The Herald (Harare)

13 June 2012

Zimbabwe: BNC's Restart Plans Commendable

LAST week Bindura Nickel Corporation announced that it will soon be on the market to raise US$21 million by way of a rights issue, proceeds of which will be used to fund the restart of Trojan Nickel Mine.

Mwana Africa, through its subsidiary Zimnick Limited, would underwrite the fund-raising initiative. The rights issue is subject to shareholders' approval at an Extraordinary General Meeting slated for end of this month.

Completion of the rights issue is conditional upon, inter alia, satisfactory resolution of legacy creditors, staff retrenchment and backpay liabilities at BNC in such a way that makes the restart of Trojan viable.

BNC owns and operates the Trojan Nickel Mine, Shangani Nickel Mine and a smelter and refinery, all of which are currently on care and maintenance. In addition to these assets BNC also owns the potentially high- yielding Hunter's Road nickel project in the Southern Greenstone belt.

BNC's directors consider that economic and operating conditions in Zimbabwe have improved significantly over the recent past and, having considered a number of potential restart scenarios, have decided to restart operations in phases, commencing with the Trojan Nickel Mine which will initially produce concentrate.

In February 2011 BNC entered into an off-take agreement with Glencore, whereby Glencore will purchase all of the concentrate produced at Trojan. BNC becomes the third mining company on the Zimbabwe Stock Exchange to raise funding for recapitalisation, after RioZim and Falcon Gold.

Coal mining company Hwange requires about US$100 million for recapitalisation and shareholders are still pondering on how to raise the funds.

Commenting on the initiative by BNC to restart Trojan, analysts say it is a confidence booster for the long-term outlook of the business given the support shown by Mwana Africa.

Analysts said there is virtually no demand side risk for the business given the off-take agreement already signed with Glencore. Furthermore, due to the care and maintenance programme, which BNC's assets have been on the time from restart to sale of product, is anticipated to be only seven months.

"We therefore have confidence in the certainty of the cash flows of the business and we have assigned a very conservative net present value of US$47 million for Trojan based on the projected cash flows for the next 10 years," said BancABC in its comment on the Trojan project.

However, Trojan JORC resource only supports a mine life of five years.

"We are confident that BNC has sufficient non-JORC resources to extend the Trojan Mine life beyond 10 years," said BancABC.

Considering that Trojan has been mined since 1964, together with management's deep knowledge of the ore body, it gives confidence in this assumption for the mine life plan.

The restart of the mine is supported by lucrative nickel prices on the international market.

Nickel prices have recovered significantly from their lows of 2008. Going forward, nickel prices are expected to oscillate between US$15 000/t and US$25 000/t.

BancABC said they are comfortable that BNC's use of forecast nickel prices between US$18 188/t and US$19 842/t is realistic.

Prior to going on care and maintenance, BNC sunk the Trojan mine shaft to a depth sufficient for 10 years' mine life.

Furthermore, a new floatation plant was installed in 2008. Both these investments will benefit shareholders after the restart.

"Our valuation is significantly conservative and we deliberately discounted most of the value in the Shangani and Hunter's Road given that they do not form part of the restart plan of Trojan.

"Full inclusion of the embedded value in Shangani and Hunter's Road would put our valuation at two times our fair valuation price," said BancABC.

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