Bindura Nickel Corporation (bnc) chairman Yim Kwan held a meeting with bondholders last week and assured them they would get paid come next year despite cash flow problems at the group.
Sources told businessdigest that Kwan, who took over from Kalaa Mpinga after the hostile takeover of ASA Resources (formerly Mwana Africa PLc) in June, held a meeting with bondholders on December 1 after the group’s analyts briefing and assured them they would get paid next year. Bondholders particularly pension funds, had expressed concerns over the recent takeover of the company by Yat Hoi Ning and his group.and the collapse in commodity prices on the international market.
BNC in March floated a US$20 million bond. Repayment funds will go into a sinking fund and will be capitalised from nickel sales proceeds. A sinking fund is regulated and securitised in terms of the Bond Trust Deed which in turn is managed by an independent trustee.
Ning’s assurances come in the wake of worrying ASA financial results for the six months to September. BNC revenues declined 56% from US$46,39 million to US$20,56 million owing to a fall in nickel prices and a decline in processed tonnage.
Average realised price for nickel concentrate declined 35% to US$7 654 per tonne from HY15 price of US$11 809 per tonne.
Tonnage processed declined 29% to 2,762 tonnes owing to a shutdown in the month of July to allow for equipment upgrades
Gross profit was US$2,26 million. Gross profit margins came under significant pressure with the margins declining to 11% from 45% due to the sharp decline in nickel prices. Overhead costs down 44% to US$6,44 million from HY15 US$11,46 million while operating loss for the period of US$3,99 million from HY2015 profit of US$12,54 million. The group’s net asset value stood at US$35,6 million.
In a note to bondholders, Invesci Asset management said a collapse in commodity prices had materially affected BNC’s operations in a negative manner but said a new mining plan had restored profitability, cut costs aggressively and improved efficiencies.
“The collapse in commodity prices has materially affected BNC’s operations in a negative manner. It is however heartening to note that the company has responded to the crisis with decisive action. The new mining plan has restored profitability, costs have been cut aggressively and efficiencies are being realised. The chairman specifically held a meeting at the briefing with bondholders to respond directly to bondholders’ concerns and most were satisfied with explanations and assurances given. It is important to note that the bond has not defaulted with the first payment due in March 2016 and all guarantees are still in place,” Invesci said.
The asset manager said gross profit margins were set to improve in H2 2016 helped by blending of higher grade nickel ore and a reduction in ore processing costs.
As part of the new mining plan, the company is implementing cost-cutting measures and a strategic change in the blend of head grades mined. The cost per tonne mined dropped to US$5000 per tonne since September 2015 and with monthly profitability for September, October and November 2015 improving, BNC’s outlook is not all gloom.
Management is going to ramp up volumes mined and processed to compensate for the narrow margins currently being realised. Between US$0,80m and US$1 million will be set aside on a monthly basis for the purpose of retiring the bond.