The working men and women in reflectors and wrap-around industrial grade eye-wear were dead men walking for the last 6 months and they did not even know it. As early as July all of them milling about the giant industrial complex that was BCL had mortality thrust upon them and still they did not even know it. But somebody knew it. Evidence indicates the big thinkers at Mineral Development Company had hatched a plan to reverse engineer the economic meltdown such that, while the liquidation of BCL was the climax, the story had to be designed backwards to fit the logical conclusion. The messy affair with its gory detail is starting to emerge from a deeper analysis of the chronology of the events, and insiders who witnessed the plot come to life.
The contextualisation of the envisaged role of the now controversial Mineral Development Company Botswana need to be clearly set out. The company was conceived as a vehicle through which government could manage its vast interests in the mining industry for the benefit of the citizen. The company was established to make use of government’s shareholding not just to generate profit for government, a secondary consideration, but to direct the mining sector towards developing the wider economy and increasing the financial interest of Batswana in a mining economy.
The position affirmed by then Mining Minister Kitso Mokaila who stated that the company’s core objective was to develop the mining sector, finding opportunities in which it could invest, creating value and opening up those opportunities to citizens. In 2015 Mokaila in the lead-up to the launch of the company told the media that the Minerals Development Company Botswana (MDCB), a special purpose vehicle whose mandate is to manage and maximize Botswana’s business interests in the mining sector, informed that “It is important for government to have a stake in order to have our own people inside,” he told the Sunday broadsheet The Patriot.
While the business ethos of profit making would be a guiding principle for MDCB, it would be among a suite of other principles that the company would use to guide its direction, based on a higher social and economic good for ordinary citizens. MDCB could not act in the strictest narrow profit maximization philosophy like a normal privately owned company.
That is a reasonable expectation, the way it was presented by Minister Mokaila and indeed reiterated by Board member Mmetla Masire at a press conference earlier this year. Masire, in March this year, revealed that MDCB CEO Paul Smith had started his job two months earlier. MDCB would, Masire advised, claim government’s shareholding in mining companies, the first to be attended to being BCL and Morupule Coal Mines. Smith’s management would work hand in glove with BCL management to oversee a process of streamlining the mine’s operations. “We have engaged consultants to see how best to deliver the shares because there are cost implications. The first asset is Morupule Coal Mine and BCL. At BCL, his task is also to optimise operations” he is quoted by the daily Mmegi. A position that is incongruent with the enthusiastic liquidation of BCL as an option of first choice given government’s national agenda for MDCB.
Since its formation, MDCB has struggled to locate itself within the maze that is government bureaucracy and government owned enterprises. However Smith himself, media reports indicate, was quick to find his own place, accruing power that gave him access higher up the government structure. Rumours of Mokaila’s eminent departure grew in the wake of the Minister’s run-ins with the South African. What those close to Mokaila say that Smith while differing with Mokaila on what direction the company ought to have been leading the mining entity, the South African always had a way of making his views see the light of day with the top political leadership. Mokaila differed with Smith on what to do with BCL. While Mokaila believed that BCL deserved to be rescued given the economic ripple effects that would follow any collapse of the company, a coterie of MDCB officials were determined on collapsing the Phikwe-based outfit. There are questions as to why that group of MDCB was so interested in such a drastic measure.
MDCB officials, having gained close contacts with top leadership, argued that BCL should be liquidated, and it is said, even at that early stage suitors were already lined up to scavenge the mine. MDCB’s role has been a bone of contention between BCL and MDCB itself. BCL management felt the company officials sought to micromanage them, and that it made it difficult for management to have a direct link with decision makers within government. The board of MDCB itself was divided, one insider argues that they were surprised at the rapidity and enthusiasm of the decision by management to liquidate BCL. The vision that MDCB was expected to possess of reviving the mining economy, resonates with the announcement that Mmetla make in early 2016 when he stated that the company would work with BCL management to restructure the company back to its core purpose. The determination by MDCB board members, ministry officials and BCL management that the company ought to cease operations at BCL goes contrary to the established principles for which it was invested in. MDCB management did not have those principles in mind and had already established contacts at Office of the President that allowed it to promote its own agenda above everyone else’s, the Minister included.
