BNC on back foot despite nickel price surge

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BINDURA Nickel Corporation (BNC)’s shares slumped on the Zimbabwe Stock Exchange (ZSE) during the first quarter, despite a surge in the price of nickel, its primary resource.
BNC, which is engaged in the mining and extraction of nickel as well as the production of nickel by-products, was one of the biggest losers on the ZSE during the period after losing 33 percent, which was way below par as the benchmark All Share Index lost 17 percent during the same period.
During the same period, Nickel price gained 25 percent on the London Metal Exchange, gaining from a price of US$10 435 per tonne in January to close the quarter at a price of US$13 010 per tonne.
Enock Rukarwa, a research analyst at FBC Securities Research (FBCSR), said while fundamentals “such as the price of nickel in the case of BNC, do have an influence on stock price, there are almost always other factors in place”.
“The other fundamentals of the company, as well as macroeconomic fundamentals are all priced in,” he said.
This comes as the company’s operations and strategies have been considerably inhibited by the movements in the price of nickel.
BNC recently announced that it has put its $20 million smelter project on hold due to declining nickel prices.
When the company raised funds for the smelter project through a bond in 2014, it had assumed that nickel prices would rise from US$16 500 per tonne in 2014 to US$21 000 in 2016 before easing to about US$18 000 in 2018.
The industrial metal’s price, however, defied the “consensus” forecasts, which were based on projections by “approximately 20” traders and fund managers, after prices fell from about US$14 000 in 2014 to US$10 000 in 2016 before recovering to US$11 000 in 2018.
“The nickel prices in 2018, though better than the previous period, were not high enough to change the circumstances under which the project can be resumed. At the current prices, power tariffs and available feed levels, the smelter will not be viable, hence the decision to put it on hold until favourable conditions prevail,” Batirai Manhando, BNC’s managing director, told analysts at a briefing recently.
The company indicated that the smelter restart will “see a significant reduction in transport and penalty costs associated with the sale of concentrate”.
The amount receivable on the nickel content is also expected to increase significantly.
These prospects, coupled with the bullish sentiment for nickel price that has emerged lately on account of the rise in prominence of the electric vehicle, had propped the general outlook for the company.
“The electric motor vehicle story did not manage to prop up the nickel price on a sustained basis. It now appears as if the market sentiment on electric motor vehicles was too bullish, hence the price correction mode that prevailed during the last quarter of the period under review (2018),” Muchadeyi Masunda, BNC’s board chairman told analysts recently.
Meanwhile, BNC said discussions between its troubled holding company Asa Resource Group (Asa) and a third party relating to the sale of a majority stake in the mining company have been terminated.
Asa, which holds a 74,73 percent stake in BNC, and is currently under administration, has been in turmoil since last year when it fired its chief executive and financial director after they allegedly defrauded Freda Rebecca Mine, in which it holds 85 percent.
FBCSR noted that while it is not black and white that all of the above has driven the slump in BNC shares, it is likely that the slide was driven, “at least in part, by the general downward trend on the market during the period under review”.
“Being a counter that is considerably liquid, BNC would have also succumbed to the general trend,” said Rukarwa.