Zimbabwe Stock Exchange (ZSE) listed integrated nickel miner, Bindura Nickel Corporation (BNC), has successfully repaid $5 million (25 percent) of the $20 million the company mobilised through a bond issue to restart its Trojan Mine smelter.
Managing director Batirai Manhando, said despite fears in certain quarters that BNC could fail to meet its bond obligations due to financial constraints, the firm managed to make interest and principal payments on time.
The fears stemmed from the fact that at one point the price of nickel dropped to levels that appeared to make it impossible for the integrated nickel miner to ring-fence part of the export sales towards a sinking fund created to service bond obligations.
The fears were compounded when BNC announced that it had rolled over payment of the principal component of the bond to early 2017 due to cash limitations after nickel prices fell to sub-economic levels.
According to BNC, prices of nickel averaged $9 541 in the first half of 2016 compared to $11 787 about 12 months earlier. Repayments on the bond were planned over a five-year period on assumption of an average nickel price of $19 300 per tonne.
In fact, rumors swelled to a point were claims that some of the principal financiers who had supported the bond, the majority of them being local banks, were contemplating calling on collateral from the guarantor of the bond.
Bond repayments on time
But Manhando said that recently that the company had never failed to timely meet its obligations arising from the bond issue.
The BNC boss also said the impending sale of local assets by their London junior market (AIM) listed parent, Asa Resource Plc, would not affect BNC’s capacity to repay the bond.
Asa Plc holds majority stake in Zimbabwean based BNC, which has a smelter and mines nickel in Bindura, owns the undeveloped Hunter’s Road nickel deposits and is controlling shareholder in Zimbabwe’s second biggest gold miner, Freda Rebecca.
BNC contends that resuscitating the Trojan Smelter will significantly cut the cost of transporting nickel matter to export markets
“BNC has never failed to service the bond…ever since we started; we have been paying on time every time. As far as BNC is concerned and if you look at what is happening on the global market in terms of metal prices; they are actually firming.
“So, the business has actually been improving and I do not see why people should worry about that because the bond will be serviced despite the fact that the smelter might not be on line now, but the company is generating enough to service the bond,” he said.
Terms of the smelter restart bond
According to terms and conditions of the Trojan Smelter restart bond, the payment of the principal amount was subject to an 18 months moratorium from date of issuing the bond.
The Trojan Mine smelter restart bond had a coupon rate of 10 percent interest per annum, payable semi-annually in arrears. The bond was guaranteed by Asa, the parent firm of BNC.
Mr Manhando said the mooted sale of Zimbabwean assets by ASA would not jeopardize the servicing of the bond, as whoever buys the companies would assume responsibility for its guarantee.
Nonetheless, Asa was merely a guarantor for the bond, but the responsibility service interest and principal payment lay with the Zimbabwean company.
Rationale Trojan smelter restart
BNC indicated earlier that the rationale for the smelter was its higher pay ability of nickel in leach alloy than in concentrate and increases revenue for each tonne of nickel by 15-20 percent.
The company also said nickel leach alloy free from impurities, magnesium oxide in concentrate attracts price penalties but arsenic penalties offset this benefit and is less bulky.
Expectations are also that the smelter restart would cut transport costs with accelerated restart creating more than 300 jobs and generating additional tax revenue for the company.