THE nickel miner, smelter and exporter listed on the Victoria Falls Stock Exchange (VFEX) is currently under caution and everything points towards the mining giant facing a tough time.
Bindura Nickel Corporation (BNC), whose shareholding has exchanged hands quite extensively and is currently owned by the Kuvimba Mining House (KMH), is facing a double tragedy of production halts and depressed nickel prices.
The production challenges bedevilling BNC can be traced back to September 2022 when Trojan Nickel Mine (TNM), which is a subsidiary and main mine of BNC, lost two months of operation due to a Sub-Vertical Rock (SVR) winder bull gear breakdown, which was declared a force majeure.
I know this sounds Greek, but SVR is one of the company’s major pieces of fixed mining equipment and is used to hoist ore from underground, according to the company’s reports.
The SVR bull gear continued to deteriorate and by September 2023 its hoisting capacity declined to a quarter of its installed capacity.
This necessitated another transient shutdown as the SVR bull gear was being replaced.
Initially, this was envisaged to be done by the end of October 2023, but due to some unforeseen technical challenges, it went on even up to the end of February 2024.
The replacement was eventually finalised in April 2024, but still, some other technical challenges prohibited the resumption of operations at TNM.
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Technically speaking, during this whole period, the company did not produce any nickel in concentrates for sale, which is the company’s core business and revenue driver.
One can safely estimate and conclude that the tonnage of nickel that was produced in half a year is all the company did this financial year due to the predicaments faced.
On the hand, commodity prices including nickel have been depressed. According to the company’s third-quarter report, the price of nickel per tonne at the London Metal Exchange (LME) was 32% lower than the same period last year, and in the 2023 calendar year, nickel prices took a 48% knock.
The depressed prices are being attributed to the oversupply of a lower grade of nickel pig iron from China and Indonesia.
The slower recovery of China’s construction sector post-Covid-19 has also significantly impacted the demand for the metal.
Nickel is also used in the batteries of Electric Vehicles, which have become popular in the past years. In March 2022, nickel prices shot up following the tension between Russia and Ukraine, as Russia is one of the biggest producers of the metal.
However, for EVs, there are now battery alternatives that utilise very little to no nickel, but instead lithium, as both are energy metals, and this has also pushed the demand and subsequently the prices downwards.
The price drop in nickel coincided with BNC’s strategy to shift from a high-grade, low-volume strategy to a low-grade, high-volume strategy. Essentially this means that the company will be mining the deposits that contain a lower percentage of head grade.
Nickel is initially mined as ores, then it is processed, and the head grade speaks to how much nickel the ores contain. The high-volume, low-grade strategy works well when the price of the base metal is high enough to support the cost of production.
In simple terms, the high-grade,low-volume strategy has a relatively lower cost of production and should be used in tough times, whereas the latter with high production costs works well when the prices are high enough.
According to the company’s report, the head grade by the end of the financial year 2023 had already decreased to 0,96% from 1,3% in 2022, owing to the depletion of the high-grade missives.
If the price of nickel continues to decrease, the company might be forced to abandon its strategy and implement the high-grade, low-volume strategy or else suffer significant losses.
The strategy undertaken by the miner also has a bearing on the life of the mine, which is why the low-grade, high-volume strategy was explored in the first place.
This is not the first time BNC has experienced such operational challenges, between 2010 and 2013 the company went for a four-year streak with almost no significant product as TNM was under care and maintenance.
Fortunately, the company managed to successfully raise US$23 million through a renounceable rights issue exercise and carried out the necessary maintenance that was required.
In the subsequent years, the production of the company increased and now there is a challenge again.
The mining giant is currently not trading on the USD-denominated bourse after it applied and was granted voluntary suspension as it sorts out its issues.
Will it be able to put its problems under the bridge and live up to investors' expectations or another capital injection will be required very soon, remains a million-dollar question.
- Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.
