eBusiness Weekly
Nelson Gahadza
Victoria Stock Exchange listed Bindura Nickel Corporation (BNC) says it lost US$2,5 million in the year ended March 31, 2022 due to the Reserve Bank of Zimbabwe (RBZ)’s surrender requirements on export proceeds and exchange rate disparities.
BNC which is engaged in the mining and extraction of nickel and production of nickel by-products had its shares delisted from the ZSE on December 15, 2021 and became the fourth company to be listed on the USD-denominated stock exchange VFEX on the 17th of the same month.
According to RBZ’s export incentive scheme, 80 percent export retention applies to incremental revenues instead of the standard mining retention of 60 percent, while companies listed on the Victoria Falls Stock Exchange (VFEX) are permitted to retain 100 percent of the incremental revenues.
“A combination of the discrepancy between the auction foreign exchange rates and the rates prevailing on the alternative markets, coupled with the regulated surrender of 40 percent of the Company’s export revenue in exchange for Zimbabwe dollars at the auction rates, resulted in loss of value amounting to US$2.5 million for the year under review,” said chairman Muchadeyi Masunda in a statement of the financials.
The Reserve Bank of Zimbabwe introduced an export incentive scheme in June 2021, but only applicable on incremental export revenues.
Masunda said the export incentive scheme, inclusive of the enhanced regime applicable to VFEX listed entities, resulted in the Company achieving an overall export retention marginally above the mandatory 60 percent.
The nickel miner migrated to the VFEX in December last year and Masunda says since migration, BNC has been realising improved export retention from the enhanced scheme.
“While trading volumes on the VFEX have generally been low, BNC had, as at March 2022, contributed 97 percent of the total 96 million shares traded since the Company made its debut,” he said.
Masunda noted that despite the decline in the volume of Nickel sold, revenue for the year increased by 25 percent to US$74,2 million, from the prior year’s US$59,4 million.
He said the increase in nickel price more than compensated for the lower sales volume while cost of sales increased by 15 percent to US$51,4 million, compared to US$44,8 million for the prior year.
“The increase was as a result of the high cost of maintaining the old and obsolete underground mining mobile equipment, higher labour costs arising from reviews of wages during the year to align with the industry, as well as the inflationary pressure on local input costs,” he said.
During the year under review, the company’s gross profit amounted to US$22,8 million, which was 59 percent higher than the prior year’s US$14,3 million, mainly due to the increase in revenue.
The company also realised an operating profit of US$12,0 million which was 263 percent higher than the US$3,3 million for the prior year also due to the increase in revenue.
Masunda said net interest expense amounted to US$940,757, up from US$235,648 due to new loans accessed during the year while profit before tax for the year was US$11,0 million, 260 percent above last year’s US$3,1 million.
He said the income tax charge for the year amounted to US$3,0 million, giving an effective tax rate of 27 percent compared to the corporate tax rate of 24,75 percent.
“This was due to prepaid income tax of US$1,2 million on the tax dispute with ZIMRA, which was previously reported as a contingent liability but was recognised as an income tax expense in the current year, upon withdrawal of the appeal that had been lodged with the Special Court of Income Tax Appeals.
“Thus, profit after tax for the year amounted to US$8,1 million, 361 percent higher than the US$1,7 million recorded in the previous year, also reflecting the increase in revenue,” said Masunda.
In terms of production, Masunda said tonnes of nickel mined for the year under review increased 13 percent to 463,338 from 412,605 tonnes the previous year largely driven by on-going development projects.
Masunda said commissioning of the Re-deep and Tie-in project was delayed by nearly one month, due to unforeseen technical challenges, resulting in only 4 days of production in April 2021.
“The project was, however, successfully completed and resulted in the intended benefits of reduced ore tramming distances, elimination of double handling and provision of access to deeper-lying mineral resources being achieved,” he said.
Masunda noted that the changes in the massives resource footprint, coupled with the need to optimise the extraction of the entire mineral resource, necessitated the pre-planned transition from the low-volume, high-grade strategy to the new high-volume, low-grade strategy.