Beyond 2020
MDCB led BCL management to believe that it was interested in turning around BCL, a vision which the BCL management had long endeavoured to achieve prior to its arrival. In fact management had made some traction in this respect by successfully promoting their long term vision to Government; until the arrival MDCB. The Polaris II project sought to cushion the effect of the depleting ore in Phikwe, by extending the company into the sub-continent in order to gain access to fresh ore reserves and to also position BCL’s smelter as a prime regional asset, with capacity and ability to treat nickel concentrates from regional producers. Papers seen by The Business Weekly & Review show presentations made to government officials and later to MDCB officials on these strategies by BCL management. The Business Weekly & Review has turned up inside documents outlining a rigorous exercise by BCL management to cut costs and introduce more efficient ways to work. In their Beyond 2020 Project, of which Polaris II was a major aspect. The envisaged prospectus also involved reducing costs by turning down sections that were not viable, maximizing production on valuable operations while cutting out unnecessary spending. The “Beyond 2020” plan, which predates the very existence of MDCB had been in front of Ministry officials for years, and as far as BCL management was concerned they were on their way to implementing it.
Management blunders weaken their position
Management did not cover itself in glory in its implementation of the Polaris II. The mismanagement of such basic projects as Pula Steel, making questionable but costly investment decisions that left the company in the red, placed management and indeed everyone who supported management within government in a difficult position. The role of Goleele Mosinyi as financial advisor, with all its related unnecessary financial outlay did not indicate a management keen on curbing waste, extending limited financial resources and turning around a struggling nationally significant company. In a space of no more than 4 years the management had squandered P3bn in cash reserves, and did not seem to have planned for the financial commitments they were creating for the company short term. Mokaila, insiders say, who initially believed in management to deliver Polaris II, later developed doubts about this. It became increasingly difficult to defend BCL management decisions higher up the government structure. As the company drifted further into financial difficulties MDCB officials, determined on shutting BCL down anyway, began to strategically place themselves in positions where they could discredit not just the BCL management but even ministry officials. After a while both minister Mokaila and MD Mahupela were seen as impeding the reading of the BCL condition in its ugly detail, and unable to apply pure strict commercial rationalism to the whole operation, a rationalisation that was never there to begin with.
Who got the Russians upset?
By mid-year it was becoming clear that the school of thought that held that BCL could not be saved and placed under liquidation had gained momentum, having been sold by MDCB officials from the top, and now dissipating downward from the President through to cabinet. By this stage Mokaila was perhaps dead-man walking himself, a sitting duck. In July The Business Weekly & Review revealed that Cabinet had endorsed the decision of MDCB officials to liquidate the mine. BCL Management at this time did not know their company was to be liquidated. It was then that a team consisting of Mahupela, Smith, BCL’s Mark William, and Mosinyi made a trip to London to meet with Norilsk officials. The team did not hold the same views, as indicated by those close the discussions. While Mahupela sought to reassure the Russians that BCL was indeed a viable operation, Smith told the Russians that under no circumstances would BCL go ahead with the Nkomati deal.
The Russians found the lack of uniformity in the positions ominous given that Smith represented the shareholder – Government. BCL management could not have succeeded in rescuing that situation, after all, if government could not commit to bankrolling the BCL, nor dedicate itself to BCL’s future, the whole enterprise would come to nothing. An attendee of those meetings said BCL management sought to provide Norilsk with another buyer who would step into BCL’s position and buy BCL’s contractual obligations, own Nkomati and continue to supply BCL as a win-win situation for both Norilsk and BCL. Smith’s position however remained adamant that BCL was not viable. The Russians were livid, they were not being given any options other than being left “hung out to dry”, said a Norilsk insider. That single action by MDCB, seemingly by design, set in motion a series of consequences that would then position MDCB perfectly to then demand liquidation.
There is an argument to be made that no official of MDCB should have been in that meeting between Norilsk and BCL. After all, none of the officials were in the management of BCL. The shareholder had therefore overshadowed both management and even board to appear before Norilsk.
The Russians, wrote a letter on the 5th October, a few days after the famous London meeting. The letter addressed specifically to Williams and Smith demanding payment for the so-called Nkomati deal. It is interesting to note that this demand while addressed to Smith, is not addressed to MCDB as a company, but only BCL Investment and BCL. The total amount due is USD$277,205 861.92. IN the letter Norilsk notify BCL had it had breached its obligations according to the agreement to purchase Norilsk Nickel Africa. In addition the Russian company promises to proceed to the courts.
