BNC’s smelter restart and fortunes rely on fickle nickel prices

BNC’s smelter restart and fortunes rely on fickle nickel prices

By Simbarashe Zishiri, HARARE, July 12 (The Source) – Bindura Nickel Corporation (BNC) is unlikely to reap the economic benefits of the smelter restart project in the short to medium term due to depressed nickel prices and insufficient concentrate at the Trojan Mine to meet its capacity.

In its full-year results for the year ended March 31, Bindura said its Smelter Restart Project is now 83 percent complete with total commitments to date amounting to $21,5 million.

The smelter was built in 1968 and stopped operating at the height of the country’s economic crisis in 2008. The completion of the refurbishment, which was scheduled for last year was deferred to the current financial year due to cash flow constraints to finance the remaining work and low nickel prices.

The smelter restart is crucial to the sustained profitability of BNC.

In 2014, former Mwana Africa chief executive, Kalaa Mpinga said the miner was spending about $1,2 million a month to truck concentrate from the mine as part of an offtake agreement with Glencore, adding that the company could recover the investment in less than two years on transport savings alone upon the completion of the smelter restart project.

“The smelter refurbishment was estimated at $25 million, however, on transport only we will recover the investment in less than two years,” he said then.

BNC has a 100 percent offtake agreement with the global commodities giant, Glencore, which purchases all the nickel concentrate produced at Trojan Mine.

However, benefits of the smelter project can only be realised if nickel prices improve and adequate concentrates are available to meet the capacity of the smelter.

When fully operational, the smelter capacity is at 160,000 tonnes per annum.

The company earlier on indicated that in order to maximise efficiency, it would only be viable to operate the smelter when nickel prices are above $12,000 per tonne.

The original plan worked on a nickel price of $16,250 per tonne.

Operating the smelter will require significant, additional, costly power supplies and the overall operating cost has a major bearing upon it coming into operation.

However, the dilemma of BNC is the nickel price outlook which is rather a bit disappointing, with global nickel prices expected to fall to around $10,500 per tonne this year from around $10,700 per tonne in the prior year and then recover to $11,288 per tonne in 2018. This implies that BNC is most likely to achieve a nickel price of $6,503 per tonne in FY18 and $7,337 per tonne in FY19 after Glencore charges.

Additionally, the output at Trojan Mine is not enough to meet the capacity of the smelter and management will have to look for third party tolling arrangements in order to increase the throughput.

On average, nickel in concentrate produced at Trojan mine was 6,929 tonnes per annum over the last 4 years.

Meanwhile the Trojan Shaft re-deepening project is ongoing, with the company exploring ways to mitigate its impact on production. On completion, it would extend the life of the mine by about 5 years and allow access to drill for ore reserves beyond 45/0 Level from the current 35/0 and potentially provide higher grades in advance of the smelter restart.

Total expenditure since the start of the Trojan Shaft re-deepening project has reached $14 million and is expected to be partly commissioned during the 2017/18 financial year.

As such, financial benefits of the smelter will not be realised in the medium term given that the start of production at the smelter, once completed, will depend on the nickel price as well as the availability of additional concentrates from third parties.

To counter low nickel prices, the company’s management have indicated that they will continue with their mining plan of targeting higher grade massives which in turn has the effect of lowering costs. Its intent is to keep costs below $5,000 per tonne.

In the long-term however, the company would need to accelerate the process to raise funds needed to begin mining at the Hunters Road mine which is considered the future of the business, with further exploration drilling expected to start this year.

BNC’s strategy and its financial performance, will to a larger extend, dependent on global nickel price.

The company closed the year with a bank overdraft of $7,13 million, a negative cash position which is most likely to remain due to depressed nickel prices.

In its full year ended March 31, the company recorded a 7 percent increase in revenue to $45,1 million from $42,3 million in the prior year, on increased production and sales volumes despite a fall in nickel prices.

However, after tax profit declined to $609,961 from $649,070 recorded in the previous year owing to a $4,3 million impairment on the refinery. Without the impairment profit after tax would have been $4,9 million.

BNC is most likely to remain profitable on cost containment measures and improved throughput following the completion of the Trojan reshaft project, but the volatility of nickel prices and no benefits from the smelter will continue to undermine its potential.