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Home » News » Analysis » Effects of BCL mine closure on the economy

Effects of BCL mine closure on the economy

Publishing Date : 08 November, 2016

Author : GARRY JUMA |MOEMEDI MOSELE

We are still digesting the shocking news which we woke up to on the weekend of the 8th of October; “BCL mine placed under provisional liquidation.

” The news which we have been dreading to hear all along finally came. We all knew that BCL, just like any other mine have been facing challenges mainly due to the depressed commodity prices on the international market. We never thought it would come to this level. One thing which is certain is that the closure of the mine will send ripple effects not only in the mining town of Selibe Phikwe, Francistown and surrounding areas but the whole economy of Botswana. Francistown will be affected even more as Tati Nickel Mine, a subsidiary of BCL has also been closed. Palapye and surrounding areas will also feel the pinch as the Morupule coal mine will be affected given than BCL was the major consumer of Morupule coal.

The placing of BCL under provisional liquidation comes at a time when we are still recovering from the closure of Boseto and African Copper mines throwing many workers into the streets. The negative multiplier effects will be severe and will have long lasting effects on the whole economy at large. It will no longer be business as usual.


Brief history of BCL


BCL formation can be traced back to August 1956 when a meeting, arranged by John Buchanan, Chairman of Minerals Separation Limited, took place between Tshekedi Khama, Regent of the Bangwato Tribe in the Bechuanaland Protectorate (The Republic of Botswana) and Sir Ronald Prain, Chairman of Roan Selection Trust (RST). At the meeting an agreement was reached between the two men, which was later signed on the 2nd of June 1959 and subsequently ratified by the British House of Lords and led to the formation of Bamangwato Concessions Limited (later to be renamed BCL Limited), to prospect, explore and mine Copper and Nickel ore discovered in the present day township of Selebi Phikwe.


BCL produces two types of finished matte containing nickel, copper, and cobalt and to a smaller extent precious and platinum group metals. It is the second largest private sector employer in the country with a labour force of +/-4200. It consumes just under 20% of total electricity usage in Botswana or 43% of BPC’s own power generation.
The aftershock effects


The direct effect is the loss of jobs and income for some +/-4200 workers who were employed by the mine. Companies that were subcontracted will also close further putting more workers on the streets. The indirect jobs that will be lost are even more. Palapye town will be affected as Morupule Coal mine will probably downsize operations as BCL was the biggest user of its coal. The hospitality sector around Selibi Phikwe and Francistown areas will be crippled, if not likely close altogether in the case of Phikwe. The retail sector will face a significant decline in business activity and most will be forced to relocate from Phikwe. This in turn will reduce the business activity of the town ie the transport sector, education sector, food outlets, fuel suppliers, property sectors etc.

The property sector will be affected as the decline in occupancy and property demand will have an effect on valuations. The list is endless and the negative multiplier effects will be severe.
Government revenue in the form of taxes will also be constrained due to the reduced business activities that will follow. This will have an impact on the government fiscal balance at a time when diamond prices are not doing very well. Already Lerala Diamond mine is reportedly planning to scale down production and retrench.

The country’s current account and Balance of Payments positions will also worsen. The mining sector at large contributes over 35% towards government revenue.
Banks not spared either. The banking sector is not spared either. Impairments are likely to spike especially from unsecured facilities extended to the mine directly, mine employees and other related companies exposed to BCL. The list is endless and the negative multiplier effects will be severe. Some of government enterprises will not be spared either.


Already Botswana Railways is reportedly facing a P20mn reduction in business revenue from BCL. Water Utilities Corporation will also have to scale down its operations as it has been supplying bulk water to the mine.
Where to from here…


The liquidator report is likely to come up with 2 recommendations.
(1) Complete shutdown of the mine (which is highly unlikely)
(2) Scaling down of the mine operations and closure of some of the shafts which are unprofitable. (This is highly likely, although we cannot rule out some job losses)
Lessons learnt


There are many lessons to be derived from the placing of BCL mine under provisional liquidation. Once again this has shown the need to speed up the diversification of the country’s economy away from the mining sector. Although there has been some movements in this regard as shown by the growth of the non-mining sector over the years and the decline of the mining sector contribution to the economy from levels around 31% of GDP in 2004 to levels around 13% of GDP as at 31 December 2015. What we can agree is that the speed of the diversification process is not moving at a pace that we want. The pace has been slow. BCL smelter can be the game changer


BCL has been making losses for some years, but we believe there is still value in the copper/nickel mining company and some of the shafts that are not profitable have to be shut down if the mine is to operate efficiently and profitable. The BCL smelter is one of the project we believe has the potential not only to contribute positively towards the profitability of BCL but also turn Botswana into a hub for the smelting and refining of copper/nickel in the region. With a capacity to treat up to 850 000mt of nickel/copper concentrates per annum, the smelter is large enough to absorb all the smelting requirements of all nickel/copper miners in the region as it is the only copper/nickel smelter in the region.

This is because it will be uneconomical for other small mining companies in the region to build their own refineries given the large capital outlay that is required to build one. It is estimated that the current BCL smelter has a replacement value of between US$2bn and US$3bn.
 

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