even the recovery seen between 2006 and 2008 ended abruptly in 2009 with a crash to US$1.5 per pound and US$5 per pound respectively.
Daniel Mahupela, who took over from Mphathi on September 1, 2011, enjoyed fair skies for the first few years of his tenure, with copper and nickel prices peaking at about US$4.5 per pound and US$13 per pound in 2012 respectively.
However, it is the last two years of Mahupela’s reign that the present troubles at BCL Mine can be traced to. Prices of copper and nickel have dropped by approximately 30 and 22 percent respectively since January 2014. With China’s economy projected to slow further, BCL is preparing for even darker clouds in the horizon.
“The managing director has issued a mandate for all divisional managers to rationalise their operations with particular emphasis on the need to immediately implement cost reduction and cash preservation strategies,” reads an internal memo leaked this week.
“These will include reprioritising and cutting capital and operational expenditure and increasing production throughput.”
The memo continues: “The situation has been compounded by below budget ore production, resource wastage and the worldwide decline of commodity prices.”
Although BCL Mine has failed to respond to Mmegi enquiries emailed in August, insiders at the copper and nickel operation say the troubles this year have been caused a cruel confluence of factors.
The most blameworthy of these factors has been the major shutdown BCL Mine embarked upon in July at a reported initial budget of P700 million. This budget has been eclipsed, burning an even bigger hole in the Mine’s books, while a delay in reopening the smelter has meant no income while weakening cash flow.
“We hope the smelter will be operational by Friday this week (today),” area MP, Nonofo Molefhi said in an interview after a meeting with management this week. “The delay could also be because this was the first major shutdown in 11 years. We are pleading with workers to be patient. The mine is still negotiating with bankers for funding and it has engaged the Botswana Mine Workers Union (BMWU) on the situation. It is also in discussions with government who is the major shareholder.”
Molefhi conceded that the traditional payment of bonuses next month might not materialise, due to the mine’s current woes.
For workers, however, the troubles at the mine are beyond the current shutdown. Rather, they relate to the change of guard at the mine, from the austere era of Mphathi to the expansionary reign of Mahupela.
Where Mphathi, by necessity, limited all forms of expenditure and focussed on keeping the mine afloat, Mahupela, buoyed by healthier cash reserves, was able to launch the ambitious Polaris II strategy, which has involved acquisitions, local investments and enhanced exploration activities.
Under Polaris II, Mahupela oversaw the P3.1 billion acquisition of major stakes in Tati Nickel and Nkomati Nickel last October, as well as a 55.5 percent stake in Pula Steel, which was commissioned this week at cost of more than P142 million.
BCL Mine also has an investment in a copper, nickel and silver explorer, with an option to earn up to a 70 percent stake.
Although the investments have been lauded as an effective way of lengthening BCL Mine’s lifespan and that of Selebi-Phikwe, while also diversifying its revenue base, the current crisis in the mining town has raised harsh criticism of Mahupela’s dream.
A BCL insider told Mmegi on condition of anonymity: “When Mphathi moved on, he had paid off the mine’s debts and left P3.6 billion in reserves. The new management came in and began using those funds without any assurance that revenues would continue flowing. “Right now, the investments in Tati and Nkomati are not bearing fruit because they are facing the same difficulties as BCL. In fact, BCL is carrying the burden of purchasing and smelting output from Nkomati, but selling it for a low price due to the low global prices. This is an additional cost. The mine was going forward under Mphathi, but now it’s going backwards.”
In a curious twist, Mphathi, who was once the most hated man at BCL Mine, has become many unionist’s hero and within the shafts, workers smile with nostalgia when talking of his tenure at the mine.
“If he was still here, we would not be having these problems. That man knew how to make BCL run,” said a BMWU representative. “Right now, the mine is running from hand to mouth, selling matte and trying to pay contractors, suppliers and salaries.”
While government was quick to support Mphathi with debt and equity input during the difficult 2000s, it is presently unclear whether the same has been accorded to Mahupela. A senior Minerals, Energy and Water Resources official told Mmegi that the matter could not be shared with the public yet, on or off the record.
Government is the sole shareholder of BCL Mine and solely responsible for either pumping in further capital or approving/underwriting external debt arrangements.
Meanwhile, Mahupela’s unsteady image among workers has also been dimmed by the unprecedented spate of fatalities the mine has suffered in recent years.
According to the BMWU, between 2011 and 2015, 11 workers died at the BCL Mine, making it the most dangerous mine in Botswana.
“In fact, between January and February 2015, this mine had seven fatal accidents and 89 lost time reportable injuries confirming that this is another industrial homicide waiting to happen,” BMWU president, Jack Tlhagale said at the union’s congress last month. “This is a matter of great concern in regard to deteriorating levels of safety in that mine.”
BCL Mine’s rising fatalities will further erase the lustre from its products in the international market, denying it valuable customers and price leverage at a critical time, experts say.
According to Botswana Chamber of Mines projects manager, Joseph Ramotshabi, fatalities in any mine cast a cloud on the entire sector.
“When a fatality happens at Debswana, the BCL managers cast their faces down because they know what will happen with customers in America, China and elsewhere,” he said at a Botswana Exporters and Manufacturers Association stakeholders’ forum yesterday in Gaborone.
Other experts add that international buyers are sensitive about purchasing product from mines that appear lackadaisical about their workers’ safety.
“It’s not even all about the buyers themselves. It’s about their financiers, their shareholders and lobby groups in those countries who will raise serious questions about purchasing product from a company with a poor safety record,” a Safety, Health and Environment expert said.
Mahupela and his managers will be hoping the dark clouds of low base metal prices blow over soon and allow the mine to rebuild its reserves, revenue and standing before workers and buyers.
In the meantime, his focus is on reopening the smelter, getting cash-flow reignited and sealing his own legacy at the helm of Selebi Phikwe’s pride.