“As a result, the combined effect of the above factors led to tonnes ore mined for the year totalling 463,338, which was 13 percent higher than the previous year’s 412,605 tonnes,” said Masunda.
He added that tonnes ore milled of 461,130 were 12 percent higher than last year’s tonnage of 411,754, in tandem with the higher tonnage mined.
“In line with the new strategy, head grade declined to 1,30 percent from 1,52 percent for the prior year while recovery efficiency was 85,0 percent versus 85,9 percent for last year.
“Consequently, Nickel in concentrate production declined by five percent to 5,082 tonnes from the previous year’s 5,363 tonnes,” said Masunda.
He noted that the aged and obsolete underground mining mobile equipment resulted in poor and inconsistent availability during the year under review and thus compromised production.
In addition, he said the significant challenges associated with changes in the massive ore body footprint were experienced in September and October 2021.
During the period under review, unit cash cost of production (C1) increased by 43 percent to US$10,749 per tonne while the all-in-sustaining cost of production increased by 45 percent from US$8,552 per tonne for the prior year, to US$12,396 per tonne.
Masunda said the increase in unit production cost was mainly due to the decrease in Nickel production and the high cost of maintaining the old and obsolete underground mining mobile equipment.
He said the disparity between the official auction and parallel market rates continued to widen during the year.
“With local suppliers using the parallel market rates rather than the auction rates in their pricing models, the discrepancy in the two rates had an adverse impact on the Company’s costs of local inputs,” he said.
According to Masunda, nickel sold for the year, amounted to 4,720 tonnes, 14 percent lower than prior year sales of 5,496 tonnes, reflecting the lower Nickel production.
He said the Company’s off-take contract expired in early March 2022, after requisite contracted Nickel concentrates had been delivered while deliveries under the old contract were completed on March 9, 2022.
“Finalisation of a new two-year contract for the supply of 100 000 tonnes of nickel concentrates took longer than anticipated.
“The contract was only signed and approved by the relevant regulatory authorities at the end of April 2022. Deliveries under the new contract commenced on May 2, 2022,” said Masunda.
During the period under review, the group’s capital expenditure amounted to US$6,5 million lower than US$8,9 million in 2021.
Masunda said subject to funding, being available, the programme to replace the old and unreliable underground mining mobile equipment is expected to take at least two years to complete and the programme will be funded from a mix of internal cash flows and external loans.
He noted that the company is currently evaluating a number of projects which are expected to have significant bearing on the future of the Company.
At Trojan Nickel Mine, the company is involved in the Down Dip Exploration and Extension and this project is aimed at further down dip exploration of the massives ore body beyond 59 Level, in order to increase the life of mine beyond 10 years.
“This will be coupled with the execution of the second phase of the shaft re-deepening project to access the deeper high-grade resources,” said Masunda.
He said the Kingston Hill Exploration is a potentially open pitable low-grade deposit located 4 kilometres from the current Trojan Nickel Mine and exploration work has started, which is aimed at evaluating a potential ore resource.
“If proved viable, this ore resource will significantly enhance the mining capacity of the Company, while extending the life of mine,” he said.
On the BSR Slag Dump Retreatment Project Masunda said that the test work is in progress to establish the extent to which a slag dump of approximately 3 million tonnes, which accumulated on site at Trojan Nickel Mine over the years could be treated for the recovery of Nickel, Copper and Cobalt and if proved viable, the project will potentially generate additional revenue for the Company.
At the Hunters Road Project, the BNC chairman said that review of the project is currently underway, with the objective of progressing the project to the next stages, if proved viable on technical, economic, safety and sustainability criteria.
Masunda said the project is expected to generate additional ore resources for the Company, thus significantly increasing the capacity of the business.
He said on the Smelter and Refinery, preliminary discussions have been held with interested parties on possible partnerships towards the resuscitation of the Smelter and Refinery plants.