The Smith method
Reading Paul Smith’s application for the provisional liquidation, a subtext of glee almost gloatingly emerges. He spends more time explaining the depth of the crisis at BCL than citing what options they had explored to stem the flow. The absence of any of the members of management and board members in this elaborate application suggests they were not part of the application other than to pass a resolution to its effect. It is not unreasonable to expect that the Board chairman and CEO would have helped explain the situation to the court, after all, both would have a more intimate knowledge of the condition of the company than Smith and his team. Firstly the absence of these two from this application, and secondly the expertly selective way of presenting BCL financial history helps present the picture that liquidation is both inevitable and required. But at this point Smith is putting out fires he had set up. He argues that Government has been bailing out BCL over the last few years. Later on management did present a picture with a more nuanced swing that Government hasn’t had to bail out the company until very recently. Indeed management presents the prospects of the company as looking up, given that the market would rebound.
A memo written by Management to Cabinet paints a different picture Smith sells to the court. On the 1st of October, a full week and a half before Smith’s application, BCL executive management wrote to cabinet ministers telling them that BCL has sufficient mineral reserves/resources to last well in the future and these reserves can be mined commercially to end of mine life. This memo comes a week or so after the infamous London meeting. “The current depressed commodity prices is expected to last into 2017 and it is the two years that BCL will need support of GOB (2016/17),” read the memo. While Vice President Masisi would later say that P7 billion had been pumped into BCL, the management differed with this narrative. They told cabinet that BCL last accessed emergency funding from government in 2002 of which 100 percent of the principal was paid back. “BCL stopped utilising Sismin funding in 2008 for its capital development plan, of which 100 percent of the loan amount inclusive of interest were paid to government,” cabinet ministers were told. From historical funding trends, the BCL management said in the memo that, funding was as a result of the cyclical nature of the commodities it trades in. They said the current situation is no different to previous periods, the only difference is part of the requested funding entails reconfiguring the business to be better prepared to weather such eventualities in the future and to provide government with a softer landing when there will no longer be sufficient reserves to mine commercially.
Most importantly BCL management numbers factored in the role of Nkomati in beefing up the financial revival of the company. Smith’s presentation does not touch on what would happen if Nkomati is factored into the longer term prospects of the company, after all, only a very negative financial position in which there are no future prospects would help those interested in liquidation.
Developing the liquidation narrative
Experts know that, to win a battle of narratives, it is vital to let the media tell a few stories on your behalf. Reuters appears right on time with a story about the intention of Government to liquidate. There is no point in leaking a story, communication experts say, if you do not have the infrastructure to confirm it officially. Quite conveniently too, Mokaila’s term has been abruptly put to an end a mere week or so before this application. Both Tombale and Mokaila are out of the picture with their somewhat mixed reading of the BCL picture, after the former resigned a few weeks before. The new Mining Minister Sadique Kebonang avails himself to confirm what would have amounted to a leak from somewhere in his own ministry or MCDB, that a liquidation was imminent. Smith later refers to the story on Reuters and a follow up one from the local Sunday broadsheet The Sunday Standard.
The courts are areas of law of course, but as we journalists often say cynically, lawyers and judges do nothing all day but decipher stories. Smith carries this entire collection of circumstantial occurrences, which make up a believable story, to the court to get what he seeks – the shotgun liquidation of BCL. At that time, not even the BCL management is fully aware of the true extent of events. MDCB and its few supporters within top national leadership get their provisional liquidation.
Incredibly, despite the legal obligations to make full disclosure to court when applying for Liquidation, especially on an urgent basis without informing other interested parties, as in the current provisional liquidation; the current proceeding are devoid of details of BCL’s managements view to cabinet that the mine could be rescued.
More questions
The provisional liquidation of BCL makes no economic sense. Even applying the strictly narrow financial realism that its proponent seek to present. Government is not in the business of cutting losses, it is in the business of developing economies. Nobody has yet calculated how much the BCL collapse will cost the economy, but even a kindergartener should be able to see the damage.