• Sun. May 26th, 2024

ANALYSIS| Declining Output Drags BNC to US$5.4mln After Tax Loss

ByEconomic Times

Jan 9, 2023

By ETimes

Financial Performance Highlights

  •   VFEX listed mining concern Bindura Nickel Corporation (BNC) announced a US$5.3 million loss for its half-year ended 30 September 2022 – a 192% decline from the 2021 comparative
  •  The decline in profitability was attributable to rising production costs which increased by 29% to US$31.5 million. The group also incurred net exchange losses of US$1.5 million. According to the company, the surging costs were a result of increased depreciation, increased local operating costs due to exchange rate movements in the alternative exchange market and, the high costs of maintaining aging and obsolete equipment. Accordingly, the cash cost per tonne sold increased by 56% to US$14,078 during the period.
  • The company made an operating loss of US$3.4 million, down 151% from the comparative period. However, operating costs were relatively stable, with the Operating Expenses to Revenue ratio marginally increasing from 13% to 14%.
  • Despite average nickel prices increasing by 56% to US$25,542/tonne during the period, revenues were down by 8% to US$32.5 million as production and sales volumes declined by 25% and 16% respectively. The company attributed the decline in volumes to a depletion in massive high-grades resources. This forced a transition in a mining strategy from high grade – low volume to low grade – high volume. Delays in delivery of the necessary equipment has led to the transition falling behind schedule.
  •  The company’s operations generated a net cash flow deficit of US$0.9 million. Net investment expenditures stood at US$4.1 million for the replacement of dilapidated and obsolete mobile underground mining equipment in line with the change in mining strategy. The expenditure was primarily financed by borrowings, which increased 133% to US$9.8 million during the period, which saw the company’s debt ratio rise from 3% to 8%.
  • Total assets stood at US$120 million, with cash holdings of US$0.8 million, receivables of US$21 million and inventories of US$11 million. Total liabilities reached US$66 million, with borrowings of US$10 million and payables of US$21 million.
  •   In the boardroom, Mr. P. Maseva-Shayawabaya resigned from the Board  to take up a new appointment as the Managing Director of Freda Rebecca Gold Mine Limited. Mr. S. Masvipe, the long-serving Finance Manager of the Company, was appointed as the Acting Finance Director until further notice. Mr. O. Chimuka resigned from the Board with effect from 13 December 2022, no replacement was reported.
  • The company did not declare a dividend for the period.
  • Looking ahead, the company expects the delivery of most of the acquired mobile equipment by the end of the 2022 calender year. Heading in the second half-year, the company expects the capital expenditure to support recovery in production volumes and ultimately cash flows from operations. The company initially projected nickel prices at US$21,000/t for 2023, but noted that prices had been on an upward trend, recently reaching US$29,000/t. The company believes that it can recover a significant portion of its current losses if the price performance is sustained. However, the company also highlighted major downside risks in: the global monetary policy tightening; Chinese economic downturn; increased likelihood of a global economic recession; and heightened geopolitical tensions.
  •  In the period following the reporting date, the company revealed that a breakdown in its “Subvertical Rock Winder” resulted in a stoppage of nickel concentrate production between early October 2022 and 30 November 2022.

Commentary and Analysis

With nickel performing well the company would have been expected to perform strongly. The unforeseen nature of the issue that drove the decline has to be questioned – as does the sufficiency of the corrective actions taken by the company. Given that the operation experienced a 2 month stoppage, the chances of reversing the current losses seems low. The sense is that BNC needs a significant injection of capital to stabilize its operations to break the cyclic trend of its financial performance. The big question is if the company’s majority shareholder – Kuvimba Mining House (KMH) can avail the necessary capital. The mining group is tied in with a broader effort to resuscitate Zimbabwe’s steel industry. With significant untapped nickel resources, BNC presumably fits in as a part of a loosely integrated steel production operation. However, the shadowy and opaque nature of KMH makes it difficult to see how the situation plays out. Arguably, there are a number of significant structural economic issues that stand in the way of a sustainable steel industry revival.

On the VFEX, the BNC share is currently trading at USc1.84, with a YTD price change of -67%. The share is at its 12 month low, having reached a high of USc6.09 in the same period. It’s price to book ratio is estimated at 0.4x – Harare

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